Budgeting

Budgeting

Budgeting refers to the process of planning on expenditure and aids in determining the availability of capital to fund a particular project. In a Human Resource Management context, it helps management forecast on the human resource required to accommodate the future goals of the firm (Dudin, 2015). Some of the steps are undertaken in the budgeting process in a business setting include;

Strategic planning

Management must decide on the purpose, goals and objectives of the organization. When formulating a budget, management needs to have an action plan in place to ensure optimum utilization of resources (Dudin, 2015).

Organizational goals

Organizational goals help implement its action plans meant to achieve its objectives. These goals require funding and thus, budgeting remits capital to achieve these objectives. For instance, if the organization aims transfer its operations, there must be capital available to facilitate this (Dudin, 2015).

Income forecasting

Income forecasting should be based on past income generation together with future estimated income. The estimated growth depends on the business goals and objectives.

Projecting on fixed expenses and variable expenses

These involve carrying out an analysis of expenses that do not change with changes in output. Examples of fixed costs are rent expenses, expenses on insurance and property expenses. Variable expenses refer to the costs that vary with changes in output. Examples are costs on supply and workers overtime (Dudin, 2015). Budgeting acts as a tool for monitoring and taking corrective action on the costs associated with operations.

Establish a financial target

The business should place a target on incomes they need to realize at the end of the year. They should establish the financial position which will strengthen the business in the long run.

Management budget approval

The owners and managers running the business should pass the budget and maintain the present one. Close monitoring of the income statements should be maintained to familiarize with business expenses and to limit performance errors.

Reviewing the budget

The budget should be revisited monthly to check on its performance concerning the objectives laid down. Changes and setbacks in the budget should be monitored and corrective actions are taken to accommodate changes.

Some of the types of budgets I have used are;

Operational Budgets

They offer to forecast on revenues and expenses likely to impact the business in a specified period of operation. They account for different variables which include product sales, expenses on labour and production expenses (Lanen, 2016).

Cash budget

This budget offers a forecast on the manner and nature of the flow of capital in the business within a specific operational period. It is significant in determining the optimal utilization of cash in the business (Lanen, 2016).

The strengths of budgeting are;

Resource allocation

Budgeting helps an organization to optimally utilize its resources by ensuring that they are employed in projects generating the highest returns. For instance, the cash budget ensures proper monitoring of cash by prioritizing on its outflow and inflow (Brooks, 2015). It forecast on future cash projection based on the present cash flows in the business.

Objective realization

Budgeting helps an organization to realize its operational potential. The managers set out the action plans meant to aid the organization meet its objectives and goals. Management forecasts on the finances required to implement the strategies (Brooks, 2015). Once the strategies are implemented, the organization will be able to achieve its goals which may be expanding operations.

Some of the consequences of lack of an effective budget are as stated below;

Mismanagement of funds

If management lacks focus regarding projected profits, inefficiency in budgeting may harbour cash mismanagement which may, in turn, result in losses (Brooks, 2015). The human resource management may not be able to meet its salary obligations to its workforce.

 

Human resource mismanagement

In case management fails to efficiently monitor the workers about their job groups and tasks, they might end up employing a larger amount than the one required. They may thus end up incurring more expenses and thus reduce growth for the organization (Brooks, 2015.

References

Dudin, M. N., Kucuri, G. N., Fedorova, I. J. E., Dzusova, S. S., & Namitulina, A. Z. (2015). The innovative business model canvas in the system of effective budgeting.

Lanen, W. (2016). Fundamentals of cost accounting. McGraw-Hill Higher Education.

Brooks, R. (2015). Financial management: core concepts. Pearson.

 

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