What is Budget?
Posted in Principles of Management | Email This PostIn the very common terms and the general terms the budget can be defined are parameters defining the things that are available with an individual or the group of the individuals to do a certain thing in the given frame of the time. Now this can include the money or the capital to the man power to the quality and the quantity of the man power to the various forms of the raw materials to the processed goods to the technology to almost every thing. The various kinds of the plans of the business are expressed in the form of the expressions that are based on the quantitative base or the monetary base and all the policies and the planning that needs to be taken forward by the organisation depend directly or indirectly from time to time on the Budget. The process that involves the making of the budget in an organisation is referred to as the process of the budgeting and the process of the budgeting involves the making of the budget but along with this also involves the processes like the planning, controlling and coordinating the business of an enterprise.
A budget is generally expressed in the form of the finance and this fact is also supported by the various facts and the figures that have been obtained by the various forms of the research work that has been done by the various researchers and the scientists in the various parts of the world and all these very clearly support and define the concept of the budgeting as the statement that is financial in the nature of the working and can also be quantitative at times and is prepared before the start of the certain kind of the process looking at the achievement of the certain set of the goals and the objectives that have been set by the top management of an organisation in the accordance of the pre set vision of the organisation. With the help of the budget the organisation is able to define the various kinds of the needs of the future of an organisation, arranging all these needs in a very systematic manner involving all the activities that are being initiated by the organisation at the various departments or the units from the time to time. So in the other words it can be said that the term Budget is actually the policy of an organisation that is in fact pre determined statement in the nature of the working that helps an organisation to have a look on the comparison of the things that were to be achieved with all the things that have been actually achieved. It is very necessary to draft a certain type of the budget as the organisation must have the complete know how of the points that the organisation is having with it as the planning can be made in the efficient manner if the budget is known and if the same is allocated in the best of the forms.
The budget needs to be defined in a very efficient way as then only the motive of the same will be followed as other wise in the other cases it will be just a formality and nothing else. The budget must be fitted with some of the vital and the very essential characteristics so as to make the same very efficient in the nature of the working. Some of the features of the very efficient budget and that which can act as a very good tool to take the organisation on the right track of the growth and the development includes the use of the various kinds of the parameters and the studies that must be based on the past figures and also the probability of the happening of the things in the coming future will make the budget very qualitative in the nature of the working. The budget must be flexible in the nature as then the efficiency of the budget can increase and this will exactly show in the performance of the organisation as well from the time to time. The elastic factor of the budget very clearly and simply refers to the fact that before starting any kind of the work, the organisation comes out with the certain type of the budget involving the use of the such amount of the money or the technology or the man power in the particular time but all these plans are very necessary to be there but must be elastic as well as if the requirement is of less persons or the funds, these can be diverted to some other place where in fact the requirement is more and the need of the things is more and also if the same things are invested in some other place, the results can be better, so all these need to be very elastic in the nature of the working. So in the other simple terms it can be said that the budget must be modified from the time to time if there is the requirement but the same must be open to taking any kind of the change that is essential and can help in the yielding of the better results and ultimately in the achievement of the goals and the objectives that have been set by the organisation keeping in mind the vision of an organisation.
If the budget is rigid in the nature, it can lead to the coming up of the large number of the problems and can lead to the wastage of the various kinds of the resources starting from the capital to the man power to the energy and a lot more. The result of this will be that as it is very generally said that excess of some things at times can also be bad and same will be the concept here as there will be places where the resources will be less and they will be suffering due to this but there will be some places that will be suffering due to excess of the resources, so the budgeting must be done very carefully and must be made in such a way that elasticity is a very key factor of the same. There were times when the budget was prepared by the top management of an organisation without the involvement of any one else but this was not the suitable method as the same was not at all helpful in getting the desired results as the top management at times is not able to get the exact picture of what is happening at the ground level and what all is required and the result of all this is that the top management at times makes such a budget that involves spending of the resources on such parts that are less important and the various things that are more important are ignored in this whole process. So the budget is said to be having the good characteristics if the same involves the staff members working at the various levels of the hierarchy in the whole process of the budgeting as with the help of this the top management is able to get the exact picture of the things that are happening at the ground level and the things that are requiring the focus can be fixed on the priority by this and hence the organisation is able to get the right form of the budget with this. The other factor regarding this will be that the budget that will be brought in to the picture by this process will be having the support of maximum of the staff members and hence the organisation will be on the correct path of the growth and the development. The budget can be successful if the same is very specific in the nature for the work that is to be done in an organisation, the capital, the money that is available for the specific process in support of the quantities must be mentioned in the very clear pattern in the budget as by this the organisation and the various staff members of the organisation will be very much aware about the process that what is available and what is not and hence the planning can be done in the best of the ways so that the maximum productivity with the best of the qualities can be obtained with the available resources.
The budget generally is involving the movement of the top management and the budget can be made more and more interactive and the efficient in the nature with the help of the very active involvement of the top management in the whole o the process of the budgeting. There were times when the budget was just in the books but nothing was done much regarding the whole process of the budgeting and there were times when the budget was just prepared as a formality and nothing much was followed that was mentioned in the budget and the result was that the things were not going according to the plans and there was a drastic form of the confusion that was prevailing in the system and as a result of all this, the organisation was not at all able to achieve the goals and the objectives that were set up to be achieved in the accordance of the pre set vision and in such type of the cases the organisation was not able to survive for much duration of the times as the same will be actually be drowned by the severe form of the competition that is currently prevailing in the corporate sector at the international level. It has been in the past few decades that a lot of the things have changed and the organisations are starting to feel the need for the making or in the other words the need for the preparation of the budgets. The organisations have now understood that the process of the policy planning and further its control and the formulation and then the implementation can be done in the best of the efficient ways if the same is having the support of the budget. There are a lot of the parameters that directly or indirectly influence the fact that says that the preparation of the budgets is very necessary for the survival of the organisations in the present scenario where a lot of the organisations are in fact struggling for the survival. The main requirement of the budget is in the direction of making the organisation understand the need of the planning and the coming in of eth various kinds of the policies. The formulation of the various kinds of the policies of the future are requiring the presence of the budgets and hence in the other words it can be said that the budgeting process helps in the proper process of the formulation of the various types of the policies that are made for the various departments of the organisation from time to time.
With the help of the budget the organisation can experience the best form of the coordination and this coordination can be between the staff members of the same department means internally or there can be times when the coordination is required between the staff members of the various departments of the organisation and this can also be made more efficient in the nature of the working if there is the presence of the proper budgeting process so in the other words it can be said that the process of the budget helps in producing the coordination between the various units or the segments of an organisation and this results in the less wastage of the various resources of the organisation and the organisation is able to get the maximum out put from the available resources in the organisation and from all this the major result is that the organisation can grow and the results of the new heights can be achieved by the organisation among the various other organisations in the corporate market so in these days the budgeting is a process that is very essential and is under the focus of the organisation and a lot is being spend and thought over this point to get the best of the budgets to support the organisation from time to time. With the help of the budgets, the top management of the organisation gets the power to control the things that are going on in the organisation as the top management of the organisation allots the respective budgets for the different kinds of the departments or the segments of an organisation. The top management of the organisation gets to fix separate budgets for all the departments according to the past trends of the requirements and also taking in to the control the future requirements. The employees get motivated by the budgets as the budgets consist of the targets for the individuals or the group of the individuals in the form of the certain segments or the groups or the teams of an organisation. The targets at times challenge the staff members and the employees get motivated with the same and work at times out of there socks to get the work done and in turn the organisations are able to get the maximum out put from the individuals which is very critical in the nature. The management of an organisation looks in to the performance of the individuals based on these achievements and hence the staff members try there best to achieve these set targets given to them by the top management of an organisation. Depending on the suitability and the requirements from the time to time in an organisation, the budgets can be divided in to the various types and generally these are classified on the basis of the time, functions and the flexibility. On the basis of the time, the budgets are in fact classified as the long term budgets, short term budgets or the current budgets. On the basis of the functions, the budgets are classified as the Functional or the subsidiary budget and the master budget. On the basis of the flexibility, the budgets can be classified as the fixed budget and the flexible budget. The different types of the budgets are actually dependent on the nature of the working and depending on these only these are actually classified further.
The long term budgets are the ones, as the name suggests, that are for the long duration of the time, which may further consist of the various short term budgets. The long term planning forms the major part of the long term budgets. These type of the budgets involve the time period from the 5 years to the 10 years and these type of the budgets are very usually made by the top management of an organisation as these type of the budgets involve the various kinds of the data and the information that is usually not known the people working in the middle management or the people working at the ground level. This type of the budget is made by the top management of an organisation and generally forms a part there only and is not at all transferred to the lower levels of the working. The long term budgets do not form a part of the every department of the organisation and the main departments that usually come under the long term budgets are the research department, capital expenditure, finances of the long term, growth and the development etc and as can be seen by the departments mentioned above, this type of the budget is suitable for the departments where the gestation period is long and the main departments here can be of the machinery, engineering, electricity etc. But the budgets that are for the period of almost 2 years to the 3 years are called as the short term budgets and generally these types of the budgets are the ones that are involving the monetary basis. The various industries that are in to the business of the textiles, cotton, sugar etc are generally in to the working based on the short term budgets. After this comes the turn of the current budgets, as the name suggests, these kinds of the budgets are for very short duration of the time, generally for few months and even at times for the few weeks. As the name of these types of the budgets suggest, these are dealing with the current situations that are existing in an organisation in the various departments from the time to time. These types of the budgets are generally related and made to be used for a short duration of the time to cope with the present situations that are present in an organisation. Now comes the turn of the budgets that are based on the various kinds of the functions of the various segments of an organisation. The bigger is the business, more is the number of the functions and hence comes the turn of these types of the budgets.
First in the line is the sales budget and as the name suggests the budget deals with the sales of an organisation. The organisation defines a certain type of the budget in the terms of the capital, raw materials, man power etc and then goes further with the achievement of the given targets as per the available budget that is given by the top management of an organisation. in this type of the budget the organisation decides to sale the specified amount of the products and the services of the various products in a given duration of the time with the mentioned number of the quantity as well as the quality and depending on all this, the planning regarding this is done and same is worked upon to be achieved and this whole process is called as the sales budget. Depending on the functions only, like the sales comes the turn of the parameter of the production as well and as a result of this comes the new form of the budget called as the production budget of an organisation. This type of the production budget is further divided in to the further forms of the budget, namely Raw material budget, Labour budget and the Plant utilisation budget.