Planning the future in financial terms is budget. You define your income and expenses within the limits set by budget. This is a forecast about future consumptions as per the actual results.
Cost and management accountant takes into account the sensitivity of budget variables as per changing business, social and economic condition.
Through budget implementation, management of an organization standardizes its operation. Budgetary plan act as a controlling and measuring tool, as how far a department is successful in achieving the targeted results. It sets the basic to measure output in term of quantity and quality, a qualitative production will ensure less reject rate and sales returns, so enhancing the company`s results. Comparison of actual results with the targeted results, deviation/variance recorded and forwarded for management decision making, rewarding and improving the work force. Positive variance shows that results have been achieved as per the standard ensuring efficiency. Negative variance alarms about thing going “out of control” or “poorly” managed resources. It may also call for amendment in budgetary targets being not realistic.
At organizational level, budget is prepared by collecting summary of forecasted income and expenses as per each department. That will then be incorporated in overall budget. In order to achieve the budget successfully, Realistic, time bonded and responsibility-oriented approach is needed. After top management has finalized the budget, departmental target will be given to each department manager. He/she is accountable for every action affecting the actual performance of the team. In case of failure, reason may be need for manager training as well as team under him/her. Various factors affect the achievement of budget:
An important milestone in achieving the success is giving freedom of decision making to those who are assigning with a responsibility. Top management trust and support will act a lubricant in motivating workers and departmental in charge.
Monthly follow up will ensure solution of problems on time. Arranging Group meeting in the supervision of a branch manager to analyze the exchange of information and future actions taken by all departmental managers. Presence of independent in charge will provide a space to all departmental managers to share their concerns which may affect budget.
Achievement of budget ensures organizational success eventually. If proper measures not taken into account at the time of budget preparation, results will be waste of time and efforts. Ideal budget has following attributes that will result in less negative variance:
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