Business Vision
Summary
Financial and
Management
Decisons
Year 2, Quarter 2
Simone Snepvangers
, Chapter 7 ‘Introduction to Budgets and Preparing the
Master Budget’
Budgets and the Organization
Budget = a quanttatve expression of a plan of acton ttat imposes tte formal structure of an
organizaton
Budgetng = tte process of formulatng an organizaton’s plan
4 major advantages of efectve udgetngg
- Compels managers to ttink atead y formalizing tteir responsi ilites for planning
- Provides an opportunity for managers to re-evaluate existng actvites and evaluate possi le
new actvites
- Aids managers in communicatng o jectves and coordinatng actons across tte organizaton
- Provides enctmarking to evaluate su sequent performance
Budgetng process formalizes tte need to antcipate and prepare for ctanging conditons
To prepare a udgetg set o jectves, esta list policies to aid tteir actievement
In tte a sence of goals and o jectves = tard to interpret results, for see pro lems and company
operatons lack directon
Current actvites of tte organizaton are used as a startng point for planning
2 extremes
- Current actvites are assumed to e tte same as for tte new udgetng period
- Zero- ase udget = a udget ttat requires justicaton of expenditures for every actvity,
including contnuing actvites
Efectve udget process encourages managers to ttink wtetter
- to contnue current actvites and mettods
- are ttere opportunites to modify actvites
- to add new actvites to telp tte organizaton eter actieve its goals in response to ctanging
conditons
efectve udget processes telps witt
- communicaton ott from tte top down and tte otom up
- coordinate actvites across tte organizaton
- antcipate company’s need for cast
Limitations of the advantages of budgeting
Budget participation and acceptance of the budget
Main factors afectng udget acceptance
- perceived attude of top management
- tte level of partcipaton in tte udget process
- degree of alignment etween tte udget and otter performance goals
to limit negatve attudes and improve quality of planning decisions Partcipatve udgetng
Partcipatve udgetng = udgets formulated witt tte actve partcipaton of all afected employees
Summary
Financial and
Management
Decisons
Year 2, Quarter 2
Simone Snepvangers
, Chapter 7 ‘Introduction to Budgets and Preparing the
Master Budget’
Budgets and the Organization
Budget = a quanttatve expression of a plan of acton ttat imposes tte formal structure of an
organizaton
Budgetng = tte process of formulatng an organizaton’s plan
4 major advantages of efectve udgetngg
- Compels managers to ttink atead y formalizing tteir responsi ilites for planning
- Provides an opportunity for managers to re-evaluate existng actvites and evaluate possi le
new actvites
- Aids managers in communicatng o jectves and coordinatng actons across tte organizaton
- Provides enctmarking to evaluate su sequent performance
Budgetng process formalizes tte need to antcipate and prepare for ctanging conditons
To prepare a udgetg set o jectves, esta list policies to aid tteir actievement
In tte a sence of goals and o jectves = tard to interpret results, for see pro lems and company
operatons lack directon
Current actvites of tte organizaton are used as a startng point for planning
2 extremes
- Current actvites are assumed to e tte same as for tte new udgetng period
- Zero- ase udget = a udget ttat requires justicaton of expenditures for every actvity,
including contnuing actvites
Efectve udget process encourages managers to ttink wtetter
- to contnue current actvites and mettods
- are ttere opportunites to modify actvites
- to add new actvites to telp tte organizaton eter actieve its goals in response to ctanging
conditons
efectve udget processes telps witt
- communicaton ott from tte top down and tte otom up
- coordinate actvites across tte organizaton
- antcipate company’s need for cast
Limitations of the advantages of budgeting
Budget participation and acceptance of the budget
Main factors afectng udget acceptance
- perceived attude of top management
- tte level of partcipaton in tte udget process
- degree of alignment etween tte udget and otter performance goals
to limit negatve attudes and improve quality of planning decisions Partcipatve udgetng
Partcipatve udgetng = udgets formulated witt tte actve partcipaton of all afected employees
