Question

1. What are the statges in the planning process?

2. What are the stages in the budgetting process?

3. What are the Functions of budgets?

Answer 1

Answer

1.Planning process:

Planning can be viewed as an approach to problem solving. It provides a systematic way of viewing problems and developing short- and long-term solutions. It can also be viewed as a decision-making process used to help guide decisions concerning future needs.

statges in the planning process:

Stage 1: Identify problems and needs
Stage 2: Develop goals and objectives
Stage 3: Develop alternative strategies
Stage 4: Select strategies and develop a detailed plan
Stage 5: Design a monitoring and evaluation plan

2. budgetting process:

Budget process. A budget process refers to the process by which governments create and approve a budget, which is as follows: The Financial Service Department prepares worksheets to assist the department head in preparation of department budget estimates.

stages in the budgetting process:

The Functions of budgets:

• Stage 1: Communicating policy guidelines to preparers of budgets

  The long-term plan forms the framework within which the budget is prepared.

  It is therefore necessary to communicate the implications of that plan to the people who actually prepare the budget.

• Stage 2: Determining the factor that restricts output – Principal Budget Factor

  Generally there will be one factor which restricts performance for a given period.

  Usually this will be sales, but it could be production capacity, or some special labour skills.

• Stage 3: Preparation of a budget using the principal budgetary factor

  On the assumption that sales is the principal budget factor, the next stage is to prepare the sales budget.

  This budget is very much dependent on forecast sales revenue.

• Stage 4: Initial preparation of budgets

  Ideally budgets should be prepared by managers responsible for achieving the targets contained therein.

  This is referred to as participative budgeting.

• Stage 5: Co-ordination and review of budgets

  At this stage the various budgets are integrated into the complete budget system.

  Any anomalies between the budgets must be resolved and the complete budget package subject to review.

  At this stage the budget income statement, balance sheet and cash flow must be prepared to ensure that the package produces an acceptable result.

• Stage 6: Final acceptance of budgets

  All of the budgets are summarised into a master budget, which is presented to top management for final acceptance.

• Stage 7: Budget review

  The budget process involves regular comparison of budget with actual, and identifying causes for variances.

  This may result in modifications to the budget as the period progresses.

PLANNING

The budget is a formal planning framework that provides specific deadlines to achieve departmentalobjectives and contributes towards the overall objectives of an organization. A budget incorporatesexpected performance and present managerial targets. Budgeting influences the formulation of allbusiness strategies and subsequently assists business managers in executing such strategies.

COORDINATION

Coordination is a managerial function under which all factors of production and all departmentalactivities are balanced and integrated to achieve the objectives of the organization. Budget helpsmanagement to coordinate in the following ways:1) The existence of a well laid plan is the major step towards achieving coordination. Executives areforced to think of the relationships among individual operations, and the company as a whole.2) Budgets help to restrain the empire-building efforts of executives. Budgets broaden individualthinking by helping to remove unconscious biases on the part of engineers, sales and productionofficers.3) Budgets help to search out weaknesses in the organizational structure. The Formulation andadministration of budgets isolate problems of communication, of fixed responsibility, and of workingrelationships.

COMMUNICATION

It is necessary in an efficient organization that all people be informed about the objectives, policies,programmes and performances. Budgets inform each manager of what others have agreed to do. Theyalso inform managers of the resources available to achieve objectives and targets.

CONTROL AND PERFORMANCE EVALUATION

Budgeting enters into control at three points:

1)when a budget is being formulated, departments analyse their plans for the future and submitestimates as per their requirements, justifying each of their demands by demonstrating a need.

2)After budgets of different departments have been reviewed and approved they become targetsthat desirable limits on spending.

3)At the end of the budget period, a comparison of actual expenditures with budget expenditureis made as a means of judging performance and fixing responsibility for deviations