The growing complexity of the business environment and the ever increasing competition among firms in the modern time, make planning an invaluable tool for business success. Successful management is no longer just a matter of flair, skill and determination, a conscious effort is needed to harness available resources towards the achievement of enterprise objectives. Budgeting is one of the tools adopted by management for effective cost planning and control.
A budget is commonly understood the forecast by a government, organization nor society of its expenditures and revenues for a specific period of time. The period covered by a budget is usually a year known as financial year. Budgeting is concerned with the utilization of financial resources to serve human needs. Although a budget may be characterized by a series of goals with price tags attached. It is mainly a mechanism for making choices among alternative expenditure. When such are coordinated so as to achieve desired goals, the budget becomes a plan. If there are specifications on how the goals are to be achieved, the budget becomes a psychological device to make administrators thin. If however, the emphasis is placed on achieving the desired objective at the lowest possible cost, then the budget is an instrument for ensuring efficiency.
An enterprise which is effectively and efficiently managed produces good and rewarding result. Management is efficient if it is able to accomplish the objectives with minimum efforts and costs.
Profit planning and control or budgeting is an integral part of management. The financial manager has a particular interest in profits planning and control because he helps to regulate flows of funds which is his function. The decision making process of management starts with planning. ‘Planning is the design of a desired future and of effective ways of bringing it about. In other words, planning involves the determination of the future course of action for accomplishing the objectives of the enterprise. The basic purpose of planning is to provide guidelines for making decisions. It is a forward process to reducing uncertainty about the future.
Planning is a continuous process which would generally involve four fundamental steps.
1. Establishing the objectives
2. Determining the goals
3. Developing strategies
4. Formulating profits plans or budget.
Objectives are the statements of broad and long term desired state or position of the enterprise in the future. They are directional and motivational in nature and are generally the qualitative expressions of the desired future state. For instance, the primary objective of an enterprise may be customers satisfaction, employee welfare, long-run- survival which depends upon the maximization of the long-run profit, that is wealth maximization.
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