Budget Process (finance) Essay Example | Topics and Well Written Essays - 1000 words

Budget Process (finance) - Essay ExampleIt is of import to understand the term environment under which the budgetary system has to operate in the modern business rate up. The term environment is much used. Some people associate it with pry system or value code. However in strategic terms, it is used to indicate the context within which the manager and the organization operates.(Murdock and Scutt, rascal 280)2. With regard to budgetary operations in this competitive environment, the proponents of budgets argue that budgets are established to provide a benchmark for evaluating performance. For represent centers these budgets typically seek to achieve efficiency and discipline by specifying the expected cost levels. Moreover, those who support budgetary system also argue that budgets are very effective even in modern competitive business environments and help the business to grow discounting the adversities the business face from competitions. Those who favor budgetary controls al so stress that since a budget shows expected performance of the organization, the management is pre informed about approach financial and production difficulties. Based on such anticipation management can always hold back corrective actions to overcome the difficult situation. They also point out that once a budget is presented it provides a yardstick to measure the actual performance. In this way there is certain strength in budgetary control system that budgets emphasize while clarifying the responsibilities of managers and such an attribute of budgets is always beneficial to the organization. in that respect is other side of the picture as well. Budgets are supposed to be means of internal control. But the leaders dictates top down the amount of sales and therefore allowed costs for the different cost centers, based on past experiences. The responsibility centers try to negotiate about their targets in a bottom up process. usually there is a compromise between parties in the hierarchical ladder. As a consequence, this procedure fails to concentrate on on shareholders value , because compromises tend to be comfortable from all sides , but not challenging or at least not completely focused on profit maximizing.(Sven Rohm, rapscallion 15)4 Accordingly sort of of servicing the organization as internal control instruments, budgets actually provide boost to disarray the control system and it is not possible to keep check on the checking systems.Competitive business environment is smear for perfections and such parameters change frequently with new style and inventions in this competitive fields. Budget is always based on estimates. The estimates cannot be accurately made in this dynamic world, although many statistical techniques are available (National Association of Accountants, page 377)5. Further, budgetary control system is lopsided managerial device in as much as in qualitative aspects of managing cannot be fully and precisely made a part of it.(Pri nciples of Management, page 253)6. The most grievous weakness of budgeting is that budgets are usually based on historical trends which may not continue.(Kumar & Mittal, page 538)7. That gives an idea that budgeting is a control tool of