Budget Process
BUDGET PROCESS
The budget combined with individual objectives or targets provides the basis on which employees need to be motivated and stretched. In the absence of such a structure, spending may become higher than necessary and the extra effort required to help bring in the required revenue may not be made. As the budget can be seen as a constraint on a department’s or an individual’s activities, it may not always be warmly embraced. Therefore the motivational aspect needs to be carefully managed. If people do not believe they have the resources to achieve the results desired, or if they believe that the targets set are far too ambitious to be achievable, both morale and management performance will be lower. To be effective budgets need to be “owned” by the managers that have responsibility for their achievement. Ownership is not just authority to spend, but a feeling of individual commitment to the objectives and willingness to deliver what is required with the resources allocated. To create the feeling of ownership, individual managers should be part of the budget-setting process so they can identify and justify the resources they need. The budget could be one of the most important tools for decision-making in the organization. Decision-making includes pricing education elements using costing information, and there have been widespread problems in identifying, measuring, using, and applying this information in organization. Budgets are usually constructed in one of two ways:
• Top-down approach. Senior managers state what they expect from their operational managers with respect to performance on revenue, profitability, cost savings and other dimensions. The operational managers may then try to negotiate with senior managers on the budget targets they consider to be unreasonable or unrealistic. The benefit of this approach is that the budget will be based on the achievement of the organizational metrics, though it can lack insight as to whether the
The budget combined with individual objectives or targets provides the basis on which employees need to be motivated and stretched. In the absence of such a structure, spending may become higher than necessary and the extra effort required to help bring in the required revenue may not be made. As the budget can be seen as a constraint on a department’s or an individual’s activities, it may not always be warmly embraced. Therefore the motivational aspect needs to be carefully managed. If people do not believe they have the resources to achieve the results desired, or if they believe that the targets set are far too ambitious to be achievable, both morale and management performance will be lower. To be effective budgets need to be “owned” by the managers that have responsibility for their achievement. Ownership is not just authority to spend, but a feeling of individual commitment to the objectives and willingness to deliver what is required with the resources allocated. To create the feeling of ownership, individual managers should be part of the budget-setting process so they can identify and justify the resources they need. The budget could be one of the most important tools for decision-making in the organization. Decision-making includes pricing education elements using costing information, and there have been widespread problems in identifying, measuring, using, and applying this information in organization. Budgets are usually constructed in one of two ways:
• Top-down approach. Senior managers state what they expect from their operational managers with respect to performance on revenue, profitability, cost savings and other dimensions. The operational managers may then try to negotiate with senior managers on the budget targets they consider to be unreasonable or unrealistic. The benefit of this approach is that the budget will be based on the achievement of the organizational metrics, though it can lack insight as to whether the