Professor Renato Jorge Tan
Nena N. Martinez
Report on : THE ROLE OF BUDGETING IN MANAGEMENT PLANNING AND CONTROL
Review of Management Functions
In the study of administrative management or principles of management, as a theory of administration, Henry Fayol stated that there are five tasks of administration which were planning, organizing, commanding, coordinating and controlling; and Gulick built upon Fayol’s the famous POSDCORB which stands for the seven administration’s functions. These functions are planning, organizing, staffing, directing, coordinating , reporting , and budgeting. (Nigro, 1989). So planning and budgeting are the first and the last functions of management in the order of Gulick’s idea, POSDCORB, but it does not necessarily mean that budgeting is the end of management function, because after the budgeting process is the using or materializing the budget, whereby management concerns itself is monitoring and control.
Definition of Terms
Budget is defined as management’s quantitative expression of plans for a forthcoming period. The master budget is the overall financial plan for the period which reflects the organization goals and objectives and it includes the operating and financial budgets. Budgeting is concerned primarily with the planning and controlling functions of management. Operating budget shows the company’s planned sales and operating expenses. Financial budget reflects the monetary (financial) plan such as borrowings, leasing and cash management. Planning involves in making forecasts and assumptions about the organization’s external environment which is uncontrollable. Controlling involves in monitoring the implementation of the plan and taking corrective action as needed.
Relationship of Budgeting, Planning and Control
Based on Fayol’s and Gulick’s identified tasks of administration as stated in the preceding paragraph, I believe budgeting is related to all the other management functions, because undertaking any of the functions requires financial and operating costs, and as every management cost is reflected in the budget, therefore each of the functions are related to the budgeting. Personally, I see that in the budgeting process, the activity depends on the output of planning and after the budgeting activity, budgeting process continues to exist in the monitoring and control activities. The output of planning is the input of budgeting, the output of budgeting is the input of control and monitoring.
Budgeting and the Management Process
The role that effective budgeting plays in the management of a business is best understood when it is related to the fundamentals of management in financial terms. The following discussion is premised on the sound management principle that disbursement of funds must first be embodied in a budget. A budget is drawn in order to determine the extent of revenue and expenses for financial and operational activities to attain goals and objectives.
Management function begins in planning which starts with the establishment of .goals. Goals may be stated in terms of profit, return on investment, product leadership, market share, product diversification, services rendered, or simply survival. In the barangay level, our goals are in consonance the City of Makati’s practical vision statement. We are guided with the city’s priorities for development projects and strategic direction for a five-year span. From this we determine our major final output and performance targets. All the planned activities, forecasts, assumptions, goals and performance objectives are documented in financial terms in budgeting, to ensure that cost of realizing them are allocated with appropriate funds.
The second function - organizing, means setting...