LEARNING OUTCOME 2

Unit 7003: Learning Outcome 2

Unit 7003: Learning Outcome 2

2.1Annual Budget

A budget is a document that translates plans into money; money needed spend to achieve the planned activities (expenditure) and money that need to generate to cover the costs of completion of work (income). It consists of estimate or assumptions made on the basis of the needs in terms of money for the job.

The Budget Process in Organizations

The budget process tends to reflect in a quantitative way, through budgets, targets set by the company in the short term through the establishment of appropriate programs, without losing sight of the long term, since this condition the plans allow the achievement of the ultimate end to which it is directed the management of the company. The budgets provide a means of communication plans throughout the organization, providing the foundation that will evaluate the performance of different segments or areas of activity of the company and the management (Hartman, 2008, 89). The process ends with budgetary control, by which to evaluate the outcome of the actions undertaken by allowing, in turn, establish a process of adjustment that enables the setting of new targets.

An effective budget process depends on many factors, but include two that can be regarded as "essential requirements" and, on the one hand, it is necessary that the company has set up a structure of clear and coherent organizational, through which will be organized throughout the process of mapping and delineation of responsibilities. A program budgeting will be more effective in that it can properly assign the responsibilities to which, necessarily, have to have a well-defined organizational structure (Garner, 2007, 13).

The other requirement is determined by the impact on the budget process has the conduct of human potential involved in it, that is, their role in the process of planning and budgeting factors motivation and behavior. Budgeting, and represents an essential tool to optimize the short-term management, is an effective tool for involving the staff in setting goals, and the formalization of commitments in order to establish responsibilities for implementation. This participation serves as motivation to individuals who have a personal influence, by giving them decision-making power in their respective areas of responsibility.

Functions of the Budget

The functions performed by the budgets depend largely on the company's own address. The needs and expectations of management and their use of budgets are strongly influenced by a number of factors related to management history and the business system. Ideally expected to address budget function provides:

-An analytical tool accurate and timely.

-The ability to claim the performance.

-Support for resource allocation.

-The ability to monitor ongoing actual performance.

-Warnings deviations from the forecasts.

-Early indications of the opportunities or the risks ahead.

-Ability to use the past performance as a guide or tool for learning.

-Understandable concept leading to a consensus and the support of the annual budget.

The budget is not necessarily the final stage of preparation in the business (there are more levels for analysis at the stage of production management, or in terms of cash management, in ...