Budgeting Is Not Only Useful for a

Budgeting is not only useful for a business organization but it is also useful for personal planning and spending. The existence of a well structured budget within an organization or a personal budget tells how well a person or the business is organized. From a business perspective regardless of the type and size a budget is an important recipe for success and smooth running of the business.

According to Burrows and Syme (2000) depending on the size, a business can have various types of budget that include; the sales budget, the production budget, the general administrative budget, cash budget and the master budget. It is important to note that the master budget encompasses all the other different types of budget into one and through the master budget a business can plan its expenses in advance and also can use it to obtain additional finances.

This present study will further discuss the value of budgeting for organizations of all sizes and types, in terms of effective resource management. Secondly, it will explain characteristics of a budgeting system that are most likely to contribute towards its successful implementation and how lack of these might result in ethical problems. Value of budgeting for an organization According to Edwards and Mellet (1991) a budget is a financial plan which is based on expected future activity and is used to control that activity.

It is possible to make a number of forecasts of the financial outcomes under different assumptions, and the forecast which best meets the firm's objectives, and is within its capabilities, is chosen as the budget. Management must then convert the budget into plans which are put into action. For example if a budget requires an increase in production which needs additional capacity, management must plan its acquisition in advance so that it is available when needed.

Robinson (2007) in his studies stated that the key value of a budget is that it gives control, since responsibility of its various parts can be assigned to managers who are then responsible for them. In addition Robinson argues that it also gives a basis with which to compare actual results and hence evaluate managerial performance.

Within a budget a business will be able to allocate specific amount of resources that covers the entire period within which a budget is prepared and if the manager in-charge of implementing the budget is efficient the business can save on unnecessary overhead costs and it will increase accountability within the business.

A business regardless of the type or size might in face challenges in covering all its cost and through a budget it will know exactly how much it is capable of covering and how much it needs as additional finances. The business can acquire these additional finances from a financial institution upon presentation of their budget, which will show exactly how much it needs; the bank will also use the budget to determine the business credit worthiness.

Characteristics of an efficient budget Referring to studies conducted by Jordan and Harbart (2005) they wrote that one of the benchmarking technique or characteristic of a budgeting system that is most likely to contribute towards its successful implementation and great accuracy is that a budget should be designed in such a manner that it can be able to recover most of its expenses.

It can be noted that a properly designed budget can become useful if the expenses outruns its initial estimates; the additional cost can be recovered by increasing cost on an essential service or product that is offered by the hospital.

This is justified by the fact whenever an expense is not considered as want but rather as a need it should be removed from the budget, thereby saving on cost and when expenditure goes far beyond the set limit it can be recovered by increasing cost so as to attain an equilibrium with the budget.

It is important to note that a poorly planned budget will always result in the business accruing more cost than initially estimated; the budget will also not provide avenues through which this cost can be recovered and therefore exposing the business to a potential shortage in liquidity. Krajewski and Ritzman (2003) stated that a budgeting system which has been prepared by well trained professionals is most likely to be implemented successful.

Furthermore giving incentives to departments for managing their budgets well; taking corrective actions plans with departments that surpass the budget; managing expenses and monitoring variance are also important characteristics within the budgeting system that can guarantee its successful implementation. A budget that has been prepared by less qualified individuals is most likely to be.