A journey of a young, UK based, Muslim

I have separated this into two parts for convenience of the reader as it is a lot of information to take in at one time. The first topic really explained what the possible types of budgeting there are that can possibly be implemented into a flux business. Part 2 which

you will go on to read states ways of progressing on and actually installing these systems in place ready to be taken advantage of by you and your staff. Along with other kinds of implementations and strategies you can use and hw to monitor your budgets once the are in place

THE BUDGETING PROCESS

Budgeting is—or should be—the result of teamwork. A top-down budget is a budget that is essentially imposed on the organization by top management. This may be an efficient way to prepare a budget but because of lack of participation by the employees, such budgets often bring with them a level of employee resentment and resistance that leads to problems in implementation of what is proposed. Employees do not feel a sense of ownership in a budget in which they have not been participants. A participatory or bottom-up budget, on the other hand, starts with the employees in each department determining their needs and requirements in order to achieve the company goals. Because employees feel a sense of ownership in such budgets, they attempt to meet or exceed those expectations. A balance between the two extremes can often be achieved. Top management should be involved in setting the tone and providing the guidelines and parameters within which the budget will be set. Incentives should be put into place so that those who achieve or exceed the budgetary expectations will receive suitable rewards for their efforts. There must also be guidelines to discourage budgetary slacks and abuses whereby the requested budget amounts are in excess of anticipated needs in order for the department to look better and reap some rewards. A very tight budget, on the other hand, may prove discouraging and unattainable. No matter what approach is taken, it is important to realize that the budget should serve as a map and guideline in anticipating the future. Top management must take it seriously in order for the employees to take it seriously as well. At the same time, the budget should not be seen as a strict and unchangeable document. If opportunities arise, circumstances change, and unforeseen situations develop, there is no reason why the budget should be an impediment to exploring and taking advantage of such opportunities. Many companies form a budget committee to oversee the preparation and execution of the budget. The budget can also be seen as a tool that helps in bridging the communications gap between various parts of the organization. Sales, production, purchasing, receiving, industrial relations, sales promotion, warehousing, computing, treasury, quality control, and all other departments see their roles and understand the roles of the other players in achieving the goals of the organization. Such participation also necessitates budget negotiation among the various parties to the budgetary process until the budget is finalized. Goal congruence occurs when the goals of the employees and the goals of the company become intertwined and meshed together. A budget that does not consider the goals of the employees often fails. The finalization of the budget requires acceptance by the affected departments and approval and sign-off by top management. If circumstances change due to factors such as change in product mix, costs, selling prices, negotiated labour rates, or engineering specifications, there may be a need for budget revision.

OTHER BUDGETING TECHNIQUES

An incremental budget is a budget that is prepared based on prior-year figures, allowing for factors such as inflation. Although such an approach is used by some government entities, most people frown upon such a practice because it is contrary to the whole notion of a budget, which is supposed to be a calculated and wise anticipation of the future course of events with due consideration of all potential factors. A zero-based budget, on the other hand, is a budget that does not take anything for granted. It starts from point zero for each budgetary element and department each year and attempts to justify every dollar of expenditure. Kaisen budgeting, a term borrowed from Japanese, is a budgeting approach that explicitly demands continuous improvement and incorporates all the expected improvements in the budget that results from such a process. Activity based budgeting is a technique that focuses on costs of activities or cost drivers necessary for production and sales. Such an approach facilitates continuous improvement. An easily attainable budget often fails to bring out the employees’ best efforts. A budget target that is very difficult to achieve can discourage managers from even trying to attain it. So budget targets should be challenging and at the same time attainable.

MONITORING THE BUDGET

A flexible budget modifies the budget to the actual level of performance. Obviously, if the original budget is prepared for say, one thousand units of a product, but two thousand units are produced, comparing the original budget to the actual volume of output does not provide meaningful information. Accordingly, the budgeted costs per unit for all variable costs can be used and multiplied by the actual volume of output to arrive at the flexible change proportionately to the level of output for the former and to the level of sales for the latter cost. Fixed costs, such as rent, however, do not normally change with the level of production or sales. These budgeted costs, therefore, are not adjusted and left intact even though the volume of sales and output may be different from the originally budgeted levels. Ultimately, a good budget is one which not only uses good budgeting techniques but is also based on a sound knowledge of the business as well as the external factors that affect it. The budget serves as a planning tool for the organization as a whole as well as its subunits. It provides a frame of reference against which actual performance can be compared. It provides a means to determine and investigate variances. It also assists the company in planning again based on the feedback received considering the changing conditions. An attainable, fair, and participatory budget is also a good tool for communication, employee involvement, and motivation.

Summary

So we have learned that budgeting can bring about better communication between you and your staff. We have learned that installing budgets for every section of the business is key for cost effectiveness. It teaches your staff how to maintain cost effectiveness. We know now that we can keep our finance in check and be able to look at a glance of an overview of the whole master business performance in reliance to the budgets laid out. We are also aware now that this kind of structure when implemented can increase stave moral via motivation when used with incentives.