The Role and Behavioral Implications of Budgeting in Business Case Study

Critical discussion of the role and behavioral implications of budgeting

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Concept

Budgeting can be defined as the procedure that can be applied in the future for controlling excess financial outflows and estimating an idea for executing operations. This factor is mainly established by the operators, managers or financial investors in a business for reaching the goals and decreasing their investments for maximized returns. There are 4 major stages of budgeting: Budget preparation, budget authorization, budget conduction, and accountability (Pagliaro and Coccia, 2021). These four steps help to evolve the systematic procedure in identifying and implementing fiscal operations for better growth.

It can also help to monitor the entire process in terms of reaching the objectives of a business. There are a few types of budgeting such as “Zero-based budgeting, Static budgeting, Static budgeting, Activity-based budgeting, and Value proposition budgeting”. These types of budgeting can influence a business separately and can create better-developing potential for the entire company.

Role of budgeting

Budgeting can effectively play a significant role in business which can help to evaluate its performing capacity and monitor its excess expenditure in business.

Monitoring the excess expensed

A budget can critically identify the financial measurement and estimate further income as well as expenditure for a specific period. It can help to prioritize the major objectives of a business and target to reach the goals of the organization concerning previous income and financial flows. It can help to reduce the potential liabilities of the business and create major scopes for developing assets and profitability margins (Musarat et al. 2021). Therefore, value-based budgets can be prepared in the business and can create better effectiveness for the overall company.

Effective decision making

Budgeting can consider previous years' data of financial flows and can prepare suitable decisions for the overall business. Concerning this, the identification of losses can be efficiently made and can generate more revenue margin for the overall company. It can also highlight the financial fluctuations in the operational trades and can measure its overall growth potential for organizational activities (Nani and Safitri, 2021). This factor can help the investors and the operators to have an assumption regarding the overall profit margin and can take the most effective decision for gaining maximized profitable values as well as reducing investment.

Ensures available resources of fund

The budgeting process can effectively develop the requirement of finances in a business for reaching the targets. It can identify the overall issues as well as ensure the involvement of financials. However, the operators can critically determine the requirement of stakeholders and shareholders in the business which can also insures the available fund resources in the business operation.

Prioritize goals and projects

Budgeting can segregate the most and the least priority of the organization based on the goals measured. It can mainly focus on the targets that are concluded for a project and can identify the most effective activity that can help to reach the target. The budget allocation can also require the redistribution of a few funds for revising the budget allocation and decreasing the expenses (Astuty et al. 2022). It can help to effectively develop activity-based budgeting and provide the most effective benefits for the operators of the business.

Evolves financing opportunities

This process can tend to seek external investors providing them with budgetary documented information for gaining funds for the company. It can also measure previous years' data, and current years' performance and forecast further financial activities. However, it can help the existing operators to gain the required fund from external areas which can evolve the capital structure of the business. Based on these their equity holdings can remain the same and at the same time, it can develop their financial inflows.

Behavioral factors

Dysfunctional Behaviour

The major financial opportunities can be determined by evolving more productive outcomes and reducing the capital expenditure for the investor. It can bring better opportunities by creating “organizational and managerial goals” for the internal investors to have the same amount of equity and at the same time maximize profit or returns on equity.

Participative Budgeting

The budgeting factor can also help to increase effectiveness by developing internal goals, which can gather more growth potential for the next period in the business. It can bring each of the investors under the same project (Polzer et al. 2021). Concerning these, the factors can evolve more comparativeness in the competitive market and can increase brand image in the global pact form of the business.

Excessive Pressure

It can critically figure out the number of stakeholders that are necessary for a specific year or specific period to achieve the targeted goals (Sandi et al. 2021). Concerning this, the operation days and its average revenue margin are also measured by this process. It may affect negatively by creating huge issues.

Budgetary Slack

It can highlight overestimation of costs, which can create conflict in the business and can involve more issues often.

Advantages and disadvantages of budgeting

Budgeting has been used to allocate business resources effectively and efficiently. It has helped to rearrange the business plan and develop coordination and communication. Budgeting has helped to provide the business with tracking the entire financial position of the company. The benefits of budgeting provide fulfillment of the long-term financial goals of the business by reducing the excess cost of the company (Mattei et al. 2022). It has been guided through control regarding the financial evaluation of the company. Budgeting has been indicted as the process regarding risk control measures that going to provide the company to avoid the higher debt proportion of the company. The benefit of budgeting has been efficiently providing financial forecasting. It has helped in increasing the company's financial evaluation motivation. Usability of budgeting has been helps the company to increases the financial allocation potentiality in future aspects.

The limitations regarding budgeting have been referred to higher costs and it has been taking more time for allocating the financial situation of the company. In this aspect, using the budgeting methods might take efficient people to handle the methods of budgeting application. The budgeting process is hard, due to not having effective knowledge regarding budgeting maintenance of the company (Cui, 2022). The budgeting process sometimes provides inaccurate information and the assumption of budgeting are being unreasonable and unrealistic. Budgeting is inflexible in some circumstances that have provided inefficient resource allocation to the business. The process of budgeting is complex and it is difficult to provide effective managerial results to the business. It has been mentioned that this budgeting method is difficult to reallocate the financial situation of the company. As per the view of Feicher (2022), budgeting might not guide the company toward the fulfillment of its long-term goal of the company. The process of budgeting has been not suitable for all types of business financial situations maintains aspects. Budgeting methodologies are difficult to reallocate the entire financial situation as it has created coordinating issues within the organization. In this aspect, it has been referred that the budgeting process implementation has been difficult to grasp by the company’s financial managerial people. In this aspect, it has been referred to that budgeting increased the overall cost of the company. The budgeting process has created issues in the allocation methods within the organization (Barden, 2022). Budgeting has not been considered the entire business performance system it has been only considered the financial outcome of the company. However, budgeting methodologies has been affected the company's strategic position and created unnecessary issues within the managerial system of the company.

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Reference

Astuty, W., Habibie, A., Pasaribu, F., Pratama, I. and Rahayu, S., 2022. Utilization of Accounting Information and Budget Participation as Antecedent of Managerial Performance: Exploring the Moderating Role of Organizational Commitment, Leadership Style, Environmental Uncertainty and Business Strategy in Indonesia. The Journal of Modern Project Management, 10(1), pp.188-200.

Barden, S.C., 2022, August. Crosschecking the Maunakea Spectroscopic Explorer performance budgets and science requirements compliance. In Modeling, Systems Engineering, and Project Management for Astronomy X (Vol. 12187, pp. 566-571). SPIE.

Cui, X., 2022. A strategic decision support tool for shipyard production performance evaluation and support in budgeting for performance improvement.

Feicher, O., 2022. Budgeting as a Key Component of University Management Success. Socio-Cultural Management Journal, 5(1), pp.105-125.

Mattei, G., Santolamazza, V. and Grandis, F.G., 2022. Design of the participatory budget: how to turn citizens into process protagonists. International Journal of Public Sector Management, 35(3), pp.294-316.

Musarat, M.A., Alaloul, W.S. and Liew, M.S., 2021. Impact of inflation rate on construction projects budget: A review. Ain Shams Engineering Journal, 12(1), pp.407-414.

Nani, D.A. and Safitri, V.A.D., 2021. Exploring the relationship between formal management control systems, organizational performance, and innovation: The role of leadership characteristics. Asian Journal of Business and Accounting, 14(1), pp.207-224.

Pagliaro, M. and Coccia, M., 2021. How self-determination of scholars outclasses shrinking public research lab budgets, supporting scientific production: a case study and R&D management implications. Heliyon, 7(1), p.e05998.

Polzer, T., Nolte, I.M. and Seiwald, J., 2021. Gender budgeting in public financial management: a literature review and research agenda. International Review of Administrative Sciences, p.00208523211031796.

Sandi, H., Yunita, N.A., Heikal, M., Ilham, R.N. and Sinta, I., 2021. Relationship Between Budget Participation, Job Characteristics, Emotional Intelligence, and Work Motivation As Mediator Variables to Strengthening User Power Performance: An Empirical Evidence From Indonesia Government. Morfai Journal, 1(1), pp.36-48.