Budgets are important tools to every management. It is what expenses are expected to occur to run a business and what income or revenue is expected within a time frame. Now a days spending has been easier, as credit lines can be established with banks and other financial institutions. Individuals, companies and governments need to adopt more effective budgeting methods and strategies to balance their outflows and inflows to avoid over spending and run into deficit.
At present most companies and large businesses reforecast their original budgets on a quarterly basis. As months pass, the actual income and expenses are compared to the budget forecast. The variances between the budgeted figures and the actual ones are than analyzed to provide information that can improve the performance. now some businesses have also introduced monthly forecasts to provide an up to date information which will help the management stay the course with its budgeted plan.
"However, theories of behaviour exist in most subfields of political science yet, after seventy years of research, there is still no theory of budgeting. Lack of consensus on the proper focus approach to and status of budgeting theory as well as disagreement on a basic definition of the concept have militated the conceptual discourse and iterative debate necessary to develop theory. The degree of effort required and rewards of theory development also retard theory formation. Consequently, progress in budget formation, administration, and politics has not advanced as it might if theory were available to examine and explain budget processes". (B. L Neuby 1997)
Before you get started with the budget, one will have to focus on the strategic objective of the company and where it will be heading for at least five years from now. That what we call the strategic planning, which will include the research of the markets, the growth opportunities and setting the company's objectives, and they should be realistic.
Once all that been put into prospective, the work on the yearly budget will have to begin taking into account last years' expenditures and achievements.
One of the most critical issues is usually in discussions when it comes to budgets is, which kind of budget we should implement to satisfy the needs of all the stakeholders in the company, and yet achieve the
maximum profit and ultimate performance. In theory there are three types of budgets available to any business.
1. ZERO BASED BUDGETING (ZBB)
2. INCREMENTAL BUDGETING
3. PEERFORMANCE BASED BUDGETING
In this assignment I am going to talk about the above mentioned budgeting processes and talk about the pros and cons of each one of them, later I am going to talk about my workplace and how budget is formulated, and at last I am going to close with my conclusions.
Zero-Based Budgeting (ZBB)
Zero-Base Budgeting is a process in which building your budget from a zero based and not basing it on pervious years budgets. It is a new technique of...