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Critically evaluate budgeting as a tool for planning and control - Essay Example

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Critically evaluate budgeting as a tool for planning and control

According to them, not only is budgeting a time consuming undertaking, it also is prone to manipulation by the management. Proponents of the budgeting process hold that it is only through budgeting process that firms can achieve proper financial planning. Despite having its advantages, budgeting has its disadvantages too. This paper aims at evaluating the pros and cons of budgeting, with reference to previous research done by different authors. Libby & Lindsay agree that budgeting has its own advantages and disadvantages. According to Libby and Lindsay, most organizations find budgeting as an important key in managing their control systems. Budgeting plays a number of major roles to the management in fulfilling their managerial roles in an organization. Through budgeting, coordination, communication, as well as performance evaluation of an organization is possible. Consistently, and over a long time, external evaluators have used the budget as a measure of organizational performance. The ability of the organization to meet its budgetary commitments determines the organization’s performance. Although in some regions, budgeting has lost meaning, in others, such as North America, it is still a very important element of management control. While many financial experts agree on the need for adopting better budgeting methods, organizations believe that budgeting is an internal process, developed by the individual organization and the management. The fact that budgets are a means of communicating in the organization, and ensuring coordination within the organization makes the budget a very important managerial element. Therefore, organizations cannot do away with them completely. Internal as well as external communication of an organization is an important element of organizational success. Although some managers believe that budgeting is an outdated process, there are organizations that attribute their performance to their budgeting process. Libby & Lindsay (2007, p. 48) suggests that the efficiency of budgets to an organization in achieving its goals and objectives determines the perception of the budgeting process to an organization. Some believe that budgeting is a normal process, with little or no significance ion the performance of the organization. on the other hand, there are some that believe that without budgeting, achieving organizational goals and performance is unlikely. Therefore, it is the duty of the management to determine the contribution of budgeting to its organization’s goals. Vaznoniene & Stonciuviene (2012, p. 158) argue that budgets play a big role not only in the harmonization of business activities and enhancing cooperation between business units, but also in the delegation of duties and allocation of incurred expenses. According to Vaznoniene & Stonciuviene (2012, p. 160), while some of the organizations believe that budgets only act as a means of evaluating staff performance, they also act in supporting internal control systems of the organization. Jehle does not believe that budgeting as a process has lost its significance altogether. Despite the challenges that it faces, it remains a key factor in the success of the organization. Jehle argues that good managers know the advantages of having a good budget, which is not just consolidating the numbers (1999, p. 56). A good budget according to him is a roadmap, which can guide the company to achieving a competitive advantage. Since ...Show more

Summary

A CRITICAL EVALUATION OF BUDGETING AS A TOOL FOR PLANNING AND CONTROL Date For a long period, companies and firms have used budgeting as a tool for planning and control. At a personal level, financial experts encourage people to draw personal budgets as a way of monitoring their expenditures…
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Critically evaluate budgeting as a tool for planning and control essay example
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