Literature Review
Budget is being used as a primary tool for enhancing the performance of a firm. The process of budgeting assists the firm to provide an appropriate definition and explanation to its objectives and quantifies the needed data. Some economist in their study has clearly stated that the necessity of budgeting assists a company to accomplish its particular functions about the administrative expenditures and incomes (Holton, 2012). The functions are as follows:
- Budget assists in making policies and decisions.
- Budget assists managers to make an estimation of future income and expenditures.
- Budget assists the organization to control their income and expenditures.
The short-term information is being used for the preparation of budget which is used for making financial decisions in long term. An economist has stated that for providing flexibility to the functions of a firm, managers have to focus on the budget which can be prepared with the assistance of decision making in short term. The budget can be formulated by the board of directors on the basis of the objectives of the firm (Hill, 2014).
Budgeting also relies on the policies of the ruling parties and also several different systems of budgeting can be implemented with the assistance of the targeted and political objectives. The systems are considered to be a systematic way to represent and relate the expenses of a company for the achievement of the objectives (Bhatti & Khan, 2008). When a company carry out its work as per the fiscal policy then the decisions are made about executing the non-economic and economic activities in order to maintain the budget effectively and efficiently. The budgeting can be used as the main process for systematising and organizing the information systems.
The public budgeting task has been examined clearly and this topic will assist to identify the implementation of the budgeting process in the public sector companies. Thus, it can be stated that it is not possible to create a comprehensive summary of the budgeting system. The budgeting systems are of three types that can be examined (Eckbo, 2009). The systems are performance budgeting planning and system, programming, traditional budgeting system and budgeting system. The application of the systems in the budgeting process can assist in understating the implementation of managerial function within an organisation.
The identification of the budgeting system method requires that all the features should be identified and differentiated. The process can be stated as to identify the nature of expenditure and income before the implementation of the budgeting system. The budgeting system earliest application is considered to the traditional budgeting system that relies on the consideration of the line items and material (Kieso, Weygandt & Warfield, 2011).
Description
The traditional budgeting system can be considered the budgeting form in which high executive and legislative control are being observed and items associated with the expenditures of the company. The line budgeting system focuses on the spending level because it is being preferred mostly by the people who want to control the expenditures (Pandey, 2015). The process does not take into account all the problems about the quantity and quality of the services which is provided by the company. In the prior years, the budgeting items are taken into account which increases the expenditure level for the next year for accomplishing the expenditure objectives.
The Department of Défense the United States has implemented PPBS which is being carried out within the public sector. PPBS was being implemented because of the loopholes in the existing budget system especially during the customization of TBS. PPBS main concern is to allow the departments for improving their effectiveness and efficiency of their services. Thus, for the first time, PPBS was being implemented as an alternative to TBS (Phylaktis, 2014). The program information was being linked by PPBS for budget planning and decision and evaluation of the services on the basis of the production. The necessity of PPBS mainly arises in the fields where the public sectors consisted of limited resources against increasing public demand. If the PPBS was not being implemented by the public sector then it would have not assisted the decision makers in reviewing the existing activities for justifying them and explain them. The TBS attribute is being used widely as the end budget but it does not allow the decision makers for providing an appropriate assessment and justification of the current activities which is carried out by the company (Ross, Westerfield & Jaffe, 2010). The PPBS assists in classifying the activities within the framework of the program that enables the decision makers to meet their needs and objectives. An appropriate cooperation between the departments is possible with the assistance of the PPBS properties and also enhances coordination and performance level. Thus, each department would be aware of what responsibilities and services need to be carried out. The coordination with other departments would show the same methodology on the basis of the assumption that PPBS is being used by other departments. It will result in the establishment of good relationship.
The application and enhancement of the public budgeting can be understood from a case analysis considering the facts from a company Woolworths. The two budgeting scheme will be examined on the basis of the information collected about the Woolworths. The research has consisted of multiple evidence sources and different sources are being used for examining the case study in an appropriate manner (Sharma, 2010). The researcher has used multiple sources which enabled him to address wide range of behavioural, attitudinal and horizontal issues. The application of multiple sources have depicted that each sources requires various access for gathering information and producing a distinct and high quality type of insights. However, each sources consisted of advantages and disadvantages, the case study is being analyzed with the use of different evidence sources in order to enhance the quality of research. The use of few sources for the examination of case study is considered to be rigorous and conclusive (Zopounidis, 2008).
Traditional budgeting system
The budget in the first assumption differs some of the socio-economic circumstances. The enhancement of the public budgeting in the initial period was considered as the control mechanism for the government because it kept the budget level to a minimum that leads to balanced result. It was being found afterwards that the idea of keeping the public sector budgeting away from the nation’s socio-economic life would not considered to be a good idea (Smart, 2008). The budget is considered as the policy and equipment for the decisions makers that assist them to make decision regarding the improvement of the socio-economic life of the people. Thus, in the public budgeting, the upward fluctuation can be seen. The budget due to this reason got support not only from the accounting aspects of determining and examining the public spending but also in respect to the politics, administrative and economic of upward efficiency and effectiveness of the public activities.
Conclusion
The budgeting is depicted to be playing a significant role in improving the financial performances of the public sector. It is achieved through the development of a strong base on the utilization of the available resources as well as provides direction to the progress activities of the organization. The budget can be used for allocating the limited resources which assists in expanding the future course of action that leads to enhancement of the financial performance (Wolf, 2010).
The case study based on Woolworths has depicted that the costs need to be managed and controlled by an organization in order to increase the investment activities. The study has clearly depicted that the company Woolworths has always been focusing on increasing their revenues. The budget is considered to be an important tool that assists an organization to expand its operations in an efficient manner. The financial performance can be improved with the effective preparation and use of budget.
References
Bhatti, M., & Khan, M. (2008). Managerial finance (1st ed.). [Bradford, England]: Emerald Group.
Eckbo, B. (2009). Handbook of corporate finance (1st ed.). Amsterdam: Elsevier North-Holland.
Hill, J. (2014). The accounting (4tht ed.). Place of publication not identified]: The Author.
Holton, R. (2012). Global finance (2nd ed.). London: Routledge.
Kieso, D., Weygandt, J., & Warfield, T. (2011). Intermediate accounting (16th ed.). Hoboken, NJ: Wiley.
Pandey, I. (2015). Financial management (11th ed.). New Delhi: Vikas Publishing House PVT LTD.
Phylaktis, K. (2014). Finance (3rd ed.). Elsevier Science.
Ross, S., Westerfield, R., & Jaffe, J. (2010). Corporate finance (26th ed.). New York: McGraw-Hill/Irwin.
Sharma, N. (2010). Business Finance (4th ed.). New Delhi: Global Media Publications.
Smart, S. (2008). Corporate finance (6th ed.). [Place of publication not identified]: Cengage Learning.
Wolf, M. (2010). Fixing global finance (1st ed.). Baltimore, Md.: Johns Hopkins University Press.
Zopounidis, C. (2008). Managerial finance (2nd ed.). [Bradford, England]: Emerald.
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