Role of budgeting in defining and quantifying organizational objectives
One of the primary tools that can be used for the effective performance of an organisation nowadays is the budget. The task of budgeting helps the company to give a proper definition to the objectives and also quantify the required data. In the study of some economic if have been clearly stated that the need for budgeting helps the organization to fulfil specific functions about the authoritative incomes and expenditures:
- Assistance in the task of decision making and policy making.
- Provide authority to the managers for making legal predictions for future spending.
- Providing fundamental stability to the organization for controlling income and expenditure (Horngren, 2011).
Generally, a budget is based on short-term information collected by the organization that is further used to take long-term financial decisions. It has been stated by an economist that to provide flexibility to the managerial functions, an organization needs to focus on the annual budget which can be published with the help of short-term decision making. The board of directors can formulate the budget following the objectives of the organization.
Budgeting also depends on the ruling parties’ policies and also many other distinct systems which can be implemented in order to fulfil the needs of the political as well as targeted objectives. Every system in accordance to it is a systematic way of representing and relating expenditures of the organization for the fulfilment or accomplishment of the organizational objectives (Drury, 2011). When an organization is working according to the fiscal policy, it will be best for it to take all the decisions about the activities carried out by it in economic and non-economic states so that the effectiveness and efficiency of the budget can be maintained (Merchant, 2012). Further, for successful systemization of information systems, budgeting can be used as a fundamental process.
After a clear analysis of the public budgeting task, this topic helps us to determine the application of the budgeting system in the public sector organizations. Hence, it can be regarded that detailed summary of all the systems is not possible and also not convenient for the assessment of the availability of space in this paper. There are major three budgeting systems that can be reviewed. The various systems are performance budgeting system, traditional budgeting system and planning, programming, budgeting system. After using them for the process of budgeting, their application in the managerial establishment of an organization can be clearly understood (Horngren, 2011).
Traditional budgeting system
To identify the method of budgeting system, all the current characteristics should be determined and differentiated. It can also be explained as to determine the nature of income and expenditure before making application of the budgeting systems. The earliest application in the budgeting system is of traditional budgeting system which depends upon consideration of material and line items (Drury, 2011).
Short-term decision making and long-term financial decisions
In the traditional method of budgeting, high level control over the executive and legislative objects of the expenditure are observed to be estimated. The line budgeting system generally pays more attention to the level of spending because of which it is mostly preferred by the people who are in need to control the amounts of Expenditure (Horngren, 2011). Also, this process ignores all the issues about the quality and quantity of the service that has been provided by the organization. The budgeting items of the previous years are the only accountant in this system which tends to increase the spending level for the next year to complete the expenditure objectives (Merchant, 2012).
Planning, Programming, Budgeting system
Initially it was observed that the implementation of this method was made by the department of Defence of the United States after which it was implemented by other public sector organisations. The main reason behind its implementation was the weakness that existed in the budgeting systems especially for the TBS. The main objective of this kind of budgeting system is to provide efficient and improved services that can be helpful for the organisation. It was an alternative system to the TBS and had several types of decision making and evaluation-based services based on production (Balakrishnan & Sodestorm, 2013). The general need of the budgeting system arises in the public sectors because of the limited resources of the organisation and growing public demand. With the implementation of this budgeting system the decision makers were provided with much more ethical and detailed information on the basis of which activities can be carried out. The generally used TBS doesn’t provide much information to the decision makers that can be used by them for assessment of the current activities carried out within the organisation (Balakrishnan & Sodestorm, 2013). Since PPBS has been presented as the system which classifies activities within the framework of programs that allow decision makers, it has also been provided with a specific program and objectives to meet general needs. Also, PPBS properties provide good cooperation between departments, providing a good coordinated performance and leaving it clear. Therefore, each section is having a need to be aware of what services should be implemented and which responsibilities are to be assumed. Consequently, cooperation with other departments will provide the same methodology, assuming that other departments are also using PPBS, which will further provide to establish good relationships (Larry & Christopher, 2012).
Implementation of budgeting systems and their effectiveness
Case Analysis
The improvement of the public budgeting and its application is a circumstance for Woolworths. Analysis of the present literature of two budgeting scheme in this paper has helped to find a lot of information and data about the Woolworths (Woolworths Limited, 2017). Further, research which has multiple sources of evidence before the conduction, using a different source of proof make the case study data collection stronger. According to Yin, the application of multiple sources of proof permits the researcher to address a broader range of historical, attitudinal, and behavioural problems. When multiple sources in application its each of the sources need different access to their query, and each is likely to produce the distinct type of insights. Additionally, each source has its pros and cons, so the brilliance of this case study is provided by using various sources of evidence (Parrino et. al, 2012). Thus, the result gained from a case study with few sources of evidence is conclusive and rigorous
Initially it was observed that the development of public budgeting system was considered to be a mechanism for comments for controlling and keeping the level of information in relation to the outlays of balance and keeping them at minimum (Brown, 2013). Later on, the thought of providing ideas in relation to the public sector and its budgeting contains worshipped aside from the social economic life of the different countries as it was not considered to be a correct measure. the main reason behind this was the policy of the budgetary decision makers for helping and making life better for citizens in terms of socio-economic measures. and because of this there is an upward movement observed in the use of public budgeting. Budgeting have not only helped to support various accounting aspects but also have helped to recognise and control the socioeconomic, executive and politic structure of the public activities (Robinson & Last, 2009).
Conclusion
Budgeting plays a vital role in the financial performance of the public sector through the creation of a strong foundation on the utilisation of the resources that is available and provides direction to the progress of the firm. With the aid of budgeting such limited resources are allocated that help to expand the future course of action for the betterment of the financial performance.
From the analysis of the scenario at Woolworths, it came to the forefront that costs are controlled on the firm for the betterment of the investment. From the study, it is even ascertained that Woolworths wants to enhance their revenue and these are budgeted in a fashion that helps in expansion of the firm. What it strikes the notion budgeting plays a leading role in the financial performance of the firm.
References
Brown, P. (2013). How can we do better?. Accounting Horizons. 27(4), 855–859. DOI https://doi.org/10.2308/acch-10365 [Accessed 3 November 2018]
Balakrishnan, R., E. Labro, and Soderstrom, S. (2014). Cost structure and sticky costs. Journal of Management Accounting Research [online]. 26 (2), p. 91–116. Retrieved from: https://bs4e.auinstallation32.cs.au.dk/fileadmin/site_files/filer_oekonomi/subsites/DCAF/konferencer/Labro.pdf
Drury, C. (2011). Cost and management accounting. Andover, Hampshire, UK: South Western Cengage Learning.
Horngren, C. (2011). Cost accounting. Frenchs Forest, N.S.W.: Pearson Australia.
Merchant, K. A. (2012). Making Management Accounting Research More Useful. Pacific Accounting Review. 24(3), 1-34. Retrieved from https://pdfs.semanticscholar.org/6ccf/f78a452763f17ed5e4f4ddc6b96703801403.pdf
Parrino, R, Kidwell, D. & Bates, T. (2012). Fundamentals of corporate finance. Hoboken
Robinson, M., & Last, D. (2009). Budgetary Control Model: The Process of Translation. Accounting, Organization and Society, NY Press
Larry M. W & Christopher J. S. (2012). Managerial and Cost Accounting, Pearson Press
Woolworths Limited. (2017). Woolworths limited Annual Report and accounts 2017. Retrieved from: https://www.woolworthsgroup.com.au/page/investors/our-performance/reports/Reports/Annual_Reports [Accessed 3 November 2018]
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