Budgeting.

A budget is defined as a comprehensive and coordinated

plan, expressed in financial terms for operations and resources of an

enterprise for some period in the future. Khan & Jain (2007)

According to Rajasekaran (2010), the process of preparing,

implementing and the operating of budgets can also be referred to as

budgeting. It is a method of planning ahead for a specified time and it tries to

provide an action plan to problems that may possibly arise. The main

objective of budgeting is to fix and attain goals for different levels of business

organizations.

Many start-up business owners begin their operation with a wave of

optimism and enthusiasm. But without a well thought out budget, it may be

difficult for them to create a successful action plan. When running a business,

managers are easily affected with day to day problems and miss the bigger

picture. To be successful in a business venture, managers should allocate

time to create and manage budgets, prepare and review business plans and

regularly monitor their financial situation and business performance.

As per Rajasekaran (2010), budgeting identifies current available

capital, provides an estimate of expenditure and anticipates incoming

revenue. With proper budgeting, businesses can measure performance in

contrast to expenditure and ensure that resources are available and are used

efficiently to support business growth and development. Budgeting enables

the business owner to concentrate on cash flow, reducing costs, improving

profits and increasing returns on investment.

budget may leave an individual just running around in circles and not meeting

their long-term goals. Making time in setting up a budget will provide the best

chance of attaining the rewards of hard work.

Some research suggests that control systems such as budgets

become more important in economic crises (Czarniawska-Joerges, 1988;

Colignon & Covaleski, 1988). Extant research shows that budgeting can play

an essential role in forecasting economic crises, because “the organization’s

accounting control system (including budgeting processes) facilitates

adaptation to these externalities by mediating between external threats and

opportunities, and the organizational functioning” (Collins, et al., 1997 and

Colignon & Covaleski, 1988, 576). Samuelson (1986), looking at the Swedish

economic crisis, reports that budgeting became more important. Also drawing

on Swedish data, Czarniawska-Joerges (1988) presents the case of a

company that had previously only loosely coordinated its different business

units but because of the economic crisis switched to using central guidelines,

goals set by headquarters, and formalized planning procedures. She thereby

confirms studies that find theoretical and empirical evidence suggesting that

the “almost reflexive response of management to a decline situation is one of

tightening control”.

However, other evidence refutes that and claims that budgeting

becomes less important (Collins, Holzmann, & Mendoza, 1997) or that

companies survive crises better without budgeting (Lindsay & Libby, 2007).
the higher unpredictability that exists in economic crises (Plaschke, Roghé, &

Günther, 2011) renders budgets inadequate because budgeted numbers are

fixed and do not allow organizations to be responsive (Arwidi & Samuelson,

1993). Also Collins et al. (1997), in their survey of the relationship between

strategy and budgetary usage in political and economic crisis situations in

Latin America, find a reduced importance of budget use, noting that in general

a “high crisis reduces the usefulness of the budgetary system” ( Kattan, Pike,

& Tayles, 2007, Shih & Yong, 2001). Taken to the extreme, the views

presented by these studies would suggest ignoring budgets in crisis situations

(Hopwood, 2009; Van der Stede, 2011) or even abandoning budgeting

entirely, as advocated by proponents of Beyond Budgeting (Hope & Fraser,

2003).

In 2015, Shauffer et al. identifies several function of budgeting. The first

one is the planning. This function is associated budgets being “a concerted

plan of action”, integrating all actors in the organization, and may serve to give

a realistic “picture of a likely and desired future” to internal and/or external

stakeholders (Parker, 2002, 309; see also Epstein & Manzoni, 2002).

The second factor is Resource allocation. It is the combination of the

two budgeting functions of resource allocation itself and the authorization of

spending. These gives emphasis in the need for an a priori identification of

resources to achieve operational goals, analyzing different suggestions

regarding resource consumption, and the authorization of spending based

upon criteria such as suitability and feasibility (for similar arguments, see

Parker, 2002 and Drury, 2009).

budgeting functions of performance evaluation and rewards. These functions

aim to evaluate performance based on the attainment of budget targets and to

motivate managers through budgeting, respectively (Samuelson, 1986;

GignonMarconnet, 2003).

Four stages of budgeting process have been identified: 1)

identification, 2) development, 3) selection, and 4) control. The identification

stage comprises the overall process of project idea generation including

sources and submission procedures and the incentives/reward system. The

development stage involves the initial screening process relying primarily

upon cash flow estimation and early screening criteria. Suggested areas of

study within this stage include the extent of screening of project ideas, how

ideas get turned into proposals, the level of review, the screening criteria, and

the role of project size and organizational structure. Perhaps more

importantly, this stage also focuses on firm data-gathering efforts, viz., the

extent to which companies use accounting vs. cash flow data, the details of

how the data is estimated, the responsible personnel, and the decision

support system. The selection stage includes the detailed project analysis that

results in acceptance or rejection of the project for funding. selection stage is

arguably the most involved since it includes the choices of analytical

methods/techniques used, how the cost of capital is determined, how

adjustments for projects risks are assessed and reflected, and how, if

relevant, capital rationing affects project choice. The selection stage has also

been the most investigated by survey researchers, particularly in the area of

selection techniques, resulting in a relative neglect of the other stages. Finally,

control purposes and continuous improvement for future decisions. Suggested

areas of study within this stage include research into: how project

performance is evaluated, by whom, how it is done, what happens when

expected and actual results differ, whether there is an expenditure control

procedure, whether management is rewarded or punished for such

discrepancies, and if so, how? The control stage received some significant

attention, particularly in the early part of the review period

Czarniawska-Joerges, B. 1988. Dynamics of organizational control:

The case of Berol Kemi AB. Accounting, Organizations and Society 13 (4):

415-430.

Czarniawska, B., and B. Hedberg. 1985. Control cycle responses to

decline. Scandinavian Journal of Management Studies 2 (1): 19-39.

Colignon, R., and M. A. Covaleski. 1988. An examination of managerial

accounting practices as a process of mutual adjustment. Accounting,

Organizations and Society 13 (6): 559-579.

Hope, J., and R. Fraser. 2003. Beyond Budgeting: How managers can

break free from the annual performance trap. Boston, MA: Harvard Business

School Press.

Hopwood, A. G. 2009. The economic crisis and accounting:

Implications for the research community. Accounting, Organizations and

Society 34 (6-7): 797-802.

Parker, L. D. 2002. Twentieth-century textbook budgetary discourse:

Formalization, normalization and rebuttal in an Anglo-Saxon environment.

European Accounting Review 11 (2): 305-327.

Epstein, M. J., and J.-F. Manzoni. (2002). Reconciling conflicting roles

of budgets: Review and survey of corporate practices. Working paper, Rice

University and INSEAD.

Drury, C. 2009. Management accounting for business (4th ed.).

London: Cengage Learning.

Accounting, Organizations and Society 11 (1): 35-45.

Collins, F., O. Holzmann, and R. Mendoza. 1997. Strategy, budgeting, and

Lindsay, R. M., and T. Libby. 2007. Svenska Handelsbanken: Controlling a

Plaschke, F., F. Roghé, and F. Günther. 2011. The art of planning. Boston,
MA: Boston Consulting Group (BCG) – Perspectives

Arwidi, O., and L. A. Samuelson. 1993. The development of budgetary control

Kattan, F., R. Pike, and M. Tayles. 2007. Reliance on management

Shih, M. S. H., and L.-C. Yong. 2001. Relationship of planning and control
systems with strategic choices: A closer look. Asia Pacific Journal of
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Van der Stede, W. A. 2011. Management accounting research in the wake of