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Importance of Budget Planning for Organizations

Know Importance of Budget Planning for Organizations

Budget Planning For Organizations

The purpose of the dissertation is to throw light on the importance of budget planning for organizations. With respect to this, the dissertation provides a good understanding about budget planning in terms of reviewing the amount of the cash inflow and outflows. The planning for budget not only aids in forecasting or planning of the business activities, but it manages and coordinates activities in an effective way.

The literature review section will focus on related literary sources with respect to what is budget, why do we need budget, how to prepare budget, kind of budget, budget as motivation tool, communication of budget, budget and organization vision and mission, participating of budget and lastly budget as motivation tool. In this part, all the literary sources will be analyzed and evaluated critically to assess different researcher’s arguments in context to this topic. In the research methodology, the exploratory research method is selected because this method provides a combination of two or more data collection methods. The experience survey is conducted with survey questionnaire and the opinion of financial analyst and mangers will be taken regarding the budget planning for organizations. Under exploratory research method, literature survey has been used that conducted in the form of literature review with critical analysis of relevant sources.

The data obtained from experience survey will be analyzed in the findings and analysis section of the dissertation. The usefulness of budget planning for organizations will be analyzed from the responses collected from survey questionnaire. In the last section dissertation, conclusion and recommendations will be given to organizations to reflect the importance of budget planning.

Introduction to Research Planned

The research planned focuses on the importance of budget planning for organizations. The main purpose of the dissertation is to reflect how a good budget planning can helps organization to run smoothly. A thorough study of the research provides in-depth knowledge and information about budget encompasses definition of budget, need of budget, steps in budget formulation, types of budget, communication of budget, budget as motivation tool and so on.

A budget can be defined as an action plan which is made to achieve organizational financial goals. The budget planning process in an organization is focused on projection of expenses and income in terms of near future. The budget planning process is now become the most useful financial tool for organization because it can helps in attaining organizational goals and objectives within limited capital funds. Only with good and right budget planning, organizations can effectively make resources allocation along with find gap between standard and actual performance and formulate future business plans effectively. It is a general practice in most of the organizations to prepare the budget annually to have an idea of projected income and expense over specific duration of time.

The past financial performances are reviewed and further reviewed information is being used for new projections in the budget process. Budget process are of various types include cash budget, production budget, sales, income and expenditure budget, In concern to the budget classification, various other kinds of budget are fixed, flexible, zero base budget and master budget. It is essential to have idea of both fixed and variable costs incurred by an organization. In this context, budget planning process includes the identification of fixed and variable costs occur in an organization assists in the proper allocation of funds (Label 2010).

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The budget planning process comprises various steps which includes setting of organizational goals and objectives, chosen of appropriate strategies, and formulation of budget. In the budget planning process, initially organizational objectives and goals are identified and then it is followed by the selection of strategies appropriate to attain defined goals and objectives and goals. Lastly, the financial planning or we can say that projection of future income and expenses is to done to maximize the organizational profit. The process of budget planning is completely internal process for organizations, but there needs to be considered various external factors such as market and business conditions, government rules and regulations, and the traits and composition of consumers to make effective financial budget (Duchac, Reeve and Warren 2011). All in all, the financial and operational goals can easily be attained through budget as this comprehensively contains quantitative details.

Background of the Research

The dissertation main background is to emphasize on importance of budget planning for organizations. With respect to the research topic, general information about budget and its usefulness for organizations is being covered under this. In addition to this, the important factors which required to be considered in the budget planning process are also discussed. For organizations, budget planning is one of the effective financial tools, which improves the control system of the organization on its employees and on various internal functions. The long term financial health and sustainability of any organization highly depends on cash management and budgeting.

An organization suffered from lack of liquidity due to ineffective cash conversion cycle. In line with this, budget planning is important to project cash and describe the time and amount of revenues to be received and expenses to be paid out. Moreover, budget planning helps organizations in planning and managing their capital projects as this provides projections for future income and expenditure. About one or more than one year, capital projects require funding and thereby; it is necessary to proper budget planning to availability of funds as per planned activities (Dropkin, Halpin and Touche 2008).

In the today’s market environment of high financial instability, budget planning is now become more important through which it could be easy to predict the current and prospective capital market and take decision about fund raising and spending during the year. A good budget planning is highly crucial for organizations as this includes determination of set of activities which need to be followed to achieve organizational goals and objectives. With the budget planning, organizations can successfully operate its all operation departments and different segments.

Budget planning helps in forecasting and managing funds. On the basis of this, organizations can determine about what should be done in an organization, when it should raise funds, how to make certain changes to keep off running out of money. Overall, budget planning helps in managing funds effectively by projecting their revenues and expenses over period of time (Importance of budgeting and financial management for small business 2009).

Budget planning is focused on determining organizational vision and mission and thus; long term financial and investment planning easily to be taken and attain lucrative market opportunity. The blueprint of future action or rough estimation of future expenditure and revenues is referred as budget. Just like other operation phases, planning and preparing financial budget is equally important for organization, which guides organizations in attaining destinations (Wong 2011). The budget planning also attempts to identify the potential problems that can occur in an organization as budgeted goals can be used as base to find gap between actual and budgeted results (Roberts 2008). Besides that, Quitt (2010) has noted in context to the budget planning that planned budget assists all employees working in different departments get aware of their responsibilities and to communicate organizational expectations from them. An in-depth analysis and study of the dissertation provides good knowledge about importance of budget.

The research background also covers kinds of budget and analyze budget as motivation financial tool. The factors influenced budget planning is also being discussed as these factors are directly or indirectly related to an organization operations. In the budget planning, trade-offs and the prioritization of programs should be given due considerations because it helps in preparing an effective budget that fits well to policies and priorities. In the current scenario, most of the organizations keep budget manuals which communicates require and essential information to organization managers and related heads for smoothly carrying out business activities.

Aims and bjectives

The desired business goals and objectives can easily be attained with well planned budget. Budget planning is the most crucial for proper financial planning through which future business growth can accomplished effectively. The financial funds can easily be channelizing in the right direction only with efficient budget planning as it keep track of financial transactions. All in all, the success and growth of organizations depends on the proper allocation of its financial resources. With respect to the research topic, the research is aimed to analyze the importance of budget planning in an organization. The research paper is also focused on to analyze and evaluate the factors which are supposed to be considered in the budget planning and also evaluate budget as motivational tool.

To obtain pertinent evidences, various objectives of this research paper are defined below:

Research Question

A well defined research question pertinent to the research topic and area of study is very helpful in defining in attaining defined aim and objectives through this research study. For this research study, the defined research question is, “How budget planning is important for the success of business organizations?” The importance of budget planning for organizations in the highly competitive market and unstable market can analyzed with the stated research question. In simple terms, need of budget for future business success can be analyzed and assessed with this study. The research question defined aids in identifying advantages of budget planning such as monetary control, estimation of resources, and transparency.

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Rationale behind Research

A well planned budget plays a great role in the success of any business organization. Budget is prepared according to the requirements of the organization so that it can help business in achieving its goals and objectives. A well planned budget is significant to organizations in different ways. It is not only helpful in determining the profitability of the organization but it also provides important information about the cash flow in the organization. In the field of finance, budget planning is the most significant to understand and project the future expenses.

The budget provides information to managers about the flow of money through depicting the source from where money raises and where it is utilized in the organization. This information is extremely useful for managers as they can keep check and remain updated about the financial resources of their organization. Budget planning is done in organizations so that the profit or loss at the end of the year can be predicted. The future financial analysis helps the managers in proper utilization of the available resources in an organization (Ufomadu 2004).

The most important factor of a well planned budget is that it helps in prioritization of the liabilities so that they can be paid in the same order. A well planned budget helps the management to focus on the profitable opportunities in the organization. It can be said that well planned budget is important for the proper utilization of the financial resources of an organization to maximize the profit (Hansen 2003). Overall, depth study of the research is highly worth doing through which in-depth information about budget can easily be gained in both theoretical and practical terms.

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Summary

The given introduction chapter is the significant part of the dissertation which covers background of the research with aims and objectives, research question, and rationale of the research. The main background of the dissertation is to explore importance of budget for organizations. Additionally, it also covers budget and its kinds, budget as motivational tool, and communication of budget. The research is aimed to assess budget planning importance with respect to success and survival of the organizations in the competitive market scenario. The defined research aim helps in knowing about budget and how does planned budget can helps in the successful and smooth running of business organizations.

This explores significance of budget planning in the highly competitive and instable financial environment. It is also summarized that study of budget planning importance is highly crucial for managers to keep financial transactions record and to plan out future projects. All in all, budget provides good projection of future expenditure and revenues through which organizations can effectively allocate financial resources and take various decisions like when to raise funds and when to paid out. The budget planning is the significant financial tool to assess gap between actual and standard expenses and also analyze whether an organization have enough funds to meet defined organizations aims and objectives.

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