The Budgeting Proccess

Essay by daqoosUniversity, Master's September 2006

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Budgets are important tools to every management. It is what expenses are expected to occur to run a business and what income or revenue is expected within a time frame. Now a days spending has been easier, as credit lines can be established with banks and other financial institutions. Individuals, companies and governments need to adopt more effective budgeting methods and strategies to balance their outflows and inflows to avoid over spending and run into deficit.

At present most companies and large businesses reforecast their original budgets on a quarterly basis. As months pass, the actual income and expenses are compared to the budget forecast. The variances between the budgeted figures and the actual ones are than analyzed to provide information that can improve the performance. now some businesses have also introduced monthly forecasts to provide an up to date information which will help the management stay the course with its budgeted plan.

"However, theories of behaviour exist in most subfields of political science yet, after seventy years of research, there is still no theory of budgeting. Lack of consensus on the proper focus approach to and status of budgeting theory as well as disagreement on a basic definition of the concept have militated the conceptual discourse and iterative debate necessary to develop theory. The degree of effort required and rewards of theory development also retard theory formation. Consequently, progress in budget formation, administration, and politics has not advanced as it might if theory were available to examine and explain budget processes". (B. L Neuby 1997)

Before you get started with the budget, one will have to focus on the strategic objective of the company and where it will be heading for at least five years from now. That what we call the strategic planning, which will include the...