Essay: Importance And Advantages Of Budgeting For Individuals And Organizations.

Provide four (4) specific outcomes or lessons learned from the two studies’ research findings that will be useful for management accountants in Australian companies to learn from, and justify your answer [i.e. provide 2 outcomes from each study].

Types of Budgeting Methods

Budgeting refers to the process by which individual and organization plan and control their expenses and based on that they decide their course of action so that in future they get the desired results. Budgeting is basically the process of plan control and monitor. It is one of best tool for the companies to decide in what ways they are going to use their overall resources and how that shall benefit the company with respect to getting the best future outcomes. There are so many areas where the company and its management needs to focus so having a proper budget helps them in prioritizing their work and accordingly putting the same to best use. It also helps them in analyzing the areas of risk and understanding what are the ways in which they can reduce their overall wastage and cost (Abdullah & Said, 2017). In case the company is not able to function as per the budget than the management can look for reasons that has caused the same and then analyze them to get the desired results between the outcomes and the forecasted outcomes. All this helps in analyzing the company from the professional front and not just for companies budgeting can be used by individuals also, even they can decide their expenses in advance so that they get the desired results in future. There are various kinds of budget that can be made by the companies like sales budget that helps in understanding how much inventory the company needs to stock to fulfil the desired sales target for the company. Thus, it helps in reducing wastage of resources. Cash budget helps in planning the overall cash expenses so that the overall liquidity level of the company is maintained. The companies can also make production budget that helps in analyzing the overall production of finished goods that the company should take into consideration (Boghossian, 2017). There are also options of flexible budget that the companies can make to maintain the price of the wages and the raw materials that the company would need. Now there has been many changes and advances in the overall concept of budgeting, and now the companies are making use of different types of budget like zero based budgeting in which the companies can manage their overall resources and they feel that the company is not able to use it properly and from scratch the management undertakes the need to analyze from the base (Bouret, 2017). All these budgeting methods requires a lot of control and motivation on part of the management of the company and it also requires a lot of cost and effort so that also needs to be checked. The overall advantages and disadvantages of the budgeting process is given below:

• It helps the company in managing the resources of the company and making sure that there is less wastage. It helps in making sure that money is allocated accordingly and making sure that their money is spend on such resources which the company needs. This will help the management in achieving their overall strategies and activities and thus in that process it will help in reduction of the wastage.
• It helps the management in ensuring that there is proper control established and the management can manage their activities to the best of their abilities. Controls helps in making sure that there is least amount of risks and the management can take steps to reduce that. The management can decide which areas they want to focus and which area they don’t want to take into consideration. So that would help in ensuring an uninterrupted approach of power and control and monitoring so that when anything go wrong they can take steps accordingly(Choy, 2018).
• Budgeting helps in developing equations between various departments of the company and it helps in establishing a relationship between the stakeholders and the employees of the company. It helps in employees to understand the overall vision of the company and of the management and they can make better application of the vision of the company. Thus, we see that budgeting is an important method as it will help them managing their resources in the best ways for all the departments(Covaleski, et al., 2003).
• Budgeting helps the company in increasing their overall revenue and profits and reduce the total amount of cost and plan their expenditure better, so we see that on financial aspect also, budgeting is an important method for the companies.

• The major disadvantage that the planning of the budget will require a lot of cost and efforts and hence the companies need to understand that they need to have the expertise which is required to analyse the overall requirements of the company and then prepare the budget in a more organized manner and the budget should be such that it should not be superficial, it should be possible for the companies to achieve that and thus that also is an important part of budgeting(Lavassani & Movahedi, 2017).
• Another disadvantage is that there are so many departments in many companies, and there are high chances that budgeting might cause a rift between the two departments. The company has limited resources and thus they need to strategies which company do they want to invest their resources too. Every department would want that their budget is passed and they get the best resources so we see that there is a lot of rift that might occur between the companies and hence we see that budgeting needs to be done in a balanced manner.
• There is also a major advantage that budgeting only focuses on the financial needs of the company, and they ignore all the other aspects and the other non-financial needs for the company. It means that the management focuses on quantitative needs and not the qualitative needs for the company. But consumer focuses more on qualitative needs and that needs to be taken care off by the company.
• In case of budgeting it the managers are reviewing the same on periodical basis and hence there are chances that the management might fail to monitor how the resources are being allocated and how they are using it and managing it accordingly. It is not possible to review the budget every day, as it will require a lot of time of the company and hence they need to check that accordingly and hence periodic and annual needs of the company should be checked on beforehand(Visinescu, et al., 2017).
• In case of budgeting there are many other ways in which companies can fail, if they do not allocate the resources properly and do not apply them for all the departments in best ways possible. Thus, we see that budgeting can go very wrong and many companies can fail because of that and there can be irrecoverable loss. So, care should be taken that it should be a more balanced approach and unrealistic goals that the companies cannot meet and they would lose a lot(Hansen, et al., 2003).
• Budgeting is not a preferred tool when there is any emergency in the company and then budget as a whole becomes invalid and that time the allocation of resources becomes a very difficult task. Budget can only be prepared based on anticipation and under controlled situations it can work effectively. So we see that in times of despair budgeting does not help.

Research Articles on Budgeting

In this assignment two research articles have been selected that highlights the different aspects of budgeting and their implications. The first journals are “Practice Developments in Budgeting: An Overview and Research Perspective” by Stephen C. Hansen of The George Washington University, David T. Oatley of Lancaster University and Wim A. Van Der Stede of University of Southern California  (Barnes, 2015) and the second journal is “Budgeting Research: Three Theoretical Perspectives and Criteria for Selective Integration” by Mark A. Covaleski and co-authors  (Calvasina & Calvasina, 2017). 

The first article showcases the overall shortcomings that might be present in traditional method of budgeting and the second article highlights the different theoretical approaches on budgeting and helps in showing an integrated study that is based on integrative research done by professionals.

In case of the first budget the authors are discussing the overall drawbacks in the process of budgeting and how does it affect the companies. Budgeting as a process has many disadvantages as most of time budgeting requires a lot of time and cost on part of the management, it also shows that the assumptions that are done by the management are mostly baseless and the aim of the budget is only reduction of cost and not create some value for the users. All this has been discussed in this journal articles, along with methods like activity based budgeting which focuses on the activity based system of budgeting and not the traditional approach. It also highlights methods like beyond budgeting method which focuses on setting some targets and then work and evaluate that based on the past performance of the company (Meroño-Cerdán, et al., 2017). So, we see that there are various methods that companies can apply when it comes to improving the overall quality of the budget. The following research questions can be stated from this study-

• What are the overall drawbacks and disadvantages that are associated with traditional system of budgeting?
• What are the advancement and changes in the traditional system of budgeting that can be applied for better results?

The second article highlights the integration of the various cost accounting with the preparation of the budgets of the company. Budgets involves every aspect of the management like cost accounting, responsibility accounting, measurement of cost compensation etc. Budgeting is applied in every sector and hence it is highly researched. In this they have discussed three theoretical perspective on budgeting and have condemned the use of theoretical approach and focuses more on integrative approach which are restricted to stating alternative assumption and stating the overall effect (Linden & Freeman, 2017). The authors have also stated the various economic values that the budget has with relation to the employees and the authorities of the company. They have also discussed the various budgeting and non-budgeting variable which includes, budgeting variables like compensation practices, capital budgeting, budget base contracts etc. It also includes non-budgeting variables like skills of the employees, sources and structure of information, labor market, welfare of the individuals etc.  Thus, the authors have taken all this perspective into consideration to highlight the various needs of the management. 

Advantages and Disadvantages of Budgeting

The following research questions can be asked-

• What are the implications of the theoretical approach to budgeting and in what ways does it affect the stand of the management of the company?
• What are the various budgeting and non-budgeting variables and how does it affect the process of budgeting for the company? And how can management make the best use of them?

Both the research article is focused on the different aspects of budgeting and how companies can make them better from the traditional system is also analysed in these articles (Naci & Hasan, 2012).

Both the articles highlight the various budgeting based practices that companies can employ and which can help them to make their operations better and improve their performance.

The first journal article highlights the different shortcomings of the traditional system of budgeting and how companies can improve the same is also stated while the second journal article highlights the theoretical approaches of the company that it deals with in case of budgeting. In case of traditional system the companies would incur huge losses given the assumptions made by the management was not logical but in the improved system there are various ways in which the companies can benefit.

The first journal article highlights the shortcomings and improvement in case of budgeting and the second journal articles highlights the different approaches that the company can apply in case of theoretical approach and that should be different from the variable and non-variable variables for the company (Norberg, 2018).

These are the various outcomes that have been found in the stated articles above –

• The first article highlights the need and purpose of effective decision making when it comes to budgeting by stating the overall drawbacks that are associated with this process. It also highlights the that for any business environment it is necessary that changes should be initiated as time passes, because the traditional methods become redundant and thus there is a need for new and better techniques as has been highlighted in this assignment(Linden & Freeman, 2017).
• The second outcome from the first article is that companies should set definite standards and based on that they should prepare the budgets as that would help them in understanding and it would help them in understanding the middle and lower level of management for the company. It also states that there should be continuous updating in the overall system for the company(Cundill, et al., 2017).

From the second journal the following points have been stated-

• In case of the second journal it states that theoretical basis for budgeting is important but there is not applicable from practical point of view and thus that is important that continuous development of the budgeting practices should be with help of constant research and updating. It states that budget is more a quantitative process in real life and in practical world and less a qualitative process and companies should keep this in mind when they are adopting the same.
• The overall budgeting practices that should be adopted by the company but that does not solely depend on the practice that suits the company environment, but it also is dependent on the overall time duration that is required by the companies and is important for the adoption of the budgeting process. Thus, it highlights that practicality should be there when it comes to budgeting as a concept and less inclusion of theoretical knowledge(Raiborn, et al., 2016).  

Conclusion. 

Based on the overall research it can be said that budgeting is an important process that companies need to follow and that helps them in generating the best results possible. It helps them in better allocation of resources and efforts so that better results would come for in the future. It is important that companies should apply various techniques of budgeting in areas that are needed. They should try to make sure that traditional methods are now changing and companies should now adopt better and developed methods like activity based budgeting and many others which can make the process of budgeting easy and help the company in generating best revenue for the company. It is important companies should do specific research when they are applying such tools and should experiment with different kinds of budget so that they can reap the maximum benefit.   

References

Abdullah, W. & Said, R., 2017. Religious, Educational Background and Corporate Crime Tolerance by Accounting Professionals. State-of-the-Art Theories and Empirical Evidence, pp. 129-149.

Barnes, J. L. (2015). How to Tell If Standard Costs are Really Standard. Journal of Management Accounting Research, 25(3), 130-143. 

Boghossian, P., 2017. The Socratic method, defeasibility, and doxastic responsibility. Educational Philosophy and Theory, 50(3), pp. 244-253.

Bouret, I., 2017. Benefits of higher education in mid-life: A life course agency perspective. Journal of Adult and Continuing Education, 23(1), pp. 15-31.

Calvasina, R. V., & Calvasina, E. J. (2017). Standard Costing Games that Managers Play. Journal of Management Accounting Research, 12(2), 33-65.

Choy, Y. K., 2018. Cost-benefit Analysis, Values, Wellbeing and Ethics: An Indigenous Worldview Analysis. Ecological Economics, p. 145.

Covaleski, M., Evans, J., Luft, J. & Shields, M., 2003. Budgeting Research: Three Theoretical Perspectives and Criteria for Selective Integration. JOURNAL OF MANAGEMENT ACCOUNTING RESEARCH, 15(3), pp. 3-49.

Cundill, G., Smart, P. & Wilson, H., 2017. Non?financial Shareholder Activism: A Process Model for Influencing Corporate Environmental and Social Performance. International Journal of Management Reviews, 20(2), pp. 606-626.

Hansen, S., Otley, D. & Stede, W., 2003. Practice Developments in Budgeting: An Overview and Research Perspective. JOURNAL OF MANAGEMENT ACCOUNTING RESEARCH, 15(2), pp. 95-116.

Lavassani, K. & Movahedi, B., 2017. Applications Driven Information Systems: Beyond Networks toward Business Ecosystems. International Journal of Innovation in the Digital Economy.

Linden, B. & Freeman, R., 2017. Profit and Other Values: Thick Evaluation in Decision Making. Business Ethics Quarterly, 27(3), pp. 353-379.

Meroño-Cerdán, A., Lopez-Nicolas, C. & Molina-Castillo, F., 2017. Risk aversion, innovation and performance in family firms. Economics of Innovation and new technology, pp. 1-15.

Naci, T. & Hasan, O., 2012. The Measurement and Management of Unused Capacity in a Time Driven Activity Based Costing System. Journal of Applied Management Accounting Research, 10(2), pp. 43-55.

Norberg, P., 2018. Bankers Bashing Back: Amoral CSR Justifications. Journal of Business Ethics, 147(2), pp. 401-418.

Raiborn, C., Butler, J. & Martin, K., 2016. The internal audit function: A prerequisite for Good Governance. Journal of Corporate Accounting and Finance, 28(2), pp. 10-21.

Visinescu, L., Jones, M. & Sidorova, A., 2017. Improving Decision Quality: The Role of Business Intelligence. Journal of Computer Information Systems, 57(1), pp. 58-66.