Friday, June 17, 2011

For Private sector' budgets are important in profit planning, but budget are costly for not-for-Profit organisations" Respond.


"For Private sector' budgets are important in profit planning, but budget are costly for not-for-Profit organisations" Respond.

A firm should be managed effectively and efficiently. This implies that the firm should be able to achieve its objectives by minimising the use of resources. Thus managing implies coordination and control of the efforts of the firm for achieving the organisational objectives. The process of managing is facilitated when management charts its future course of action in advance, and takes decisions in a professional manner, utilising the individual and group efforts in a coordinated and rational manner. One systematic approach for attaining effective management performance is budgeting.
One should not consider budgets or budgetary control as something rigid or a straight] acket. It is one of the systems whereby the organisation is made both dynamic and cohesive, through the process of targets, achievement of which will mean progress; of allowing a good deal of freedom of action within the delegated field to executives and of seeing to it that all concerned will work in a concerted manner for achieving the firm's objectives. There is always a good scope for initiative and drive but not for recklessness
or too much caution. It is budgeting and budgetary control that can ensure that decentralisation of authority can be introduced and yet seeing to it that the whole organisation will move towards the achievement of its objectives smoothly.
It is a tool of great potency for infusing forward looking dynamism and for harnessing the energies of people at all levels. For this process of budgeting the degree of sincerity behind the whole exercise is of the utmost importance. If the persons working in an organisation are given the challenge of thinking out precisely what more can be done and how, they will realise that a tribute is being paid both to their intelligence and honesty of purpose.
In budgeting, both the financial and physical aspects are incorporated into the budget. Budgeting may also present the operations of an organisation in terms of functions, programmes, activities, and projects. For instance, in performance budgeting, precise detailment of job to be performed or services to be rendered is done. Secondly, the budget is prepared in terms of functional categories and their sub-division into programmes, activities, and projects. Thirdly, the budget becomes a comprehensive document. Since the financial and physical results are interwoven, it facilitates management control.
Whereas budgeting is important in profit planning for private sector, for not-for-profit organisations it is a systematic and formalised approach for stating and communicating the firms' expectations and accomplishing the planning, coordination, and control responsibilities of management in such a way as to maximise the use of given resources. For such organisations it is a management technique which provides a framework for implementing such fundamental aspects of scientific management as management by objectives, effective communication, participative management, dynamic control, continuous feedback, responsibility accounting, management by exception and managerial flexibility.
For such organisations it at least helps in stating firms' expectations or goals in formal terms to avoid confusion and to facilitate their attainability, it helps in communicating expectation to all concerned with the management of the firm so that they are understood, supported and implemented, it provides a detailed plan of action for reducing uncertainty and for the proper direction of individual and group efforts to achieve goals, it helps in coordinating activities and efforts in such a way that the use of resources is maximised, it provides a means of measuring and controlling the performance of individuals and units and supplies information on the basis of which the necessary corrective action can be taken.
Hence, we may conclude that budgeting should not be purely viewed from the financial benefits it brings to the organisation rather the more sophisticated and much more valued gains of it should be recognised and given adequate weightage.

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updated till june 2011