Budgeting: a systematic approach to profit planning and control

Thesis Overview

<p> </p><p><strong>1.0 &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</strong><strong>INTRODUCTION</strong></p><p>The growing complexity of the business environment and the ever increasing competition among firms in the modern time, make planning an invaluable tool for business success. &nbsp;Successful management is no longer just a matter of flair, skill and determination, a conscious effort is needed to harness available resources towards the achievement of enterprise objectives. &nbsp;Budgeting is one of the tools adopted by management for effective cost planning and control.</p><p>A budget is commonly understood &nbsp;the forecast by a government, organization nor society of its expenditures and revenues for a specific period of time. &nbsp;The &nbsp;period covered &nbsp;by a budget is usually a year known as financial year. &nbsp;Budgeting is concerned with the utilization of financial resources to serve human needs. &nbsp;Although a budget may be characterized by a series of goals with price tags attached. &nbsp;It is mainly a mechanism for making choices among alternative expenditure. &nbsp;When such are coordinated so as to achieve desired goals, the budget becomes a plan. &nbsp;If there are specifications on how the goals are to be achieved, the budget becomes a psychological device to make administrators thin. &nbsp;If however, the emphasis is placed on achieving the desired objective at the lowest possible cost, then the budget is an instrument for ensuring efficiency.</p><p>An enterprise which is effectively and efficiently managed produces good and rewarding result. &nbsp;Management is efficient if it is able to accomplish the objectives with minimum efforts and costs.</p><p>Profit planning and control or budgeting is an integral part of management. &nbsp;The financial manager has a particular interest in profits planning and control because he helps to regulate flows of funds which is his function. &nbsp;The decision making process of management starts with planning. &nbsp;‘Planning is the design of a desired future and of effective ways of bringing it about. &nbsp;In other words, planning involves the determination of the future course of action for accomplishing the objectives of the enterprise. &nbsp;The basic purpose of planning is to provide guidelines for making decisions. It is a forward process to reducing uncertainty about the future.</p><p>Planning is a continuous process which would generally involve four fundamental steps.</p><p>1. &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; Establishing the objectives</p><p>2. &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; Determining the goals</p><p>3. &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; Developing strategies</p><p>4. &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; Formulating profits plans or budget.</p> <br><p></p>