Introduction
The objective of this documentary research is to present a coordinated summary of the concepts that constitute the theory of budgets from the perspectives of different authors. Principles, concepts, terms and topics that will allow decision-makers in companies to have a conceptual basis as a guide.
The way in which the different themes have been organized will allow the reader to go from the general to the particular and make clear the whole conceptualization of the budgets.
Summary
Here are some concepts about Business Budgeting. Budget Concept, Budget Functions, Importance of the budget, Objectives of budget preparation, Budget Purposes, Budgeting Principles, Reasons for Budgeting failure, Budget calendar and some terms and definitions on Budgets.
1. What is a budget
It is an action plan aimed at meeting a planned goal, expressed in values and financial terms that must be met in a certain time and under certain conditions, this concept is applied to each responsibility center of the organization.
2. Functions of budgets
- The main function of budgets is related to the financial control of the organization. Budgeting control is the process of discovering what is being done, comparing the results with its corresponding budgeted data to verify the achievements or remedy the differences. Budgets can play both preventive and corrective roles within the organization.
3. Importance of budgets
They are useful in most organizations such as: utilitarians (business companies), non-utilitarians (government agencies), large (multinationals, conglomerates) and small companies
- Budgets are important because they help minimize risk in the organization's operations. Budgets keep the company's operations plan within reasonable limits. They serve as a mechanism for reviewing company policies and strategies and directing them towards what is truly sought They make it easier for the members of the organization to quantify in financial terms the various components of their total plan of action Budget items serve as guides during the execution of personnel programs in a given period of time, and serve as a standard of comparison once plans and programs have been completed Procedures induce consulting specialists to think about the total needs of companies,and to dedicate themselves to planning so that the various components and alternatives can be assigned the necessary importance. Budgets serve as a means of communication between units at a certain level and vertically between executives from one level to another. A network of budget estimates is filtered upward through successive levels for further analysis. Gaps, duplications, or overlaps can be detected and addressed as managers observe their behavior in relation to budget performance.A web of budget estimates is filtered upward through successive levels for further analysis. Gaps, duplications, or overlaps can be detected and addressed as managers observe their behavior in relation to budget performance.A network of budget estimates is filtered upward through successive levels for further analysis. Gaps, duplications, or overlaps can be detected and addressed as managers observe their behavior in relation to budget performance.
4. Objectives of the budgets
- Comprehensively and systematically plan all the activities that the company must develop in a given period Control and measure quantitative and qualitative results and set responsibilities in the different dependencies of the company to achieve the fulfillment of the planned goals Coordinate the different centers of cost to ensure the progress of the company in an integral way.
5. Purposes of the budgets
- Plan the results of the organization in money and volumes Control the management of income and expenses of the company Coordinate and relate the activities of the organization Achieve the results of periodic operations.
6. Classification of budgets
Budgets can be classified from different points of view, namely: 1) According to flexibility, 2) According to the period of time they cover, 3) According to the field of applicability of the company, 4) According to the sector in which they are used.
6.1 According to flexibility
6.1.1 Rigid, static, fixed or assigned
They are those that are prepared for a single level of activity and do not allow the necessary adjustments to be made due to the variation that occurs in reality. They put aside the environment of the company (economic, political, cultural etc.). These types of budgets were previously used in the public sector.
6.1.2 Flexible or variable
They are those that are made for different levels of activity and can be adapted to the changing circumstances of the environment. They are widely accepted in the field of modern budgeting. They are adaptive dynamics, but complicated and expensive.
6.2 According to the period of time
6.2.1 Short term
They are those that are carried out to cover the planning of the organization in the cycle of operations of one year. This system is adapted to countries with inflationary economies.
6.2.2 Long-term
These types of budgets correspond to the development plans generally adopted by states and large companies.
6.3 According to the field of application in the company
6.3.1 Operational or economic
They take into account the detailed planning of the activities that will be developed in the period following which they are developed, and their content is summarized in a Statement of Profits and Losses. Among these budgets we can highlight:
- Sales Budgets: Generally they are prepared by months, geographic areas and products. Production Budgets: They are commonly expressed in physical units. The information necessary to prepare this budget includes types and capacities of machines, economic quantities to be produced and availability of materials. Purchasing Budget: It is the budget that provides for the purchases of raw materials and / or merchandise to be made during a certain period. They are generally made in units and costs. Cost-Production Budget: Sometimes this information is included in the production budget. By comparing the cost of production with the selling price, it shows whether the profit margins are adequate.Cash flow budgeting: It is essential in any company. It should be prepared after all other estimates have been completed. Flow budget shows anticipated receipts and expenses, amount of working capital. Master Budget: This budget includes the main activities of the company. It collects and coordinates all the activities of the other budgets and can be thought of as the "budget budget."
6.3.2 Financial
These budgets include the items and / or items that affect the balance sheet. There are two types: 1) Cash or Treasury and 2) Capital or capital expenditures.
- Treasury Budget. It takes into account the predicted estimates of funds available in cash, banks and securities of easy to make. It can also be called a cash or cash flow budget because it is used to forecast the monetary resources that the organization needs to develop its operations. It is formulated for short periods, monthly or quarterly. Budget of capitalizable expenses. It is the one that controls, basically all investments in fixed assets. It allows evaluating the different investment alternatives and the amount of financial resources required to carry them out.
6.4 According to the sector of the economy in which they are used
6.4.1 Public Sector Budgets
are those that involve the plans, policies, programs, projects, strategies and objectives of the State. They are the most effective means of controlling public spending and they contemplate the different resource allocation alternatives for expenses and investments.
6.4.2 Private Sector Budgets
They are used by private companies. They are also known as business budgets. They seek to plan all the activities of a company.
7. Principles of budgeting
7.1 Forecast Principles
There are three: 1) Predictability, 2) Quantitative determination and, 3) Objective.
7.2 Planning Principles
The following stand out: 1.) Forecast. 2.) Costability, 3.) Flexibility, 4.) Unity, 5.) Trust, 6.) Participation, 7.) Opportunity and, 8.) Accounting by areas of responsibility.
7.3 Organization principles
They are: 1) Order and 2) Communication.
7.4 Principles of management
The following stand out: 1) Authority and 2) Coordination.
7.5 Control principles
They are: 1) Acknowledgment, 2) Exception, 3) Norms, and 3) Cost Awareness.
8. Reasons for the failure of budgeting
Management must organize its financial resources, if it wants to develop its activities, establish solid operating bases and have the support elements that allow it to measure the degree of effort that each unit has to achieve the goals set by senior management already at the same time, specify the resources that must be assigned to the different units that directly or indirectly help the operations plan.
Budgeting can fail for a number of reasons:
- When only the conventional figures and the demonstration tables of the moment are studied without taking into account the antecedents and the causes of the results When the administrative responsibility of each area of the organization is not clearly defined and those responsible do not understand their role in the achievement When there is no adequate coordination between various hierarchical levels of the organization When there is not a good level of communication and therefore, there are resentments that disturb and prevent the contribution of collaborators to achieve the budgeted goals. There is no accounting system that creates trust and credibility. When you have the "illusion of control" that is, managers trust the formulations made in the budget and forget to act in favor of results.When there are no effective controls over budgeting When the organization's policies are not followed.
9. Budget calendar
It is the agenda in which the execution and control (evaluation) of the budget are defined over time. It depends on the type of organization and can be daily, weekly, biweekly, monthly, quarterly, semester or yearly.
10. Organization of the budget
Every organization, when formulating its plans, must specifically delimit the powers and responsibilities, so that each person knows how to act without fear of overstepping or harming the rights of other people. An organic and objective plan shows management who must be held accountable for each phase along the way
11. Definition of terms
- OBJECTIVES: Goals towards where the efforts and resources of the company should be focused. Three are basic: survival, growth and profitability. POLICIES: Series of principles and lines of action that guide behavior towards the future. PLANS: Set of decisions to achieve the proposed objectives. STRATEGY: Art of directing operations. How to act in a given situation PROGRAM: Each of the specific parts of a plan to which the necessary resources are assigned to achieve the proposed goals ORGANIZE: Assign human, economic and financial resources, structuring them in a way that allows achieving the goals of the companies.EXECUTE: Put the plans into motion.CONTROL: Compare what was planned against what has been executed. It includes the assignment of responsibilities and,the measurement of the forecasts in terms of variations and causes of them.PREVER: Determine in advance what is going to produce.
12. Biography
- BURBANO, Jorge and ORTIZ, Alberto. Budgets: Modern Approach to Planning and Resource Control. Mc Graw Hill Bogotá. Second Edition NATIONAL ASSOCIATION OF ACCOUNTANTS. Financial analysis to guide capital expenditure decisions. Research Report 43. New York. 1967.SARMIENTO, Euclides Alfredo. The theory budgets and applications. District University. Bogota 1989.
Next, Professor Daiel García, from ISIV, makes an introduction to the subject of budgets, describing what they are and what is their importance for organizations, among other aspects. (2 videos - 15 minutes)
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