This essay is intended to get you thinking about the use of budgeting in an organisation. There are many
different types of budgets. This week, you will consider different budgeting approaches such as flexible,
zero-based and rolling budgets in organisations.
Consider the following questions:
�Consider the value of budgeting for an organisation.
�Consider the different budgeting approaches.
�Consider the behavioural aspects of budgeting.
�Consider different budgeting approaches in an organisation.
�Consider how the budgeting approaches may differ among various organisations, such as a Fortune
500 company, a small business or a non-profit.
�What are the characteristics of a budgeting system among the various organisations?
�What are some of the ethical issues related to budgeting and the successful implementation of a
budget?
In an approximately 500-word response, address the following issues/questions:
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�I don�t need a budget; I run my own business so it�s all in my head. Bothering with a budget would
just be a waste of time and money!�
Do you agree or disagree with this point of view? Discuss the value of budgeting for organisations of all
sizes and types in terms of effective resource management. Explain what characteristics of a budgeting
system are most likely to contribute towards its successful implementation and how a lack of these might
result in ethical problems.
I disagree with the point of view that there is no need for a budget because the individual runs his
own business. Having a budget is not a waste of money but rather a way of managing the
business affairs to promote effective allocation of resources and ensure accountability. Budgets
add significant value to businesses of any size as discussed below.
Businesses need a budget because a budget helps in making goals that are well aligned to its
objectives. Walker (2009, p. 68) notes that budgets actually help business owners to set the level
of profitability desired for their businesses by making plans that will ensure that the goal is
achieved. This may include reducing costs, sourcing cheaper products or reducing prices to
promote sales among other strategies. In addition, it ensures that the employees are well
informed of the budget limits against organizational goals so that they can work towards
achieving them.
Budgets help a business owner to effectively monitor financial position of the business by
assessing revenues versus income from various products and services. This helps to eliminate
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items that may be affecting the business negatively and boost favorable items to promote
profitability (Walker, 2009, p. 64). The owners can also adjust the budget in such a way that
finances are directed towards activities that promote business success.
Budgets help the business to deal with unpredictable market changes and thus easily adapt to
change (McFarlane, 2008, p. 71). A business owner would therefore be in a position to make
necessary changes in the event that the price of supplies goes up for example; ensuring that the
business does not suffer losses. A budget also facilitates decision making. In the event that the
business requires to buy a new machine for the business, the budget will inform the owners
whether it is affordable or the period required for the business to accumulate enough money to
make the purchase.
In order for a budgeting system to work effectively and contribute towards its successful
implementation, it must possess various characteristics. They must however promote ethical
values in order to enhance moral ground (Singh, 2011, p. 386)
To begin with, budgets are a forecast of the organization’s operations, and in order to enhance
effective implementation, the budget must be as realistic as possible to ensure that the set
objectives can be met within the required standards. Failure to develop a realistic budget may
lead to ethical issues as managers seek to attain the projected profits within the specified budget.
If the expenditure is underestimated for example, the manager may be forced to use
unscrupulous methods to reduce costs such as the use of low quality material, which may in turn
lead to injustice for the customers (McFarlane, 2008, p. 87). Where overstated, managers may
channel the excess budget for their benefit through unethical practices; hence the need to
effectively balance the budget.
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Budgets inform business strategy and are a representation of the organization’s goals and
objectives. In order for them to be effectively implemented, they should align with the business
strategy and thereby give direction to the organization as a whole. However, the process of
budget making has been underrated and ethical issues related to poor execution have emerged.
Santosousso (2013, p. 4) notes that most budget makers, especially management consultants
barely take time to make a new budget. Instead of focusing on value creation, they focus on costs
and merely adjust the previous year’s budget fore revenue growth. This is a serious ethical issue
that may lead to poor outcomes for the organization because their budget fails to align with the
business strategy.
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References
McFarlane, M. (2008). Business Strategy. New York: John Wiley and Sons.
Santosuosso, P. (2013). Integration of ethical values into Activity-Based Budgeting. International
Journal of Business Management , 8(20), p. 1-13.
Singh, J., (2011). Determinants of effectiveness of corporate code of ethics: an empirical study.
Journal of Business Ethics, 101, 385 – 395.
