Why is Budgeting Essential for the Growth of an Organisation
Name
Institution
Date
Introduction
In every organization, budgeting play a crucial role in the management of resources. A budget enables an organization to control and plan the systems. The financial plans in a company are organized in terms of performance objectives and goals. The performance reports in every month compare budgeted outcomes with real results. In order to control its operations, a firm can assess the performance reports and initiate appropriate corrective actions (O’Neal 2012, p. 12).
The reason why the researcher selected the topic is because efficient budgeting in an organization enables proper administration of a business. In addition, budget assist in efficient operations of business functions such as controlling, directing, staffing, organizing and planning. However, the first function of a manager is to plan. In addition, the plan is implemented through directions tasks, staffing and organizing (Besley and Brigham 2005, p. 67). In order to control tasks, a manager provides necessary strategies of reporting and observation to assess how the outcomes relate to the plans (Sun and Lynch 2008, p. 6). The rationale of this study is to investigate the importance of a budget in the growth of an organization. The study will determine why the management must use the budget to improve the performance of the organization.
Research Statement
The main aim of this research is to determine the importance of budgeting in the growth of an organization.
Research Objectives
To determine the roles of budgeting in planning organizations operations
To determine the roles of budgeting in controlling the operation of a firm
Research Questions
What are the roles of budgeting in planning for the organizations operations?
What are the roles of budgeting in controlling the operations of a firm?
LITERATURE REVIEW
The roles of budget in planning organization operations
Planning of the functions of managements is oriented to the future business success of the organization. According to Libby and Lindsay (2010) a plan is a strategy that explain what the manager intends to do. A manger controls many variables in an firm, which includes human resources, methods of producton, products, equipment and financial resources (Libby and Lindsay 2010, p. 19). Similarly, Stone (2015) noted that plonning encompasses developing assumptions and forecasts concerning the external environment of the organization that are uncontrollable (Stone 2015, p. 9). For instance, some of the uncontrollable conditons include competitors action, interest rates, consumer spending and actions of government.
A research by Ezzamel, Robson and Stapleton (2012) indicated that plans encompases what a manager intends to do with variables that they can control. Some managers establish long-term plans which can take five years while others initiate short-term plans for one year. The process of planning start with the development of goals (Ezzamel, Robson and Stapleton 2012, p. 2). The goals may be designed in terms of product diversification, market share, producti leadership, return on investment and profit. McDonald (2006) argues that they are diverse levels of goal, such as general goals. For instance, general goals include quality leadership, company growth, producing at the lowest cost in the market and maintenance of existing customers (McDonald 2006, p. 13).
Huge companies normally establish a goal hierarchy. The top management is responsible of setting corporate goals. In addion, an organization set subgoal that facilitate the attainment of upper-level goals (Heath 2012, p. 5). Most importantly, subgoals play a critical role because they enable junior managers to appreciate their efforts towards accomplishment of corporate goals. In the implementation of subgoals, performance objectives (targets) are used. Hannan, Rankin and Towry (2010) argues that performance objectives are important for the organization because they are action-oriented and specific. Therefore, they are measureable in specific terms. In most cases, performance objectives are related with managers at diverse levels in the organization that could help a firm to achieve its overall objectives (Hannan, Rankin and Towry 2010, p. 10).
A manager utilize a budget to officially establish performance objectives and goals in financial terms for a certain perod. Moreover, Frow, Marginson, and Ogden (2010) noted that a budget is a plan that the management requires to develop. Furthermore, every department in a firm is required to establish its plans in financial terms with leads to organizational growth (Frow, Marginson, and Ogden 2010, p. 17).
Role of budgeting in controlling the operations of a firm
According to Kooijman and Kooijman (2010) budgeting play a essential role in controlling the operations of an organization. In addition, controlling encompasses monitoring the progress of execution of the plan and ensuring that corrective measures are taken. The management ensures the process of control is continuous as it is impossible to forecasts the impact and timing of external environment factors (Kooijman and Kooijman 2010, p. 20). Similarly, it is not easy to predict the influence of planned actions. Research by Ezzamel, Robson and Stapleton (2012) indicated that control depends on the use of feedback concerning an task being controlled. Every control system should have the same type of feedback mechanism. The management of an organization control the tasks by getting responses from many sources. In most cases, they observes how the operations are carried out (Ezzamel, Robson and Stapleton 2012, p. 7). Furthermore, managers depend on written and verbal reports, which they receive on demand, annually, montly and weekily. Based on this feedback, a manager can take appropriate corrective actions that facilitate growth of the organization.
Since budgets are a monetary statement of plans, they are associate to the control systems of an organization. Frow, Marginson, and Ogden (2010) noted that after the budget is established, the accounting system offers information to the management that help them to monitor the performance of the business. The real performance is matched with the plan of the budget in order to note any deviations (Frow, Marginson, and Ogden2010, p. 18). Consequently, this may help the manager to initiate corrective action in case any conditions under the control of a manager can be changed to accomplish desired outcome (Vance 2003, p. 10).
Ezzamel, M., Robson, K. and Stapleton (2012) argues that budgeting does not involve forecasting. The latter encompases envisaging the rsults of the event instead of planning for the consequence and controlling to increase the likelihood of accomplishing the results. Every department in an organization needs to be engaged in effective budgeting systems (Ezzamel, Robson and Stapleton 2012, p. 7). Consequently, the potential controlling operations and coordinating benefits can be realized. The type of business in an organization affects how the tight a budget is utilized and viewed. In this regard, very tight budgets are utilized for mature process of businesses and companies. On the other hand, new processes and companies are not under pressure hence tight budgets are not required (McCrary 2010, p. 17).
RESEARCH DESIGN AND METHODOLOGY
Paradigm of enquiry
The researcher will use interpretivism paradigm of inquiry in this study. The main reason why the researcher intends to use subjectivism paradigm is that the study will be done in great details (Kothari 2004, p. 45). In addition, subjectivism allows higher level of validity since it is trustworthy and a real representation. Furthermore, the paradigm provides the interpretation of people. Since data is provided in great details it tends to offer in-depth analysis of what is really happening (Ketchen and Bergh 2004, p. 13). The interpretivism paradigm also tends to give the reason why a particular issue happened rather than providing a generalized information.
Research design
The study intends to use qualitative research design, which logically links the data gathered to the research questons in order to draw viable onclusions (Salkind 2010, p. 17). The main aim of the qualitative design is to acquire in-depth information concerning the role of budgeting in improving the performance of a firm. Kothari (2004) argues that qualitative research design enables the researcher to determine the importance of budgeting in the organization (Kothari 2004, p. 61).
Methodology
The research will use phenomenology methodology perspective. The main reason why the researcher intends to use this perspective is because it emphasize to address on the subjective experiences of people as well as interpretating the world. Additionally, the researcher will use phenomenology in order to understand how budgeting affect the success of the organization (Kumar 2005, p. 57).
Data collection instruments
For this study, the researcher will use the interviews in collection of data from the study participants. In addition, interviews will collect their descriptions of experiences. The participants will be asked to describe their experiences in the role of budgeting in achievement of growth in the organization (Salkind 2010, p. 21). The interviews also will allow the interviewer to ask clarifications in order to provide detailed information. Therefore, the researcher will develop follow up questions that ask for more description of details.
Moreover, the interviews will provide an opportunity for two-way communication. In particular, the researcher will use semi-strucured interviews. The main reason why the study will use semi-structured interviews is because they give more freedom to the interviewee to give their views openly. Similarly, semi-structured interviews will allow the interviewer to set questions during the interview (Ketchen and Bergh 2004, p. 13). On the contrary, structured interviews demands the researcher to use a collection of standardized questions that are set in advance.
Sampling methods
The study will employ simple random sampling method. The researcher will randomly select managers from different organizations to participate in the study. The names of the managers will be written down on pieces of paper and then folded. They will then be shuffled to prevent bias in selection (Creswell and Creswell 2009, p. 39).
Data analysis
All the data gathered from the research will be edited for completeness, readability and consistency. In addition, errors that are committed by either the interviewer while answering the questions will be checked and corrected as necessary. The data will then be coded. Furthermore, data collected from the semi-strucuted interviews will be transcribed, read a number of times and their themes will be coded in relation to the objectives of the study (Jha 2008, p. 68).
Ethical Considerations
The ethical principles during the research will be upheld strictly. In this regard, the researcher will seek permission to conduct the study from the University before the commencement of process (Creswell, and Creswell 2009, p. 78). The study will be conducted after the issuance of an ethical clearance certificate from the university relating to the study topic. Furthermore, prior to the interviews, the participants will be duly informed about the fact that the research is purely for academic work and it was not compulsory for them to participate. They weill be allowed to participate in the study after giving an informed consent (Welman, Kruger, Mitchell, and Huysamen 2005, p. 26). The researcher will allow the participants to withdraw from the study at any time. Most importantly, the participants will be assured of their confidentiality and anonymity for all the information they will give.
Conclusion
The research faces some potential limitations in qualitative reseach. Since the data collected through this method will be in higher volumes, the analysis of data and interpretation would be time consiuming. In addition, another limitation is likely to occur because confidentiality and anonymity can produce many challenges when presenting the results (Kumar 2005, p. 57). However, the researcher intends to disseminate the findings of this research in organizational meeting and forums.
References
Besley, S. and Brigham, E., 2005. Essentials of managerial finance. Mason, OH: Thomson South-Western.
Creswell, J. and Creswell, J., 2009. Mixed Methods Research. San Francisco: Berrett-Koehler Publishers.
Creswell, J. and Creswell, J., 2009. Research in Organizations c.21. San Francisco: Berrett-Koehler Publishers.
Ezzamel, M., Robson, K. and Stapleton, P., 2012. The logics of budgeting: Theorization and practice variation in the educational field. Accounting, Organizations and Society, 37 (5), 281-303.
Frow, N., Marginson, D. and Ogden, S., 2010. “Continuous” budgeting: Reconciling budget flexibility with budgetary control. Accounting, Organizations and Society, 35 (4), 444-461.
Hannan, R., Rankin, F. and Towry, K., 2010. Flattening the organization: the effect of organizational reporting structure on budgeting effectiveness. Rev Account Stud, 15 (3), 503-536.
Heath, J., 2012. Decision making and budgeting. New York: Facts On File.
Jha, N., 2008. Research methodology. Chandigarh: Abhishek Publications.
Ketchen, D. and Bergh, D., 2004. Research methodology in strategy and management. Amsterdam: Elsevier.
Kooijman, S. and Kooijman, S., 2010. Dynamic energy budget theory for metabolic organisation. Cambridge: Cambridge University Press.
Kothari, C., 2004. Research methodology. New Delhi: New Age International (P) Ltd.
Kumar, R., 2005. Research methodology. London: SAGE.
Libby, T. and Lindsay, R., 2010. Beyond budgeting or budgeting reconsidered? A survey of North-American budgeting practice. Management Accounting Research, 21 (1), 56-75.
McCrary, S., 2010. Mastering corporate finance essentials. Hoboken, N.J.: Wiley.
McDonald, R., 2006. The Role of Real Options in Capital Budgeting: Theory and Practice1. J Appl Corporate Finance, 18 (2), 28-39.
O’Neal, C., 2012. Data-driven decision making. Eugene, Or.: International Society for Technology in Education.
Salkind, N., 2010. Encyclopedia of research design. Thousand Oaks, Calif.: Sage.
Stone, J., 2015. DO BALANCED-BUDGET RULES INCREASE GROWTH?. Bulletin of Economic Research, n/a-n/a.
Sun, J. and Lynch, T., 2008. Government budget forecasting. Boca Raton: CRC Press.
Vance, D., 2003. Financial analysis & decision making. New York: McGraw-Hill.
Welman, C., Kruger, F., Mitchell, B. and Huysamen, G., 2005. Research methodology. Cape Town: Oxford University Press.