What are the elements of successful budgeting?
The following elements are necessary for successful budgeting.
1. Accurate Forecasting
The business activities may be forecasted accurately to some extent. This is not a starting point. This is mainly required to prepare an accurate budget.
The business activities are to be coordinated. The reason is that each budget has an impact on other budgets. Hence, there must be a coordination among production, sales, purchase, cash and personnel budgets.
The prepared budgets should be communicated to the every employee of an organization. The success of budgeting depends upon the degree of communication. The line managers and their sub-ordinates are not responsible for non-communication and miscommunication of budgets to them. Hence, the budgets are communicated clearly, concisely and authoritatively.
The employees can accept the budgets. The reason is that they are going to execute them. There is no force used by an organization to accept the budgets on the employees.
There is a need of high degree co-operation for effective implementation of budgets from the top to the bottom level of an organization.
6. Reasonable Flexibility
Future is uncertainty. Hence, the budgets should contain some reasonable flexibility if the situation so demands. Even though, the budget should not be too flexible and too rigid. The organization cannot exercise control of cost if the budget is much flexible. On the other hand, the employees are frustrated and create problems in the implementation of budgets if the budget is rigid.
7. A framework for Evaluation
The performance of various departments can be evaluated by Budgeting. It is the basis of performance evolution for an organization.