THIRD CHAPTER OF THE BOOK ENTITLED 'MANAGING THE MANAGEMENT IN CORPORATE' AUTHORED BY ME ( ONLY ODD NUMBERED CHAPTERS ARE SELECTED)
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3. Budgeting the Key to Many Problems
An effective budgeting is an inseparable part in good management practice. Unless an organization had a plan or a budget for all the wings, which it does, there is bound to be wastage. All the expenses must be planned or budgeted and the actual expenses must be done by keeping the budget in mind. All work and action regarding the future must be seen and considered from the financial point of view. This is known as budget. Whatever we do, we must make a budget and then we must see how the actual results compare with the budget. The prerequisite of good management is to make a plan for the future. This plan is then put into financial terms and then budgets are prepared. It is the responsibility of the supervisors to see that the budgets are done in a proper and methodical way. If anything goes out of the box then the supervisors must bring it to the notice of the higher management.
Budgeting can be defined as the forecast of the programmes of operations, based on the expected operating efficiency. It must be prepared on a definite period of time. Statistical data is necessary for preparing a budget. It can also be stated as forecasting and planning for the future based on the past experience and market trends. The present position budgeting is a major tool in the hands of the management for their planning of further activities of the organization. This includes estimation of sales and expenditure on production. Budgeting is also done for forecasting the expected results. It can be projected either in numerical terms or in financial terms. A budget is nothing but a financial plan. It is a projection of what will happen financially if certain strategies and decisions are implemented. For example, before hosting an event, the committee of a sport club would work out possible revenues and expenditures, investigate what the event needs, have discussion with experienced people, obtain quotations from suppliers and estimate how many people might attend. These activities such as consulting, investigating, obtaining quotations and estimating are all typical budgeting activities.
The purpose of budgeting includes the following factors:
i) Forecast of income, expenditure and profitability
ii) Tool for decision making
iii) Means to monitor business performance
There are several types of Budget.
Master Budget: The summarized budget of the entire organization is known as master budget.
Sales Budget: The sales budget gives an idea about the probable income from the sale of the product and the expenditure involved in organizing the sales operation. A sales forecast can be made on the basis of the reports received from the sales team (who are associated with sales and who can give an estimate of the quantity of the product that is likely to be sold in their sales area.)
Production Budget: The production budget is prepared to ensure that the demand of the sales department is met during the specified period. It gives information about the time needed to product and dispatch the product. It is prepared after considering the demand and capacity of the production plant. The cost of the production plays a significant role in the production budget.
Financial Budget: The financial budget gives the summary of the income to be received and the amount required for spending during a given period. It forecasts the profits, losses and the financial position of the concern. It helps the top management in estimating the profitability of their organization.
Material Budget: Material budget is prepared by the production department. It shows the quantity of material required for manufacturing the products. In accordance with the budget, orders are placed to procure the required quantity of material within the prescribed period time to time. There must not be over procuring.