The Budget, As A Modern Planning Tool

The budget, as a modern planning tool

Budgets are economic valuations that approve of calculating income as well as the expenditures of a private or public organization, in order to plan and coordinate resources for a specific period of time and thus meet certain pre -established objectives, “enabling the realizationof measurements of what was achieved in relation to the scheduled and does quantitatively evaluate the advances throughout the execution period and thus establish appropriate corrective operations in case of deviations in the execution of the budget.

For a production organization, budgets are a tool that contribute to the planning of the production process based on certain forecasts or sales expectations, in this way it is possible to provide how much to produce, analyzing the different components of raw material, labor,and indirect costs, in order to estimate the cost of production and future profits.

Every administrative process is oriented by a series of basic situations that have been stated from Frederic Taylor, through Henry Fayol, Elton Mayo, Max Weber, Koontz, O’Donnell, Peter Druker and another series of scholars of the Administration Area. When structuring these situations in the application of an increasingly dynamic and modern administration, a series of tasks were developed that culminated with what has been called “budget approach”, which is nothing other than an integration of planning, control and harmony generated by coordination within the administrative process.

In the search to stabilize the actions of public and private companies, they have been developing since the end of the 19th century, norms and principles to manage collective efforts and achieve better achievements. Every organization, with or without profit, is always interested in achieving an end determined by goals and objectives. 

There are those who disdain this tool used in the management of organizational administration arguing that it depends on the forecast of future events that cannot be foreseen exactly, but most modern administrators consider budgets as one of the main weapons they have for managementEffective of your business. The growing interest in modern budget systems is partly explained by the constant changes that occur in national and world political and economic situations. A safe way to reduce the risk generated in the above is to use formally established utilities (budgets) programs (budgets). A well -established budget plan provides administrations for efficient programs based on studies throughout the organization.

The employer must plan with vivacity the size of their operations, income, costs and expenses, with the clear objective of obtaining benefits, whose achievement is subordinated to the coordination and systematic relationship of all business movements. It also competes with procedures that do not drown the initiative of people and that sponsor the timely determination of the disorientations detected in front of the forecasts, with the purpose of preventing estimates from being reflected in excessively pessimistic or optimistic calculations in the future.

The budget involves materializing organizational plans in quantitative and monetary information and are in turn, the foundation of the projected financial statements and represents the basis of decision making, since it allows to anticipate the economic conditions of the organization in areas such as indebtedness, the liquidity situation, the nature of financial transactions and the mobilization or rotation of the invested funds.

That is, it is a modern tool for the planning and control of activities that reflect the behavior of economic indicators such as fluctuations in inflation and devaluation rates and interest rates, which allows the entity to stay in the competitive market, since it decreasesuncertainty in the risks assumed and therefore gives greater accuracy in the final results of the business. Likewise, it plays an important role in administrative, accounting and financial aspects. The implementation of an effective budget system today constitutes one of the keys to the success of a company. 

From a financial perspective, if there is no duly coordinated budget system, the Administration will have only a very vague idea about where to go or where the company is directed. Therefore, the importance lies precisely in having a budget system as a management instrument to obtain the most productive use of resources. Budgets help determine what are the strong and weak areas of the company. Budget control generates internal efforts coordination. Planning and controlling operations constitute the essence of the planning of profits and the budget system provides an integral table of operations as a whole. When making comparisons between the real operating results with the projected results, the reasons why the desired profits goals were not achieved.