Financial decision making

Résumé du document

Nowadays, companies try to optimize their profitability through the efficient and economical use of resources and labor, for do it they need financial road maps to show how they will allocate their resources in order to achieve their business objectives. In other words, companies need to establish a budget. A budget is a description of a financial plan; it describes a period in the future not in the past. The long term planning involves setting objectives and defining and selecting strategies which will enable a business to achieve those objectives.

Budgeting is a very important part of this process and can be defined as stating formally, in quantitative terms, what the business plans to achieve in the immediate future (S.Kenp and E. Dumbar; 2003). Budgeting has two primary functions: planning and control. Using budgets as a control mechanism represent benefits for the company. Indeed, to start the budgetary control aims to maximize the profit of the company (R.Banham; 2000). In order to achieve this goal, it is necessary to undertake a co-ordination of different functions and a good planning. If there is a proper control over different revenue and capital expenditures; the resources will be put to the best possible use.

Moreover, the budgeting control improves the co-ordination within the company (A. Wildavsky; 2003). In fact, the working of the various departments and sectors is well co-ordinate and the budgets of different departments have a bearing on one another. So, the co-ordination of various executives as well as subordinates is necessary for achieving budgeted targets. Thanks to the budget control all efforts are put jointly to achieve the common objective of the organization.

Extraits

[...] Fourth edition. New Jersey: Transaction publishers. A.Neely, M. Bourne and C. Adams “Better budgeting or beyond budgeting?” , Measuring business excellence S. Becker and D. Green “Budgeting and employees behaviour”, Journal of Business S. Banham “Better Budgeting”, Journal of Accountancy CIPD (2012) “What are strategic reward and total reward?” http://www.cipd.co.uk/hr-resources/factsheets/strategic-reward-total- reward.aspx (electronically accessed on 15th March 2012) EHow Journal “Advantages of Employee Reward Recognition Systems” http://www.ehow.com/info_8105028_advantages-employee-reward- recognition-systems.html (electronically accessed on 15th March 2012) References for business, Roger J. [...]

[...] While when it makes the choice to do not take in account the opinion of its employee and punished them when they do not achieved their target; the impact will be negative. Indeed, in this case, the employees will be stress, under pressure, low confident . So, the company must be cautious when it setting the level for the budget; it must defined which impact it's expected to its budget. References: S.Kenp and E. Dumbar (2003), Budgeting for manager, Edition: Briefcasebook B. Bogsnes (2009), Implementing beyond budgeting, Edition: John Willey and Sons. J.Zimmerman (2010), Accounting for decision making, 7th edition, Edition: McGraw-Hill Wildavsky (2002) Budgeting: a comparative theory of budgetary processes. [...]

[...] The participation could be defined as a process of joint decision-making by two or more parties in which the decision will have future affects on those making them (Selwyn Becker and David Green. 2006). The participation has a strongly positively affect on the employee's behaviour. Indeed, this kind of process will encourage an increase of initiative by the employees, they will feel more involve in the company interest. But this way of budgeting will also increase the satisfaction, the morale and the motivation to produce of the workforce and also improve the communication. [...]

[...] Thanks to the budget control all efforts are put jointly to achieve the common objective of the organization. Each department is given a goal to be achieved. The efforts are focussed in the direction of achieving come specific aims. If there is no specific goal then the efforts will be wasted in pursuing different aims. Furthermore, the budget control is a good tool for measuring performance. By providing targets to the different departments, budgetary control provides an efficiency tool for measuring managerial performance (Roger J. AbiNader). [...]

[...] However, if the budget targets are perceived too easy to realize, in this case, the employees will not provide a challenge and may lead to a slipshod performance by staff; there is no sense of achievement for them. The difficulties for the company consist in determining a budget that must not be perceived too easy or too hard to achieved because the employees will be demotivate. Moreover, the use of budget can have a debilitating effect on the manager behaviour. Indeed, the managers may experience a loss of autonomy by being hemmed in by the budget and not having sufficient flexibility to use their own initiative. [...]