budget & budgeting
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INTRODUCTION
An organization should be managedeffectively & efficiently, to achieve itsobjectives
udgeting or !rofit !lanning is asystematic a!!roach for effectivemanagement !erformance"
The term budget is derived fromFrench word ‘bougettee’ –a leatherpouch in which funds are kept formeeting anticipated expenses
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INTRODUCTION (contd..) A Budget is a comprehensive &
co-ordinated plan expressed in financialterms for the operations & resources of
an enterprise for some specific period inthe future.Basic elements of a budget Comprehensive & coordinated plan Expressed in financial terms For firms operations & resources For specified period
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INTRODUCTION (contd..)
Budget is a kind of single-use plan ofexpected results expressed in numericalterms, expected to be achieved within
specific time period. Hospital budgetis a process of estimatingproposed expenditures and the means offinancing these expenditures.
According to Mc Gibony, budget is thefinancial forecast of future operation inaccounting terms
Budgeting : Is the process of preparing &using budgets to achieve management
objective.05/13/16 $
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ESSENTIALS OF BUDGET
%re!ared in advance & is related to
future !eriod
t is based on the future !lan of action
t is based on the objective to be
obtained
t is a statement e'!ressed in terms of
monetary & or !hysical unit !re!ared forthe im!lementation of !olicy formulated
by management"
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OBJECTIVE OF BUDGET &BUDGETING To state firms goals in clear, formal termsto facilitate their attainability
To communicate expectations
To provide detailed plan of action To coordinate activities & efforts towardsmaximum utilization of resources
To provide means of measuring &controlling performance & supplyinformation on the basis of whichcorrective action can be taken
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BUDGET
Hosp. budget is a process of estimatingproposed expenditures and the meansof financing these expenditures.
A basic reason for preparing a budget isto enable the hospital to effectively meetits financial requirement.
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ESSENTIALS OF BUDGETING
Top management support Clear & realistic goals Assignment of authority & responsibility Creation of responsibility centers Adaptation of the accounting system Full participation
Effective communication Budgetary education Flexibility
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BUDGET
Essentials of budget:
It is prepared in advance and is relatedto the future period.
It is based on the future plan ofactions.
It is based on objectives to be obtained.
It is a statement expressed in terms ofmonetary and/or physical unitprepared for the implementation ofpolicy formulated by the management.
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TYPES OF BUDGET
I. OPERATING BUDGETS
a) Programme/activity functional budget
b) Responsibility budget
c) Periodic/fixed budgetd) Continuous/rolling/flexible budget
II. FINANCIAL BUDGETS
a) Cash budget
b) Performa financial statementsIII.CAPITAL BUDGET
IV.REVENUE BUDGET
V. MASTER BUDGET
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OPERATING BUDGET
%lanning of the activities or o!erations ofe'ercise eg" %roduction, sales, etc"
1" %rogramme/ activity/ functional budget) *oro!erations/functions to be !erformed
during ne't year t hel! ensures balance among various
o!erations or functions of an enter!rise
asically a !lanning !rocess
#" +es!onsibility budget)
%lans in terms of individual res!onsibility
asically controlling device
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FINANCIAL BUDGET
1" -ash budget)
t is a summary statement of the firms
e'!ected cash inflos & outflos over a !eriod
of time
.bjective is to maintain sufficient cash
balance to meet its need & use the idle
cash in most !rofitable manner"
roen don by monthly or uarterly
!eriod"
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FINANCIAL BUDGET(CONTD..)
-ash budget contd
ts $ major sections are)
2 +ecei!t section
2 isbursement section
2 -ash sur!lus or deficit section
2 *inancing section
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FINANCIAL BUDGET(CONTD..)
Method of preparing a cash budget include:
Receipts and payment method.
The adjusted profit and lossmethod.
Balance sheet method.
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FINANCIAL BUDGET(CONTD..)
#" %roforma financial statements)
2 4seful to !re!are a !rojected
balance sheet & income statement
2 ives information as to the future
assets, liabilities & income statement
items
2 dentify the antici!ated results of thebudgeted o!erations
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CAPITAL BUDGET
nvolves !lanning to acuire orthhile
!rojects/ infrastructure /eui!ments, to
gather ith timings of the estimated cost
& cash flos of each !roject ifficult to !re!are as estimates of cash
flo over a long !eriod have to be made
hich involve a great degree ofuncertainty
e!arate committee for ca!ital budgeting
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BUDGETING PROCESS
te! 1) %lanning the %rocesste! #) -ommunicating about the %rocess
te! 3) %rogrammatic oal etting
te! $) nformation athering
te! 5) -om!ilation and +evision of
information
te! 6) -ommittee +evie
te! 7) *inal A!!roval
te! () m!lementation and 8anagement
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TYPES OF BUDGETING
%erformance budgeting 9ero:base budgeting
trategic budgeting
;raditional budgeting is the commonesta!!roach, here in current year
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PERFORMANCE
BUDGETING -once!t originated in 4""A" in 1=60sfor defense budgeting
n!ut :out!ut budget or cost & results
budget
hos cost matching ith o!erations
t em!hasizes non:financial measures of
!erformance hich can be related tofinancial measures, in e'!laining
deviation from !lanned !erformance
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PERFORMANCE
BUDGETING( CONTD)
Resultants of performance budgeting: -orrelates the financial & !hysical as!ects of
every !rogramme or activity
t im!roves budget formulation, revie, &
decision maing at all levels of the organization t facilitates better a!!reciation & revie of
organizational activities by the to! management
8aes !ossible more effective !erformance
audit t measures !rogress toards long:term
objectives
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ZERO BASE
BUDGETING(ZBB) .rigin :4""A" in 1=71 ased on a system here each function,
irres!ective of the fact hether it is old
or ne must be justified in its entiretyeach time a ne budget is formed"
>ach manager has to justify his entire
budget in detail from zero base
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ZERO BASE
BUDGETING(ZBB)(contd) Advantages over traditional budgeting
>ffective allocation of resources
m!rovement in !roductivity & cost
effectiveness
>ffective means to control costs
>limination of unnecessary activities
etter focus on organizational objectives
aving time of to! management
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ZERO BASE
BUDGETING(ZBB)(contd) Disadvantages:
>'cess !a!er or
ifficulty in identifying decision
!acages
;endency to establish minimum level of
efforts
-an overcome ith e'!erience of 9
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STRATEGIC BUDGETING(CONTD..)
-om!aratively neer conce!t ?obs & tass should be designed in
terms of desired strategic results &
!erformances ;o stages in budget !re!eration)
1" %re!eration of !osition !a!ers@ !rovidesbacground for budgeting
#" %re!eration of budget:: is !re!aredthrough interaction beteen cor!oratelevel & 4 level in the light of !osition!a!ers
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MERITS OF BUDGETING
*orced !lanning -oordinated o!erations %erformance evaluation & control
>ffective communication .!timum utilization of resources %roductivity im!rovement
%rofit mindedness 8anagement by e'ce!tion >fficiency
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DEMERITS OF BUDGETING
Budgets can be seen as pressure deviceimposed by management, thusresulting in:
a) Bad labor relations b) Inaccurate record-keeping.
Departmental conflict arises due to:
a) Disputes over resource allocation b) Departments blaming each other
if targets are not attained.
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DEMERITS OF BUDGETING(CONTD)
It is difficult to reconcile personal orindividual and corporate goals.
Overestimation of cost by managersas they want to be on a safer side
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BUDGET COMMITTEE
2 Advisory role only
%ur!ose ) Administration of budgeting
8embers) >'ecutive from each
de!artment es!ecially members from
!roduction, sales & financeB
udget director is the incharge
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BUDGET COMMITTEE(CONTD..)
Functions: ;o !rovide general guidelines for !re!aring
budgets
;o offer technical advice ;o receive & revie individual budgets ;o suggest changes ;o reconcile divergent vies
;o coordinate budgetary activities ;o a!!rove budgets ith or ithout revision ;o scrutinize budget re!ort later on
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BUDGETARY CONTROL
It is a type of financial control “Budgetary control is a process ofcomparing the actual results with
the corresponding budget data inorder to approve accomplishmentsor to remedy differences by eitheradjusting the budget estimates or
correcting the cause of difference”. It points out where control &corrective actions are required
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EFFECTIVE BUDGETARYCONTROL Imp components: Consultation with non-financialexecutives.
Total corporate exercise.
True delegation of authority andresponsibility.
Motivational approach. Past experience.
Minimum level of performance. Human factor. Feedback.
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BENIFITS OF BUDGETARYCONTROL Used as: A tool for planning A tool for control. An aid to co-ordination in theorganization
It leads to maximum utilization of
resources with a view to ensuremaximum returns.
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REFERENCES
• Hospital administrationby R.K.Sharma.• Principles of managementby L.M. Prasad.• Management accounting by I.M.Pandey• Finance management by K.D.Basava
• Effective hospital managementby Pragna Pai.• Principles of hospital administrationby B. M.Sakharkar
• Hospital administration by C.M.Francis.• http://kutenk200.blogspot.com
• www.marcbowels.com/courses/adv_dip/module7chapter2 /ami7_overview.htm
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THANK
YOU !
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