How does an operating budget work to discipline a firm's management?

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Table of contents

Introduction1

Thesis statement1

Budget1

Operating budget2

How does an operating budget work to discipline a firm's management?3

Elements of a budget3

Integrator4

Coordinator4

Operations4

Resources4

How are budgets constructed?5

What is budget variance?5

Conclusion6

References7

How does an operating budget work to discipline a firm's management?

Introduction

Before you can define what a budget is necessary to have an idea of what their role and their relationship to the process management. Few times a budget is an isolated rather is a result of the management process which is to establish objectives and strategies and develop plans. In particular, is closely related to financial planning. Therefore, the budget may be considered an important part of the classical administrative planning cycle, acting and controlling, or more specifically, as part of an overall system administration comprising:

Formulation and implementation of strategies

Planning Systems

Budgetary systems

Organization

Systems of Production and Marketing

Systems Information and Control

Thesis statement

Operational budgets are important to control management from over spending.

Budget

The theoretical and practical application of budget as a tool for planning and monitoring had its origin in the government sector in the late eighteenth century. This was when the British Parliament had plans of spending the kingdom and gave guidance on possible execution and control. From the technical point of view of the word is derived from Old French baguette or bag. That meaning sought improved later in the system English with the term budget of knowledge common in our language that receives the name of budget. In 1820 France adopted the system in the government sector and the United States receive him in 1821 as a control of public expenditure and as the basis of need made ??by officials whose function was budgeting to ensure efficient operation of government activities. Between 1912 and 1925, especially after the First War World, the private sector noted the benefits that could generate the use of the budget in the area of cost control, and target resources on those aspects necessary to obtain adequate profit margins for a determined operating cycle. In this period the industries are growing rapidly and we think the use of methods of planning appropriate business.

Operating budget

The budgets provide for the performance expectations, management expressing targets. Without such goals, the operations have no meaning and implications for the determination of policies future are drowned by the pressure of this. They have direct and indirect influence on the strategies to be the latter, relatively general and permanent plans that change as conditions vary, for example, when organizations are renewed or when the methods of production are changed. The coordination is the element that engages and balances all factors of production and all departments and functions of the organization so that its objectives are achieved or that the interests of managers are subordinated to the welfare of the organization as a whole (Bush, G. 1992).

How does an operating budget work to discipline a firm's management?

It is essential to keep in mind that the aim of management is to maximize profit which they do ...