Finance Essay Example | Topics and Well Written Essays - 2500 words - 1

Finance - Essay Example For this to effectively happen, all the staff should have a sense of ownership of the budget being put into use. In order for the management to efficiently perform the necessary management functions, the use of budgets becomes very fundamental (Hilton, 1994). Therefore, budgets are mostly used in the planning process. It therefore needs to be employed appropriately so as to facilitate communication and act as a motivational factor amongst the employees. In addition, budgets are also used as for control and performance evaluations and measurements. Apart from all that, budgets provide a target for each member to achieve as well as a focus for their efforts (Hopwood, 1974). It therefore calls for participation to be allowed so that those involved in budget setting can be allowed to freely discuss and be more receptive to the decisions made so that they can easily corporate in achieving the budget goals. One very important issue that Charles Ltd. should know is that; the way in which th e budgets are administered to the appropriate staff determines their effectiveness to help achieve the organizational goals. Janet was not made part of the group when setting the budget with which she was served, therefore she could less understand the importance of this budget as well as its usefulness. She ought to have been part of this budget from initiation for him to adopt it without any problem (Lamberton & Harvey, 1991). Instead, she was made to adopt a budget of which she did not feel part of its ownership from the start. It is therefore important for Charles Ltd. to recognize that budgets in an organization have two important uses; one, they are used as a forecasting tool to measure the performance of the company in a particular period of time, especially in a year, and the second use is where the budgets are used as a yard stick of the managerial performances. However, it is usually argued that, by using the budget for measuring managerial performance, it can as well be u sed as a tool for control in the organization (Schiff & Lewin, 1978). The current budgetary reporting system considers variances that evidently show both the efficiencies and inefficiencies of the budget. This is determined by considering whether the variances are either favorable or unfavorable. On several occasions, the variances seem unfavorable as can be explained by the differences between the budgeted and the actual figures in the table. The notes 1 and 2 also indicate that the variances are unfavorable. Considering that the budget report was made by the directors without making Janet and other supervisors and managers part of its setting, it becomes very difficult for these other staffs who were not involved to just accept and adopt it. Instead, the result would be that most of the staff would use the inefficiency side of the budget report to criticize it. Taking an example of Janet, she says she has no time for the paper work, maybe because she might not have been used to th e this system of budgetary reporting. By considering the report inaccurate and unfair, she may be feeling that the inefficiencies might have arisen due to the