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Explain how budgets contribute to planning, control and motivation in an organisation

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Introduction

Explain how budgets contribute to planning, control and motivation in an organisation Budgeting is a way in which businesses plan for the future. They show how policies are to be carried out during that time period in order to meet the business objectives. Budgets not only help the business plan for the future they also motivate their employees and help manage the business. Jae K Shim and Joel G Sigel define budgeting as a 'financial plan to control future operations and results. It is expressed in numbers, such as pounds, hours and so on. Budgeting when used effectively is a technique resulting in systematic production management.

Middle

Budgeting enables a company to give separate targets for each individual department. Department Mangers delegate the responsibility to their subordinates which means each employee will have their own separate goals to work towards. Managers have to be careful not to set unreasonable goals that employees feel they cannot reach. This will result in employees feeling overworked and will not be motivated by the goals. Managers also have to be cautious not to set targets, which are too easy, as this may cause employees to feel they have nothing to work towards and may not be motivated. Alison Kennedy and David Dugdale (1999, p22-24) argue that studies have shown that 'tight but achievable' budgets normally lead to the best results.

Conclusion

The budgets are beneficial to the director/owners of the company as they can monitor the managers in all departments easily as they have discussed the budget with each individual manager and have identified exactly what needs to be done. Therefore it's easy to regulate the work being done to the work that should be being done. In conclusion I feel budgeting is very important to businesses it's not only a way to achieve objectives, it also helps control the company helping to motivate its employees and planning ahead to decrease the problems that the company may face in the future. I also believe companies have to be careful and spend time over the budgets, as an effective budget needs to cover every aspect of the business.

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