Major Features of Budgets:Definition and Role of Budgets

Evolution of systems

Reflect on the evolution of control systems. As small organizations begin, there is usually a dominant means of control physical observation. A manager sees, touches and hears the relationships between inputs and outputs; he or she oversees the behavior of various personnel.

Major features of budgets: definition and role of budgets
A budget is a quantitative expression of a plan of action and an aid to coordination and implementation. Budgets may be lormulated for the organization as a whole or for any subunits. The master budget summarizes the objectives of all subunits of an organization-sales, production, distribution, and finance. It quantifies the expectations regarding future income, cash flows, financial position, and supporting plans. These are the culmination of a series of decisions resulting from a careful look at the organization's future. In most cases, the master budget is the best practical approximation to a formal model of the total organization: its objectives, its inputs, and its outputs.

Wide use of budgets
Budgetary svstems are more common in larger companies, where formalized and sophisticated techniques are developed to serve management. Still, the usefulness of budgeting to very small concerns should not be overlooked. Many deaths (and unwar. rarrted creations) of small businesses could have been circumvented by an early attempt to quantify the dreams of headstrong but sloppy-thinking entrepreneurs who never directly faced the uncertainties of their venture.
For exarnple, a small business with lofty hopes moved into a lush rnarket for school equipment. However, failure to quantify the long collection periods, to forecast a maximum sales potential, and to control costs from the outset resulted in disaster within a year. Budgets for small businesses need not be as elaborate as those outlined in budgeting textbooks, but some budgeting is uselul to an enterprise of any size. In fact, many cornpanies have implicit budgets without even realizing their existence; that is, every manager considers the future as decisions are being made.
Many managers claim that the uncertainties peculiar to their business make budgets impractical for them. Yet one can nearly always find at least some companies in the same industry that use budgets. Such companies are usually among the industry leaders, and they regard budgets as indispensable aids. The point is that managers must grapple with uncertainties, either with a budget or without one. The advocates of budgeting maintain that the benefits from budgeting nearly always exceed the costs. Some budget program, at least, will be helpful in almost every organization.