Budgeting Process And Employee Motivation

Table 1: cash budget

(Source: Created by Author)

Table 2: income Statement

(Source: created by Author)

Table 3: Balance Sheet

(Source: Created by Author)

The Budget can be defined as an estimate or assumption of the possible amount of income and expenditure that is likely to be earned and incurred by an organisation or a firm for a specific period (generally one year). A well-planned budget help the management to act according to the budget thereby reducing the risk of wastage of resources and money both (De Baerdemaeker 2015).

In the similar situation, the process by which an organisation or a firm sets up or builds its budget for any specific period in called Budgeting Process. Budgeting process plays an important role and is very crucial for a business enterprise or a firm. Without a proper budgeting system, a business or a firm cannot keep track of its income and expenses that are earned and spent during a fixed period. In the Budgeting process, the members of finance committee and the senior staff members should participate actively in preparing the budget and final budget must be prepared after several research, reviews, revisions, feedbacks, corrections (if any), financial position of the firm, etc. A good Budgeting process always consider income budget before the expense budget (Grossi et al. 2016). A successful budgeting process always ensures that all the money of an organisation are spent in proper places and the financial objectives are achieved.

There are some basic steps involved in the formation of budget. They are:

• Writing down or drafting or outlining a rough budget plan.
• Identifying the persons to be involved in the budgeting process.
• Ensuring adequate time for the preparation, research, review and revision of the budget.
• Specific task should be assigned to specific personnel along with required responsibility.
• Ensuring that the accounting and budgeting items are in a proper synchronised manner.
• Developing of worksheets, templates and tools which promotes inclusion of all appropriate components of the budget.

The business owner, the employees are like a team and the owner is the skipper of that team who always wants the best possible result from his team members or rather from his employees. Thus in order to achieve the best result or success it is very important to motivate the employees well so that they gets boosted up and give their best possible efforts to achieve the goals of the business organisation (Gordon et al. 2017). Budget can be used as an effective tool in order to motivate the employees. Budget helps in developing the employees to be more monetarily and economically minded so that they can pay more attention towards every minute details and act logically and fiscally before making any decision.

In order to motivate the employees through the budgeting process, the business owner should ensure that:

• The employees are engaged and participating actively in preparing or drafting the budget.
• Agreements must be obtained from every parties with respect to the budget before finalising the budget.
• Every stakeholders must get a copy of the final and completed budget.
• This creates a feeling of security, ownership in the mind of every employees. In turn helps in increasing the motivation of the employees, and therefore they put their best effort in achieving the organisational goals.

The budgeting Process has the following usefulness or benefits in motivating the employees.

• Individual motivation and self-confidence– When the employees are engaged in important meetings of the budgeting process they feel very special, it boosts up their confidence level, and they becomes motivated to achieve the organisational goals more efficiently.
• Increase in output – Participation actively in the budgetary process motivates the employees, which in turn affects the performance of the individuals in a positive manner. They starts to perform better, which increase the output of the firm.
• Sense of Superiority – When the employees gets an opportunity to engage in crucial business activities such as budgeting process, then they feel the sense of superiority among themselves and the feeling of inferiority disappears. The employees then gains confidence at the workplace and which motivates them to work more efficiently at the workplace. This is an important benefit of motivating employees through the budget process (Burns and Walker 2017).
• Helps in Effective Decision making – Involvement of the employees in budgeting process broadens the outlook of the employees. As a result they start to think differently and in wider sense. Decision making is not everyone’s job but as the employees are exposed to the environment from where they get motivation, the decision making process gets stronger. So the decision making process gets better and better as the employees are motivated.
• Reduces the Cost of Employees –The employee cost gets reduced as the work of the superior gets divided among the lower level employees. As the existing employees are engaged in the management process, there is no need to hire any other individual by the firm to do the job. Moreover, the employees gets an opportunity to express their potential and thus they gets motivated to ensure good performance. Thus, it helps the firm in reducing the cost of production and ensure more profitability.

The budgeting process has the following drawbacks or limitations in motivating employees:

• Problems related to non-motivated employees– There are certain employees who are not able to perform their respective jobs as compared to the other employees even after they are involved in the management process or budgetary process. They gets frustrated and as a result, they do not take interest in the organisation. Thus, they are unable to provide any output to the organisation that is against the interest of the employees.
• Top policies are disclosed– As a result of employee motivation, the employees are allowed to actively take part in the management process, thus the confidential policies of the organisation gets revealed to every employees. There might be a chance that those information may get leaked outside the organisation. This is a big risk for any organisation.
• Difficulty in matching the IQ levels– Very often meetings takes place where the high officials along with the involved employees are collaborated. Sometime it gets difficult to match the level of IQ of the senior official having huge experience with that of the junior employees. Thus, it consumes some amount to time to make them understand the subject matter and thus it delays in coming to any conclusion.
• Providing proper training– As the employees forms an essential part of the management thus it becomes necessary for the senior executives to provide proper training to the junior employees in order to make them understand the concepts of the subjects on which discussions are made. Only after providing proper training to the employees, it is fruitful to engage them in crucial meetings with the high officials. This process of training is a quite lengthy and expensive process that consumes much amount of both time and money.
• Expensive procedure for small and medium organizations – It is not always possible for every organisation to train their employees so that they can take part in the management process. This involves high cost and such high cost cannot be always borne by small and medium organisation. This is a big drawback of motivating employees through budgeting process.

In today’s modern business budgeting process is not the only responsibility of the finance department of an organisation. Non-financial departments of the organization such as Production, Marketing, Human Resource, Research and Development, Purchase, etc. also play equally important roles toward a successful budget. For example Production department in an organisation provide the details about the possible cost of production that can incur during the production period and according to which the finance team keeps provision for the production cost (Kaplan 2014). Similarly marketing department provide the data regarding the market demands for goods that are prevailing in the market which helps the production department to make the assumption of the amount of output that they will produce. Marketing department indirectly plays an important role towards a successful budget. Again, Research team provide details about the efficient and proper sources from which the raw materials can be collected. Thus it can be seen that towards the preparation of a successful budget, each and every departments plays an important role. It is an all-round effort from all the respective departments of an organisation that make a budgeting process fruitful.

Burns, R. and Walker, J., 2015. Capital budgeting surveys: the future is now.

De Baerdemaeker, J., 2015. A contribution to our understanding of the psychological effects underlying the budgeting process and its outcomes(Doctoral dissertation, Ghent University).

Gordon, V., Osgood Jr, J.L. and Boden, D., 2017. The role of citizen participation and the use of social media platforms in the participatory budgeting process. International Journal of Public Administration, 40(1), pp.65-76.

Grossi, G., Reichard, C. and Ruggiero, P., 2016. Appropriateness and use of performance information in the budgeting process: Some experiences from German and Italian municipalities. Public Performance & Management Review, 39(3), pp.581-606.

Kaplan, R.S., 2014. Improving value with TDABC. Healthcare Financial Management, 68(6), pp.76-84.