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Muhammad Salim 07217003909 Afm

Muhammad Salim 07217003909 Afm

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Published by: salim1321 on May 22, 2010
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05/22/2010

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PERFORMANCEBUDGETING
Submitted by
MUHAMMAD SALIM07217003909
MBA-1
ST
SEMESTER
 
WHAT IS PERFORMANCE BUDGETING?
Budgeting is nothing but the technique of expressing, largely infinancial terms of management’s plans for operating and financingthe enterprise during specific periods of time. Any system of budgeting, in order to be successful, must provide for performance appraisal as well as follow-up measures. It shouldbe capable of predicting statistically the performance for thebudget period in terms of probabilities and levels of confidence.For example, if a bank stipulates that the result of its businessbudget would be correct up to a level of 5% from the budgetedbusiness.Performance budgeting involves evaluation of the performance of the organization in the context of both specific as well as overallobjectives of the organization. It presupposes the crystal clarity of organizational objectives in general and short-term businessobjectives as stipulated in the budget, in particular, by eachemployee of the organization, irrespective of his level. It, thus,provides a definite direction to each employee and also a controlmechanism to higher management.According to the National Institute of Bank Management,performance budgeting technique is, “the process of analyzing,identifying, simplifying and crystallizing specific performanceobjectives of a job to be achieved over a period in the frameworkof the organizational objectives, the purpose and objectives of the job. The technique is characterized by its specific directiontowards the business objectives of the organization”. Thus,performance budgeting lays immediate stress on the achievementof specific goals over a period of time. However, in the long-run itaims at continuous growth of the organization so that it continues
 
to meet the dynamic needs of its growing clientele. It enables theorganization to be sensitive and adaptive, preventing it fromdeveloping rigidities which may retard the process of growth.Performance budgeting requires preparation of performancereports. Such reports compare budget and actual data and showany existing variances. Their preparation is greatly facilitated if theauthority and responsibility for the incurrence of each costelement is clearly defined within the firm’s organizationalstructure. In addition, the accounting system should be sufficientlydetailed and coordinated to provide necessary data for reportsdesigned for the particular use of the individuals or cost centreshaving primary responsibility for specific cost.The responsibility for preparing the performance budget of eachdepartment lies on the respective departmental head. Eachdepartmental head will be supplied with a copy of the section of the master budget appropriate to his sphere. For example, thechief buyer will be supplied with the copy of the material purchasebudget so that he may arrange for purchase of necessarymaterials. Periodical reports from the various sections of adepartment will be received by the departmental head who will insummary form submit a report about his department to the budgetcommittee. The report may be daily, weekly or monthly dependingupon the size of business and the budget period. These reportswill be in the form of comparison of budgeted and actual figures,both periodic and cumulative. The purpose of submitting thesereport is to convey promptly the information about the deviations

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