Table of Contents

Introduction...........................................................................................................................................2
Body......................................................................................................................................................2
Purposes of Budgeting Process..........................................................................................................2
Implications of Practice.....................................................................................................................3
Top-down Budgeting and Bottom-up Budgeting Practices................................................................4
Traditional Budgeting........................................................................................................................6
Recommendation..............................................................................................................................7
Conclusion.............................................................................................................................................7
Introduction
Budgeting is the process of planning future business activities by establishing performance goal an
objective to be achieved over the budget period and the policies that might be adopted for the
achievement of those ends considering the financial limitation and the motivation of the employees
and other individual involved.

A budget being an important tool in our financial planning arsenal must be a a result of collaborative
approach of cohesive, cooperative, decision making methodology after evaluating alternatives
whether the model best represents the organization long term as well as short term goals.

For a business to be successful, forecasting and budgeting could consume a considerable amount of
time and energy from an operational and financial perspective. Regardless of size of business,
budgeting is a crucial step for almost every organization. To achieve accurate forecasting, many
people within an organization should be involved in the budgeting process, especially those
individuals with broad operational expertise. It seems logical that, budget creation should be a
collaborative approach for businesses and individuals to succeed.

Body
Regarding the purposes of budgeting preparation in any organization can be mildly understand
through these common features of budgeting-

 Planning
 Resources allocation
 Coordination
 Motivation
 Control

But being a decision and forecasting making tool, the main purpose of budgeting is that it acts as a
tool for monitoring and managing the busies performance and income and expenses for the period
for which the budget is prepared.

Purposes of Budgeting Process

The above-mentioned purposes can be briefly understood as

 It calls for the involvement of most individual for their input towards the organization
roadway towards achievement of goals.
 Participation in the budget provides opportunities for the subordinates to share this
information with management. Budgetary participation creates a bond between operational
employees and their managers.
 It helps ensure that you do not spend money that you don’t have (i.e. it plans company’s
expenses for the short term of budget period).
 It seeks towards getting maximum benefit in return of the expenses we do through the
proper allocation of available resources.
 Getting maximum, efficient, and effective output form the individual involved as proper
budgeting seeks from the coordination among involved individuals.
 It acts as a Short pathway towards the achievement of long terms goals by continuous
improvement and well-placed control system.
 You can avoid over expenditure, under expenditure and cover unexpected expenses and
proper matching with earned income.
  By the best approach and cooperative decision-making methodology, we can ensure the
most return and sooner achievement of short-term goals.
 Hence, it improves the overall efficiency of organization performance and operations.

The above purposes and benefits can be achieved if we follow the proper steps of budgeting process

The budgeting process usually consists of repetitive rounds of negotiation with give and take
between the participants. There are many factors to achieve successful budgeting however three
crucial factors help to determine the success of a budget.

To prevent or concentrate on any negative aspects. To build a budget, it is necessary to have some
process for collecting information about planned activities and the cost of those activities Budget
development usually follows a structured outline.

In summary, the development of the budget usually takes the following format:

1. Establish the overall goals of the entire organization.

3.Determining available resources such as- human manpower, technological status, capital
investment etc.

4.Consider any budget assumptions that should be considered. This would include any volume,
price, hours, or other statistical information.

5.Consider and make note of any market or other external factors that could impact the budgeted
numbers with enough involvement of all the participants throughout the organization.

6.Calculate and determine revenue and expenses.

7. Monitoring and Evaluating- Taking suitable monitoring actions to achieve the desired objectives if
there is a variation of the actual performance from the budgeted performance.

8. Revision of budgets in the light of changed circumstances.

Implications of Practice
Budgeting is the basis for all business success. It helps with both planning and control of the finances
and operations of the business. If there is no control over spending, planning is futile and if there is
no planning there are no business objectives to achieve. If you are running your business without a
proper budget, you may find you are actually just running around in circles and not meeting your
long-term goals. By taking the time now to set a budget, you will free up time in the future and give
yourself the best chance of achieving the rewards you want for your hard work. - -Karen Banks,
Advisor

The budget manual includes the guidelines, goals, targets, and indicators agreed by senior
management. The study shows that on hotel companies in Turkey reveals that 63% prepare budget
manuals. And this study is the example along with some hotels in South and North America that I
took to contribute to my assignment.

While learning about this hotel companies I came to a finding that the planning for budgeting mostly
relies on setting the short-term goals which is completely based on some numerical values or
comparatives economic indicator. This research shows that budgets are more frequently prepared
using the results from previous years and economic indicators. The budget may require revisions
over the period due to changes in economic and environmental conditions considering the fiscal
year. The hospitality industry may be particularly sensitive to local changes and seasonal
fluctuations, for example, weather, terrorist attacks, economic crises, political instability etc. The all
aspects are covered in planning and it must be done in proactive manner.

In the hotel companies and hospitality business lines as seen in this study, We can see the proper
involvement of organization wide commitment and motivation as the budget here as top
management effective leadership is provided in the budget process, a good flow of information is
available for the budget, coordination between departments is proper, goals are determined first in
the departments and then submitted to top management goals are determined by top management
and then opinions are collected in the departments and targets are determined rationally. But
difficult to achieve, and participation in the budget process is critical when budgets are used as a
performance measure. On the analysis of motivational aspects, it is observed that it is more related
to authority, individual manager responsibility and participation in the development and
achievement of goals planned with the budget, which reinforces the results, on practices that make
budget systems more effective.

Top-down Budgeting and Bottom-up Budgeting Practices

In general, the survey results denote that the budget in hotel companies is still underutilized, with
partial implementation of many of its features and techniques. Still, there is a lack of some of the
practices which is resulting in inefficient achievement of mission statement and the future
projection. several aspects that can improve the budgeting process in the hotels surveyed were
pointed out, such as the creation of a committee, greater involvement of people and
implementation of incentive systems to motivate them.

Several aspects that can improve the budgeting process in the hotels surveyed were pointed out,
such as the creation of a committee, greater involvement of people and implementation of incentive
systems to motivate them. These can be the measures to be taken care in the future for the effective
planning and forecasting which would result in improvement in operation of the organization which
will bring to the company the ability to implement corrective actions on the problems detected.
These discrepancies can be improved and can be used as a tool for future projection and forecasting.

In control of the budget process specific criteria or points may be used, such as benchmarking, key
performance indicator, monetary values, result from previous years. Here in these hotel companies
the past occupancy rate and customer review are viewed as measures for the comparative study.
And the analysis of the causes of the deviations and adequacy measures, both also appear as steps
very often applied in control.

From the comparative analysis of what are the purposes of the analysis of budget variances, hotel
companies indicated that they were: evaluate the performance of the manager, evaluate the
predictive capability of the person responsible, control costs and expenses , timely recognition of a
problem, and feedback to the budget for the next period.

In closing, it can be noted, in the sector of hotel companies and hospitality the budget is widely used
as one of the most important tools for managers regarding planning, evaluation and control.
The forms of budgeting may involve mainly three types: top-down and bottom-up combination. In
top-down, the budget is prepared by senior management and imposed on other members of the
organization. With the top-down approach, those creating the budget may not be involved with the
day-to-day and as a result may not be aware of some of the specific expenses required. This may
result in problems for departments looking for resources that just don't fit into the top-down
budget. Leading towards demoralizing and demotivating team culture.

With bottom-up, the budget is prepared by the responsible centres, or departments and submitted
to senior management for approval. Here the primary responsibility or input is of lower level
management and the final master budget is prepared by the upper level management keeping in
mind the future goal of the entire organization in whole. Bottom-up project management is rapidly
gaining popularity, especially in industries where projects tend to involve new challenges that
require innovative solutions.

Table 1- Forms of preparing the budgeting process (in percentage) which the part of the finding of
different study in the hotel and hospitality line of business.

Study Top-down Bottom-Up Combination Others

Uyer and 24 34 42 0
Belgin(2011,Turkey)
Steed and Gu 2.4 16.7 78.6 2.3
(2009, USA)
Jones (2008, UK) 26 36 39 0
Schimidgall and 4.5 79.5 16 0
DeFranco(1998,
USA)

Analysing the case study and the use of the approach in budgeting in the organization related to the
hotel and hospitality sector business the mostly used practice is bottom-up budgeting but the top
-down practice and combination is also used side by side. The involvement of departments, their
managers is relatively more in these fields as they are the most influential and are the one who
directly interacts with the final consumers. The feedback facility plays a great role in knowing the
condition, need of review, and most importantly the timely change in the plan and policies to
cooperate with that hazardous threats.

As in bottom up practice the strategic decisions regarding the acceptance of budget are made by
upper level or higher-level management who considers the short term budget and called master
budget keeping in mind the future orientation of the company and the value to the stakeholders.

The suggestions and involvement of the departmental level in the preparation of budget creates the
healthy involvement of the all the related individuals in the growth of the organization which
motivates these operational level managers and employees too.

The saturated segregation of duties in hotel business makes it easy to apply bottom up practice. The
chances of some left over of department or product line or customer lines is less, which leads to the
full information flow from departmental level to the strategic level of management. For the best and
wealthiest budget, the measure of its development should be so rooted one who have more
influence to the end consumer. In the hotel line and based on this study the general manager and
subordinates have higher involvement in the inputs for the preparation of the budget, they have
better knowledge of the day to day or operational income and expenses, they can suggest for the
proper planning. Other measures can be the operational managers have better knowledge of the
customer than that of higher-level management which leads to the higher customer satisfaction due
to involvement of the operational level managers during the preparation of budget for themselves.
Higher the customer satisfaction higher the value in market or industry which leads to having
competitive edge over the competitors.

Hence, We can see the proper involvement of organization wide commitment and motivation as the
budget here as bottom -departmental level management and finalized by upper level management
which shows effective leadership and good flow of information is available for the budget,
coordination between departments is proper, goals are determined first in the departments and
then submitted to top management for review and significant changes are done by top management
and then opinions are collected in the departments and targets are determined rationally.

Traditional Budgeting
Traditional budgeting is a method of preparation of the budget in which last year's budget is taken as
the base. Here the commitment, effectiveness, transparency and the constitutional change in
structure of the organization in current year is not taken into consideration as the major source is
last years budget, income and expenses and lacks innovation, and competitors’ edge over us.
Current year's budget is prepared by making changes to previous year's budget by adjusting the
expenses based on the inflation rate, consumer demand, market situation, etc.

This efficiency can be gained from changes in the forms and practices applied to planning, execution,
and control of the budget. The practices highlighted in the studies are the generation of
commitment, the alignment between levels of the organization, the adoption of detailed and
comprehensive procedures in the preparation and analysis of variations and taking corrective
actions. Every year’s strategy is different since every year every organization wants to reach higher.
With a similar spending scenario, it would be impossible for an organization to be a strategist for a
year to year profits and development.

Preparation of budget through very concise forecasting, market study, organization wide
environment and the complexness that this dynamic environment possess makes very difficult to
evaluate its nature. Without any budget preparation lacks the motivation of the individual involved
through the organization. It makes organization more reactive than being proactive leading towards
more threats instead of taking advantages of emerging opportunities.

Budgeting is one of the managerial strategies in relation to income, expenses, proper allocation of
other resources, placing proper control over the period. The conciseness depends on how good the
forecasting and a blend of proactive actions and reactiveness to unanticipated developments and
the fresh market conditions.

Being reactive to this dynamic external environment where economic and technical components of
the external environment are considered as major factors leading to new opportunities for the
organization and closing threats. The proper evaluation and review system placed enlighten us the
possible environmental changes. Reactiveness towards that changes is only possible if the proper
proactive system is placed which will helps us to cope with the negative factors or take advantages
of the emerging opportunities.
Recommendation
Regarding the case study taken, it is found that the hotel companies with budget preparation policy,
budget committee, control committee has better result, greater customer serving, higher occupancy
rate, motivated employees and greater participation of them in the process of higher earnings for
them as well as for a whole organization and organization wide commitment. The research shows
that for most respondents the goals intended with budgeting are to maximize the results, plan,
monitor and appraise the results which is positive in majority of hotel companies in different
countries. We can see those 67% companies following the budget manual meet their objectives in
higher ratio, improve decision-making, identify problems before they occur - such as the need to
raise finance or cash flow difficulties plan. increase staff motivation and gain more competitive edge
over the competitors.

The analysis of variance is primarily directed at controlling costs/expenses, identifying potential

problems, and providing feedback for the next period. The important point is that there is a need to
improve the efficiency of the budgeting process, to obtain more benefits. Being a decision and
forecasting making tool, the main purpose of budgeting is that it acts as a tool for monitoring and
managing the business performance and income and expenses for the period for which the budget is
prepared. It acts as a Short pathway towards the achievement of long terms goals by continuous
improvement and well-placed control system. You can avoid over expenditure, under expenditure
and cover unexpected expenses and proper matching with earned income. By the best approach and
cooperative decision-making methodology, we can ensure the most return and sooner achievement
of short-term goals.

The difference between traditional and contemporary organization is that contemporary structures
reduce management layers and share information, personnel, and skills across departments. The
reduced management level is due to the advancement of the information technologies which links
top level management to the lower operational level increasing the flow of information, higher
influence of all layer of employees and owners, development of personnel skills across the
departments due to higher involvement of managers of every level.. The advancement in this
dynamic environment which is so uncertain possess the numerous threats and meaningful
opportunities too. Any organization can only take benefits from these opportunities if only they have
effective planning, concise and clear vision, proper allocation of resources and parallelly placed
budget which promotes specialization, encourages efficiency, and allows rapid decision making.
These also helps an organization to cope with any undermined threats too.

Conclusion
A budget being an important tool in our financial planning arsenal must be a a result of collaborative
approach of cohesive, cooperative, decision making methodology after evaluating alternatives
whether the model best represents the organization long term as well as short term goals. Ensure
the growth of the organization and ensures the correct alignment of the organization with its
environment and reduces the strategic gap between the management resulting in best outcomes of
the budgetary practice. The purpose of budgetary practice is also to harness the opportunities
available in the environment with the proactive allocation of the resources available for the
achievement of the organization goals and objectives.

The control functions involve monitoring the activity and measuring results against pre-established
standards, analysing and correcting deviations as necessary and maintaining/ adapting the system.
The task of control is intended to enable the organization to continuously learn from its experience
and to improve its capability to cope with the demands of the organizational growth and
development. The expenses which were not pre- determined might bring us to make unwanted cash
flow but having a proper budgetary plan might help us to overcome the situation like this too.

The main advantage of a contemporary organizational design is that employees have the freedom to
implement their own decisions, make changes and take ownership of their work without
interference from middle management and senior management.