Financial budgeting spreadsheets are formal business plans prepared by an organization. All managers do some kind of planing. Sometimes the plan is unwritten, especially in smaller organizations. Unwritten plan might work in a small organization, but as an organization grows, informal plan is not enough. A more formal plan or financial budgeting spreadsheet becomes a necessity.
Skeptical managers have claimed that they faced too many uncertainties and complications to prepare financial budgeting spreadsheets worthwhile. Be wary of such claims. Preparing the spreadsheets are especially important in uncertain environments. The spreadsheets guide and allow systematic rather than chaotic reaction to changes. Some managements use the spreadsheet as a guide to adjust to changes in operating conditions.
The three major benefits for preparing financial budgets are as follows:
1. It compels managers to think ahead by formalizing their responsibilities for planning. Managers have to set goals and objectives, and establish policies to aid their achievements. The objectives are the destination points, and the budgeting spreadsheet is the roadmap guiding the organization to those destinations.
2. It provides definite expectations that are the best framework for judging subsequent performance. Budgeted goals and performance are generally a better basis for judging actual results than is past performance. Changes in economy conditions, technology, personnel, competition, and so forth also limit the usefulness of comparison with the past.
3. It aids managers in coordinating their efforts, so that the objectives of the organization as a whole match the objectives of its parts. It also tell all employees what is expected of them. Top management makes clear the goals and objectives of the organization in its budgeting spreadsheets. It also help managers coordinate objectives.
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