000069110 EXPLORATARY STUDY OF BUDGET PRACTICE IN VIETNAMESE COMPANIES NGHIÊN CỨU THĂM DÒ THỰC TIỄN NGÂN SÁCH TẠI CÁC DOANH NGHIỆP VIỆT NAM
O V ER V IEW O F B Ư D G E T IN G
D E F IN IT IO N O F B U D G ETIN G iì c 3.1.2 P H A S E O F B Ư D G E T IN G
Over the past decades, the budget has become a central concept in managerial thinking, guiding decision making at all levels of an organization A budget is a forward-looking financial plan that translates strategy into resource allocation and performance targets In practice, phrases like "the budget does not allow us to do that" or "it's out of the budget" illustrate how budgeting constraints shape everyday choices The budgeting process typically encompasses budget preparation, budget implementation, and budget control, each stage connecting planning to execution and performance evaluation Understanding the term budget means recognizing its role in financial planning, cost control, and variance monitoring to ensure accountability and strategic alignment across departments.
A budget is a plan that outlines an organization‘s íìnancial and operational goals
A budget is an action plan that helps a business allocate resources, evaluate performance, and provide information for decision making Planning a budget enables resource alignment with goals, facilitates performance monitoring, and creates a solid information base for strategic choices David Frederick (2001) defines a budget as a plan that is measurable and timely, while Bruns and Waterhouse (1975) describe budgets as financial plans that provide the basis for directing and evaluating the performance of individuals or segments of an organization.
Budgeting, in this study, is defined as a quantitative statement expressed in monetary terms and covering a defined period, outlining planned revenue, expenditures, assets, liabilities, and cash flow to serve as a financial blueprint that guides coordination of activities, resource allocation, direction, and control within an organization It comprises three key components: planning, where the budget expresses the organization’s goals; measurability, the process of reviewing and evaluating the plan; and time, which shows whether the plan was achieved within the period.
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Budgets are prepared at various levels within a corporation as part of the corporate budgeting process The master budget is the overall financial plan for a specific period, reflecting the organization’s goals and objectives It integrates operating budgets and financial budgets into a single, coherent framework for planning and control.
Operating budgets show the company's planned sales and operating expenses, while financial budgets reflect financing plans such as borrowing, leasing, and cash management This study focuses on budgeting practices in Vietnamese companies, examining budget planning and budget control as key components that guide resource allocation, performance monitoring, and financial discipline.
In general, the planning and control cycle can be illustrated as follow:
The planning and control cycle
Planning is a future-oriented process that grapples with uncertainty, helping an organization set concrete goals that motivate people to perform at their best and establish clear standards for measuring performance Without planning, an organization can resemble a black box, with little insight into how activities actually unfold Effective planning alerts management to potential problems before they escalate, enabling proactive action and ultimately leading to better management of resources.
Controlling is an ongoing process of monitoring the implementation of plans and taking corrective action as needed, because the timing and impact of external environmental factors or planned actions are inherently unpredictable Budgetary control derives from the budgeting process and involves comparing actual results to budget data to confirm achievements or remedy variances by adjusting budget estimates or addressing the root causes Some view budgetary control as a cost-control system that includes preparing budgets, coordinating departments, establishing responsibility, comparing actual performance with budgeted figures, and acting on the results to achieve maximum profitability The benefits of budgetary control include optimizing resource use to maximize returns, supporting managerial planning and control, and enhancing coordination Ultimately, budgetary control can play three roles in an organization: a tool for planning, a tool for control, and an aid to coordination.
To lay em phasis on vvhat can be achieved budget control has t\vo main processes:
1 It m easures actual results against the plan The budget plan o r target o f períorm ance becom es the basis o f m easuring progression o f activities in the organization Control process tries to measure the outcom es o f activities in quantified term s so that actual perform ance can be com pared w ith budgeted períbrm ance.
2 It takes action to adjust actual pertbrm ance to achieve the plan o r to change the plan altogether.
Planning and control are future-oriented activities, yet past achievements cannot be ignored because they form the basis for forecasting future performance This approach, known as variance analysis, aims to strengthen the control process by eliminating negative elements and promoting positive ones By highlighting weaknesses in operations, variance analysis helps organizations identify where performance deviates from expectations and focus improvements where they matter most.
C Ợ Ị^f> íít^Í£ ỹ past and torces m anagem ent to m ake a concentrated elTort to m inim ize them In situations w here variance is tầvorable insights into capitalizing positive aspects o f activities are provided.
The basis objective o f any control system is to proviđe intbm iation about how vvell things are going and to indicate how better results might be achieved
T hereíore each control system should provide teedback about more eíììcient vvays o f w orking There are som e kinds o f feedback as follow:
• N egative feedback indicates the resuits or activities m ust be brought back on course as they are deviating from plan.
• Positive feedback resuỉts in control action continuing the current course.
• Feedforw ard control is control based on íorecast results
• Single loop feedback regulates the output o f a system This implies that the plan will not change even though the resources needed to achieve it m ight have to be revievved.
• Double loop íeedback - it is iníorm ation used to change the plan.
A budget is a coordinated plan of activities expressed in monetary terms, designed to support the development of an integrated strategy It serves as the framework for allocating scarce resources and guiding the organization’s operations toward achieving its specific objectives The purpose of budgeting is not only to reduce uncertainty but also to establish priorities for resource use, ensuring alignment across departments and activities to drive overall performance.
Budgeting is the preferred management technique for monitoring the outcomes of the planning process A budgetary planning and control system is essentially a mechanism for ensuring communication, coordination, and control within an organization The objectives of budgeting include aligning resources with strategic goals, guiding performance evaluation, and enabling timely decision-making by providing a clear framework for planning, monitoring, and control of operations.
• E nsuring the achievement of the organization’s objectives
Objectives are set for the organization as a whole and for individual departments and operations within it Quantified expressions of these objectives are then developed as targets to be achieved within the budget plan's time horizon This approach ensures alignment between strategic goals and resource allocation, providing clear performance benchmarks and guiding decision-making across the organization The process translates high-level aims into concrete, measurable targets that drive the budgeting cycle.
Effective planning compels management to look ahead and articulate detailed plans to achieve targets for every department and operation, and ideally for each manager, while anticipating potential problems This structured approach prevents reliance on ad hoc or uncoordinated planning, which can undermine the organization’s performance.
• Com m unicate ideas and plans
People affected by the plans understand their roles and what they are expected to do Communication can be one-way, with managers issuing orders to subordinates, or two-way, enabling an open exchange of ideas.
The activities o f different departm ents o r sub-units o f the organization need to be coordinated to ensure m axim um integration o f effort tow ards com m on goals.
• Provide a fram ew ork for responsibilities accounting
B udgetary planning and control systems require that m anagers o f budget centers are m ade responsible for the achievem ent o f budget targets for the operations under their personal control.
A budget serves as a benchmark for measuring and assessing actual performance; when results depart from the budget, the variances are investigated, and the causes are categorized into controllable and uncontrollable factors.
• M otivate employees to improve th eir períorm ance