budget

A quantitative plan for the future activities of an organization or individual. The preparation of budgets is common in most *private and *public sector organizations, and budgets normally fulfill one or more of the following purposes: They act as (i) a record of planned activities, (ii) a standard against which to compare Variances with actual performance, (iii) a means of communicating an organization’s plans to employees, (iv) an *accountability mechanism for activities and assets, (v) a means of motivating and rewarding individuals for performance against budget, and (vi) an *internal control over operations. The sophistication and methodology of budgets varies widely. Budgets can be limited to high-level data on assets, revenues, and expenses, or they can consist of detailed financial statements, *cash flows, and operational statistics for individual areas of an organization. Budgeting methodologies tend to follow the costing methodologies adopted by an organization, like *activity based costing or a *just-in-time philosophy. While budgets can have a motivational effect on individuals, they can also have dysfunctional consequences. For example, employees may be tempted to incur inappropriate expenses to fully use a budget, in order to ensure they are allocated a similar budgetary level in future years. More generally, organizational turf wars can erupt over the allocation of budgeted resources, and it has been perceptively noted that "it is a rare organization in which budgets do not create a framework for conflict" (Sawyer and Vinten, 1996, 245). Compare *forecast.