Budgets set standards that can control the use of a company’s resources and motivate employees.A vital part of the budgetary system, control is achieved by comparing actual results with budgeted results on a periodic basis (for example, monthly). A large difference between actual and planned results is feedback revealing that the system is out of control. Steps should be taken to find out why, and then to correct the situation. For example, if Dr. Jones knows how much amalgam should be used in a filling and what the cost should be, he can evaluate his use of this resource. If more amalgam is being used than expected, Dr. Jones may discover that he is often careless in its use and that extra care will produce savings. The same principle applies to other resources used by the corporation. In total, the savings could be significant.
Budgets also serve to communicate and coordinate. Budgets formally communicate the plans of the organization to each employee. Accordingly, all employees can be aware of their role in achieving those objectives. Since budgets for the various areas and activities of the organization must all work together to achieve organizational objectives, coordination is promoted. Managers can see the needs of other areas and are encouraged to subordinate their individual interests to those of the organization. The role of communication and coordination becomes more significant as an organization increases in size.
Budgets set standards that can control the use of a company’s resources and motivate employees.A vital part of the budgetary system, control is achieved by comparing actual results with budgeted results on a periodic basis (for example, monthly). A large difference between actual and planned results is feedback revealing that the system is out of control. Steps should be taken to find out why, and then to correct the situation. For example, if Dr. Jones knows how much amalgam should be used in a filling and what the cost should be, he can evaluate his use of this resource. If more amalgam is being used than expected, Dr. Jones may discover that he is often careless in its use and that extra care will produce savings. The same principle applies to other resources used by the corporation. In total, the savings could be significant.
Budgets also serve to communicate and coordinate. Budgets formally communicate the plans of the organization to each employee. Accordingly, all employees can be aware of their role in achieving those objectives. Since budgets for the various areas and activities of the organization must all work together to achieve organizational objectives, coordination is promoted. Managers can see the needs of other areas and are encouraged to subordinate their individual interests to those of the organization. The role of communication and coordination becomes more significant as an organization increases in size.
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