BUDGETING

Introduction
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Over the years, a widely used device for managerial control is the budget.
Budgeting is the formulation of plans for a given period stated in numerical terms in the future.
Budgeting is a plan converted into money availabilities.
Without money, work would come to stop. In a real sense, budgeting is at the hearth of the
administrative process. Budgets are statements of anticipated results, as in revenue and
expenses paid and capital budgets.

Budgeting and Its Purpose

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The primary purpose of budgeting is to state plans in terms of numbers and breaking them into
parts.
The manager sees clearly what capital will be spent by whom and where, and what expenses,
revenue or units of physical input or output the plans will involve.
A budget, to be useful to a manager at any level, must reflect the organization pattern. When
plans are complete and coordinated very well to fit into the departmental operations, the
department budget becomes useful as an instrument of control.

Classification of Budgets
Revenue and expense budgets

The most basic of these is the sales forecast. The sales budget is the foundation of
budgetary control. While a particular company may budget other revenues, such as
expected income from rentals, and other miscellaneous sources; for instance, the revenue
from sales of products or services furnishes the principal income to pay operating
expenses and yields some financial gains.
The operating expense budgets of typical organization may be as numerous as the
expense classifications in its chart of accounts and the various branches of the
organization in its structural set up. These budgets may deal with individual items of
expense, such as telephone, insurance, advertising, entertainment, travel and data
processing.
In some cases, a department manager will budget only major items and lump together
other items in one control summary sheet.
An example of this is, if a manager of a small unit is expected to take one business trip a
year at a cost of 10,000 pesos, budgeting this cost each month at 100 pesos would mean
little for monthly planning.

Time, space, material and product budgets

Budgets are usually translated into monetary terms. it may be noted that they are
significantly stated at a certain stage in planning and control if they are clearly expressed
in terms of quantities.

The most common of these budgets are for direct-labor hours, machine hours, units of
materials, square feet allocated and units produced.

Capital expenditure budgets

These capital expenditure budgets outline specifically capital expenditures for plant,
machinery, equipment, and other items.
Budgets, whether for a short term or a long term, require a careful study because they
provide a definite form and direction to plans for using the funds of the organization. It
may be observed that business normally takes a long time to recover its investment in
plant and equipment.
Capital expenditure budgets usually are tied up in long-range planning.

Cash budgets
A cash budget is one of the most important control mechanism in an organization since it
is simply a forecast of cash receipts and disbursements against actual cash which may be
the results of experience as a measurement.
The availability of cash to meet obligations as they are due is very important. Cash
budgeting shows the availability of excess cash and therefore, it makes possible to plan for
profit-making investment.
Balance sheet budget

This is a financial budget which plans the amount of assets and liabilities for the end of
the time period under consideration. It indicates whether the capital expenditures and
cash management, revenues, and operating expenses will mesh into the financial results
desired by senior management.
The balance sheet budget indicates where future financial problems may exist. Financial
ratio analysis can be performed on the balance sheet and profit budgets to see whether
important ratio targets, such as debts to total assets will be met.

Risks in Budgeting
Budgets are used for planning and control. It is a common practice that some budgetary control
programs include the minute details that consequently, become cumbersome and virtually
expensive.
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Over budgeting
There is a risk in overdoing the budget by way of spelling out minor expenses in detail that
deprive managers of the needed freedom in managing their units.
For instance, a department head in a poorly budgeted company was hampered in a very
important sales promotion because expenditures for office equipment exceeded budgetary
estimates.
Such being the same, the new expenditures had to be limited, even though his total expenses
in his unit were within the budget and he had funds to pay personnel for writing sales
promotion letters.

 In another case, a departments expenses were budgeted in such less important details that
the actual budgeting cost of many items exceeded far the controlled expenses.
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Overriding organization goals

Another risk may lie in allowing budgetary goals to become more important than the
organization goals. Managers, in their desire to keep within limits, might forget that they owe
loyalty to the organizations ideals and objectives.
In one organization with a budgetary control program, the sales department could not get
needed information from the medical department on the ground that the latters budget
would not stand such expenses. This conflict exists perhaps because there is no proper
coordination, and normally, these are symptoms of inadequate management. Plans constitute
a supporting and interlocking network and every plan should be reflected clearly in a budget.
It is interesting to note that we often hear managers say: This is a good idea, but its not in
my budget. Sometimes, budgets often control the wrong things. They measure inputs but
ignore such as the quality of the product or customer satisfaction.

Hiding inefficiencies
Another risk in budgeting is that some managers use budgeting to hide inefficiency. Budgets
have a tendency of developing from precedents.
The fact that a certain expenditure was made in the past can be a reference of its
reasonableness in the present. If for a unit was once spent a given amount for supplies and
equipment, this cost becomes a minimum for future budgets. It may be noted that some
managers sometimes learn that budget requests are likely to be pared down in the course of
final approval, and naturally, they ask for much more than they need. It is therefore
necessary that budget making should be accomplished by constant and deliberate standards
and conversion factors by which planned action is translated into numerical terms.

Causing inflexibility
It may be inferred that the greatest risk in budget is inflexibility. The reduction of plans to
numerical terms often gives some kind of misleading definiteness in budgeting. It is always
possible that appropriation will prove that a big amount should spent for this kind of labor or
that kind of material and smaller amount for another.
These differences may make a budget obsolete almost as soon as it is formulated. If managers
stay within the straight jacket of their budgets, the usefulness may be reduced or may be
nullified. This is usually the case when budgets are made for long periods in advance.

Advantages and Disadvantages of Budget Control

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Advantages

Facilitates coordination across departments

Translates strategic plans into departmental action
Records organizational activities
Improves communication with employees

 Improves resource allocation

Provides a tool for corrective action through reallocations
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Disadvantages

Can
Can
Can
Can
Can

be used mechanically
demotivate employees because of lack of participation
cause perception of unfairness
create competition for resources and politics
limit opportunities for innovation and adaption

Note: Budgeting is the most widely used control system in developed countries. Skilled managers
who understand budgets and how to use them have a powerful control tool with which to attain
departmental and organizational goals.

LEADERSHIP
Leadership is the ability to inspire or influence others towards the leaders goal.
John P. Kottler suggested a view about synergistic relationship between management and
leadership. He pointed out that management produce orderly results. Leadership creates
useful change. You need both to be effective.
Patricia D. Witherspoon explained that leadership is not headship or holding a position of
authority regardless of abilities just because a person is appointed to a job or position does
not make him or her a leader.
David J. Cherrington according to him to manage means to direct, to bring about, to
accomplish and to have responsibility for. To lead, however, is to inspire, to influence and to
motivate
W Bennis and B Nanus differentiated the two terms through the following words: managers
are people who do things right, and leaders are people who do the right things
Daniel Katz and Robert L.Kahn it is the voluntary aspect of leadership that distinguishes
it from other influence processes, such as power and authority
For the purpose of this book, the definition of leadership by J. Stoner, freeman and D
Gilbert Jr. Is being adapted. Managerial leadership defined as the process of directing
influencing the task related activities of group members, some of the important
suggestions of this definition are the following:
1. Leadership involves the most vital resources of any organizations, the people- employees,
subordinate or followers
2. Power distribution between leaders and group members are unequal.
3. Leadership involves the use of different form of power to influence the behaviour of
followers

4. Leadership is about values

Elements

of

Leadership

1. The ability to use power Effectivity and in a responsible manners .

2. The ability to comprehend that human beings have different motivation forces at
different times and in different situations .
3. The ability to Inspire , and
4. The ability to act in a manner that will develop a climate conductive to responding
to and arousing motivations.

LEADERSHIP STYLE
2 Major Styles of Leadership

Task Oriented Leadership

The leader gained satisfaction from seeing the task performed.

People Oriented Leadership

The leader looks toward achieving good interpersonal relations by way of
attaining a position of personal prominence in the organization.

LEADERSHIP STYLES BASED on the USED of AUTHORITHY

Autocratic Leader
Commands and expects compliance; is dogmatic and positive; and leads by the
ability to withhold or give rewards and punishment.
This is the one rule type.
Democratic or Participative Leader

 This type of leader consults with subordinates on proposed actions and

decisions and encourages participation from them.
Benevolent-Autocrat
The leader is a father figure who wants everyone to feel good. The emphasis is
on keeping everyone happy and satisfied.
Although the leader listens to his subordinatesopinion before making a
discussion, ultimately, the decision is his own.
Liberal leader or Free-rein leader
This type of leader uses his power very rarely, if at all, giving subordinates a
high degree of independence in their operations.
OTHER TYPES of LEADERSHIP
Laissez-Faire
This word means to let people do as they choose. This is practically no
leadership at all.
Manipulative-Inspirational
This style of leadership is usually hard to find. The leader or group of leaders
sets the rules and interprets as they see fit.
High pressure tactics or emotionalism is used to sell the people into following
the directions set by the leader.

The three types of Power

1. COERCIVE POWER
-Followers follow out of fear; they are afraid of what might happen to them if they dont do
what they are asked to do.
-is based on fear in both the leader and the follower.
As Aleksander Solzhenitsyn, the Russian poet and philosopher, has observed, You only have the
power over people as long as you dont take everything from them. But when youve robbed a man of
everything, hes no longer in your power; hes free again.
2. UTILITY POWER
-Followers follow because of the benefits that come to them if they do.
-The followers have something the leader wants (time, money, energy, personal resources,
interest, talent and support)

-and the leader has something they want (information, money, promotions, inclusions,
camaraderie, security, opportunity)
3. PRINCIPLE-CENTERED POWER
-It is based on the power that some people have with others because others tend to believe in
them and in what they are trying to accomplish.
-They are trusted, respected and honored.
Hans Selye, the author of Stress without Distress, commented, Leaders are Leaders only as long
as they have the respect and loyalty of their followers.
Ten Power Tools of Leadership
1. Persuasion telling why as well as what?
2. Patience staying committed to goals
3. Gentleness not forceful when dealing with followers
4. Teachable-operating with the assumption that one doesnt have all the answer
5. Acceptance giving benefit of the doubt
6. Kindness caring in relationship
7. Openness- giving full consideration
8. Compassionate confrontation- correcting with care
9. Consistency- actions consistent with characters
10.Integrity action match with words and feelings

TRAITS OF A LEADER
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A leader envisions the future. He inspires the members of the organization and charts the
course of the enterprise.
Some traits of a leader are:
Knowledge a leader must have a thorough knowledge of the capabilities and
limitations of his subordinate, be endowed with superior intelligence, have the
necessary professional know- how of the job.

 Bearing a leader is dignified in appearance and behaviour to earn respect

Courage leader must possess physical and mental ability to act decisively with
fortitude and tenacity in spite of danger and boundaries.
Endurance a leader must have physical and mental endurance to continue
relentlessly in pursuing the goals and objectives of the organization for a common
goal.

Enthusiasm- must possess a higher degree of interest and sensitivity in responding to

the needs of the organization

Integrity a leader must possess a good moral character and impeccable integrity.

Decisiveness a leader have the ability to decide promptly and correctly at the proper
time and to announce his decision clearly and briefly.

Dependability a leader must demonstrate a higher degree of initiative in the

performance of his duty even with or without supervision.

Force a leader must be able to demonstrate efficacious power within the bounds of
law to compel obedience among his subordinate.
Humility a leader must possess the virtue of humility the state of being reasonably
modest and not proud, assuming, arrogant, and boastful

Humor a leader must possess a good sense of humor which is a mental disposition
to appreciate and narrate amusing incidents of everyday life in a comical way.
Initiative- a leader should have the ability to start or originate and idea or a work
concept leading to action when others are absent or passive.

 Judgement a leader must have the power of mind to weigh intervening factors
affecting a problem and to decide with due care and prudence.

Justice must be able to render judgement which conforms to principles of reason , be

impartial in rendering punishment and giving credit where credit is due

Loyalty leader must be sincere and faithful to the ideals of the organizations.
Sympathy leader must be able to understand and to share the feelings of another
especially in time of sorrow or adversity.

Empathy leader must show some intellectual and emotional identification with
feelings, thoughts, and attitudes to employees affected by pain because of misfortune.
Tact leader must observe prudence to avoid giving offense. Have a keen feeling and a
sense of what is appropriate, tasteful and aesthetically pleasing

Unselfishness leader must show some degree of magnanimous considerations to

subordinate without prejudicing the interests of others who are in need of help
Wit leader must possess a keen perception and appropriate expression of amusing
words and ideas which awaken amusement and pleasure.

DECISION-MAKING
Decision Making

Is defined as the selection of a course of action from among alternatives to produce a

desired result.
Is a simple one.
Is the core planning.
A course of action can seldom be judged alone, because every decision is geared to other
related plans.

Three Approaches in selecting an Alternative

 Experience Reliance on past experience most likely plays a larger part than it deserves
in decision making.

Experienced managers believe that the things they have successfully accomplished
and the mistakes they have made furnish almost infallible guides to the future.
Experience may spell the difference between success and failure in decisionmaking.
Relying on past experience as a guide for future action can be dangerous.

Experimentation is a process often used in scientific inquiry.

One way to decide among alternatives is to try one of them and wait for the result.
The experimental technique is found to be the most expensive technique because
the program requires heavy expenditure of capital and personnel resources.

Research and Analysis involves a search for relationships among critical variable,
constraints and premises that have direct bearing upon the goal sought.

One major step in research and analysis approach is to develop a model simulating
the problem.
This is exemplified by architects who make models of building in the form of blue
prints and three- dimensional representation of the structure.

Types of Decision
Programmed Decision are those that are routine and repetitive in nature.

They are in effect decision making by precedent.

The Manager to facilitate decision- making has devised an established systematic
way to handle the decision situation.

Example of the programmed decision:

a. A universitys decision about how to process a students request to drop or to
add a course.
b. A hospitals process for admitting new patients.
c. a supervisors disciplinary action when a worker reports to work in
intoxicated condition.
d. A maintenance departments decision about the frequency of maintenance
serving a machinery and equipment.
Unprogrammed decision are those that occur infrequently, and because of different
variables, they require a separate response each time.

Many management training programs on decision-making are designed to help

management to think through problems, using a logical and non- programmed
approach. In this case, they learn how to deal with extraordinary and unexpected
problems.

Example:
1.
2.
3.
4.

To buy a new car and what brand of car to buy.

To select one job offer from the many received.
Whom to promote to the vacant position in the company.
The marketing of a small video camera by Kodak.

In general strategic decision

are non-programmed decisions, since they require subjective

judgments.
Making Effective Decisions
One way of ensuring effectiveness is to follow the steps in the decision-making process.
The second way is to use guidelines that will help carry out this process.
Irving Janis and Leo Mann (1978) have found the seven guidelines to be of particular value in
making effective decisions.
1.

Thoroughly canvass a wide range of alternative courses of action.

2. Survey the full range of objectives to be fulfilled and the values that are implied in the
choice.
3. Carefully weigh what ever is known about the cost and the risks of negative
consequences, as well as the positive consequences
that follow from each
alternatives.
4. Intensively search for new information relevant to the further evaluation of the job.
5. Correctly assimilate and take into account any new information or exert judgment to
which one is exposed, even when the information or judgment does not support the
course of action initially preferred.
6. Reexamine the positive consequence of all known alternatives, Including those
originally regarded as unacceptable, before making a final choice.
7. Make detailed provisions for implementing or executing the chosen course of action

with special attention to contingency plans that might be required if various known
risks were materialize.

CONFLICT AND STRESS MANAGEMENT

Conflict is an overt behavior that results when a person or a group of persons thinks a perceived
need of the person or group of persons has been frustrated. Normally, conflicts occur because
individuals have different perceptions, orientation, beliefs, and objectives.
Today, many organizations approach the management of conflict with the following assumptions:
1.
2.
3.
4.

Conflict can be avoided.

Conflict is the result of personality problems of individuals within the organization.
Conflicts produce inappropriate reactions by the individuals involved.
Conflict creates a polarization- a manifestation of contrasting tendencies within the
organization.

The following potentially useful effects of conflicts are:

1. Conflicts energizes people to make more even if not all of the resulting activity may not be
constructive.
2. Conflicts as as process often provide an outlet for pent-up tensions, resulting in carthasis.
3. Conflicts can result in an educational experience.
Nature of Conflict
1.
2.
3.
4.
5.

Latent Conflict
Perceived Conflict
Felt Conflict
Manifest Conflict
Conflict aftermath

Analyzing Conflict
A. Intrapersonal Conflict
Adjustive Reactions:
-Compensation
-Conversion
-Displacement
-Fantasy
-Negativism

-Rationalization
-Regression
-Repression
-Resignation apathy and boredom
-Flight or withdrawal

There
1.
2.
3.
B.
C.

are three types of conflicting goals and these are:

Mutually exclusive positive goals
Positive-negative goals
Negative-negative goals
Interpersonal Conflict
Intergroup Conflict
-Goal segmentation and rewards
-Unequal department dependence
-Mutual departmental dependence
-Functional unit and the environment
-Role dissatisfaction
-Role ambiguity
-Communication barriers
-Common resource dependence

Managing Conflict
There are five general methods that has been identified and are being used in resolving in
interpersonal situations such as:
1.
2.
3.
4.
5.

Withdraw one or more of the participants.

Smooth over the conflict and pretend that it does not exist.
Compromise for the sake of ending the conflict.
Force the conflict to a conclusion by third-party intervention.
Have a confrontation between participants in an effort to solve the underlying conflict.

The conflict interface- management of the conflict interface is based on monitoring the behavior of
the participants as the conflict develops.
The managers should also know the following guidelines for verbal confrontation:
1. Review past actions and clarify issues before confrontation begins.

2. Communicate freely and do not hold back grievances.

3. Do not surprise the opponent with a confrontational attitude for which the individual is not
prepared.
4. Do not attack the opponents sensitive spots that have nothing to do with the issues of the
conflict.
5. Do not touch on personal issues; stick to specifi issues.
6. Do not argue aimlessly.
7. Maintain the intensity of the confrontation and ensure that all participants say all they want
to say.
Responses on higher-level manager
- the second level of conflict management concerns the responses of higher level managers to the
conflicts consequences for the ongoing work of the organization.

STRESS MANAGEMENT
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Stress is defined as the mental or physical condition that results from a perceived threat of
danger (physical or emotional) and the pressure to remove it.

Common sources of Organizational Stress

-Job mismatch
-Conflicting expectations
-Role ambiguity
-Role Overload
-Fear/Responsibility
-Working conditions
-Working relationships
-Alienation
BURNOUT
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Is a condition that occurs when work is no longer meaningful to the individual and this can
result from stress may be other work-related or personal factors.
TIME MANAGEMENT

The term time management refers to techniques designed to enable people to get more
activities done in less time with better results.

 Time is Gold is a familiar rhetoric Filipinos. Developing time management skills is an

effective way to reduce stress; increase personal productivity; and experience peace of mind.
It is possible for one to gain control of ones activity in life by controlling time.
Time is one of a managers most valuable resources.
Time management analyzes present use of time, prioritizing activities, using time
management system and management techniques. Time management skills become
important.
GUIDELINES in TIME MANAGEMENT

Analyze Time Use

- The first step to successful time management is to determine current time use for an
activity. By analyzing how you use your time every day will certainly indicate areas of
improvement.
The Use of a Time Log
- The time log is a daily diary that tracks activities and enables one to determine how time
used.
Analyzing Time Logs
-After keeping time logs for 5 to 10 working days, you can analyze them by answering the
following questions:
1. Review the time logs to determine how much time you are spending on your primary
responsibilities. How do you spend most of your time?
2. Identify areas where you are spending too much time.
3. Identify areas where you are not spending enough time.
4. Identify major interruptions that keep you from doing what you want to get done. How can
you eliminate them?
5. Identify tasks that you can delegate to your subordinates.
6. How much time is controlled by your employees? How much time do you actually control?

7. Identify crisis situations. Were they caused by something you did or did not do? How can you
eliminate recurring crisis?
8. Look for habits, patterns, and tendencies. Do they help or hurt you to set the job done? How
can you change them to your advantage?
9. List down five conditions of your biggest time wasters. What can you do to eliminate them?
10.Make a resolve of how you can manage time more effectively.
Prioritize activities
- A priority is simply the preference given to one activity over other activities. The tasks that
manager must get done should be placed on a to-do list, and then prioritized, focus on only one
activity at a time.
Pete Drucker
- observed that there are few people who seem to do an incredible number of things; however, their
impressive versatility is based mainly on doing one thing at a time.
To prioritize activities, it is important to begin by answering three priority determination questions
such as:
1. Do I have to be personally involved in this activity because of my inherent and unique
knowledge or skills? There are certain cases when you are the only one who can do the tasks;
and therefore, you must be involved.
2. Is the task within my major area of responsibility or will it affect the performance of my
department or unit?
3. When is the deadline? Is quick action needed? Should I work on the activity right now?
These are questions that should be answered when considering priority determination.
Assigning Priorities
- Based on the answers to the three questions on priority determination, a manager can
delegate a task or assign it as high, medium, or low priority.
Delegating
- The task is delegated if the answer to question 1 which states, Do I need to be personally
involved? is no. It is not necessary to answer question 2 and 3 because a priority is not assigned
to the task; however, planning the delegation and delegating the task are prioritized.

 High Priority
- A high priority is assigned if the answer is yes to all the questions. You need to involve; it is
the major responsibility of the manager; and quick action is needed.
Medium Priority
- A medium priority is assigned if the answer is yes to question 1 (You need to be involved)
but no to question 2 (It is not your major responsibility) or 3 (Quick action is needed; it can wait).

Low Priority
- A low priority is assigned if the answer is yes to question 1 (You need to be involved) but no
to questions 2 and 3. It is not your major responsibility, and quick action is not needed. The three
priority question should be in order to help us develop our ability at assigning priorities.

TIME MANAGEMENT SYSTEM

In any organization, the time management system has proven record of success among
hundreds of managerial practitioners.
There are four major parts that have to be considered in the time management system. These are
priorities, objectives, plans, and schedules:
1. Priorities
A priority is the state or quality of being earlier in time or the precedence in order of doing a
task. Setting priorities on a to-do list certainly helps increase performance.
2. Objectives
An objective is something that ones effort are intended to accomplish. Objective state what
we want to accomplish within the given period of time. It is necessary that managers should
set weekly objectives following certain guidelines for its accomplishment.
3. Plans
A plan refers to any method of thinking out acts and purposes beforehand for a define action.
Plans states the procedures of how the set objectives can be achieved.
4. Schedules

 A schedules includes a series of activities to be done within a given period. Schedules state
when the activities planned will be carried out. It is important to schedule activities for the
day.