Flexible Budget: Management Method for Cost Control and Monitoring the Performance of Economic Entities

Background

The word budget is a generic term that refers to short-term plans of any kind. Over time, many authors have defined it. Burlaud and Simon (2003) consider that the budget is both a quantitative management tool, for budgetary control, and a way of organizing responsibilities and transmitting orders - or objectives - the latter term being considered much more motivating. Budgets are, by definition, forecast situations (Dupuy & Rolland, 1991). The budgetary process must be seen as a stage in the fulfillment of the long-term plan. The budget shows the ways forward to achieve the goals proposed for next year's financial year (Ionescu, 2015). The budgets establish the activity programs for one year and allocate the necessary resources for the realization of the programs. In order for the next year's budget to be reliable, it is necessary to know the characteristics of the current period and the conditions in which the current activity takes place. Bouquin (1994) considers that the main function of the budget is to capitalize and, particularly, to balance the relationship between means and results. At the level of an enterprise, the financial balance involves ensuring the necessary financial resources to achieve the objectives. This balance must be foreseen and achieved through the budget both on the whole enterprise and on each subdivision of the organizational structure or economic activity of the enterprise.

The budget shows how the profit will be obtained. It allows the identification of its generating factors so that managers can act on the controllable elements that influence the achievement of this priority objective (Aslău, 2001). Selmer (2014) says that in order to be efficient and effective, the budgetary mechanism must be in line with the company's economic management. Gervais (1994) mentions that a budget system fully fulfills its mission if it manages to cover all the company's activities and integrate well into the global information system (thus facilitating the comparison of achievements with forecasts) and if it is well adapted to the nature of the company's activities and structure.