This week we have learned the importance of maintaining a budget for an organization. First and foremost it serves as an important planning and control function for all firms. Next, depending on the type of budget it can be used as a performance measurement tool. According to Fleming (1995), "budgets provide a disciplined approach to managing because they force managers to plan ahead and coordinate their activities with those of other managers, and with the firm's goals and objectives" (p. 1). We have also learned that budgets can warrant some employee behavior that doesn't necessarily benefit the organization, such as generating a budget that is anything but realistic in order to achieve a pre-determined result. An organizational budget that is continually used as the sole source performance measurement can lead employees to retaliate against it by ignoring it, becoming disgruntled, or putting too much slack in their budgets (Fleming, 1995). However, the benefits do outweigh the disadvantages of a budget for all firms. One advantage that really sums up the reasoning behind establishing a budget is the ability to achieve and maintain the competitive advantage in the firm's industry. Jehle (1999) suggested that a budget is "a process of collecting and consolidating numbers; it's a map that can guide your company to competitive advantage" (p. 54). Competitive advantage is all about understanding what you need to achieve to differentiate yourself, and gain market share. Additional advantages for establishing a budget include vertical and horizontal communication between all levels of management and their subordinates, budgeting is a tool for forecasting, and budgeting is essential in writing a business plan. Leading our firms to organizational success should incorporate all four functions of management, (1) planning, (2) organizing, (3) leading, and (4) controlling (Certo & Certo, 2016). The strategic budget, in any form, meets two of these functions thereby adding to the success of meeting organizational goals. Planning involves meeting challenges both financial and otherwise and assessing the necessary steps needed to achieve organizational goals. Budgeting uses controlling as a function of management that involves measuring achievement against established goals. Part of this controlling involves the assignment of decision rights in budgeting which allows each manager the ability to control their spending. Without these decision rights in regard to budgeting, it would be difficult to achieve goals while remaining within a benefit and cost structure that creates success for the firm. References Certo, S. C., & Certo, S. T. (2016). Modern management: Concepts and skills (14th ed.). Boston: Pearson. Fleming, M. (1995). A budget model for a small manufacturing firm. Industrial Management,37(2), 1-4. Jehle, K. (1999). Budgeting as a competitive advantage. Strategic Finance, 81(4), 54-57. Please reply to above post, in regards to budgeting, employee behavior and advantages/disadvantages. 1-2 paragraphs, with APA reference. Post 2-Explain the difference between static budgeting and flexible budgeting. Static Budgeting refers to a budget that basically, doesnt change over time of the applicable reporting period. Flexible budgeting allows for change to the budget based on actual activities within it. Bigelow at Chron.com (2015) explains Why Static Budgets Work: The best reason to use a static budget is the variance analysis. The variance analysis tells the owner how much she's over or under the original budget, via percentage and dollars. Even for new businesses, it may be easier to plan for future years when you know you have a comparison between what was expected and what actually occurred. In future years, you can adjust the budget up or down depending upon the variance percentages. Static budgets work best when the owner has a reasonable amount of certainty what revenues and costs will be, barring extraordinary circumstances. However, AccountingTools.com (2015) gives a disadvantage to static budgeting: Strategic rigidity. When a company creates an annual budget, the senior management team may decide that the focus of the organization for the next year will be entirely on meeting the targets outlined in the budget. This can be a problem if the market shifts in a different direction sometime during the budget year. In this case, the company should shift along with the market, rather than adhering to the budget. Why Flexible Budgets Work: Because the flexible budget changes based upon volume, it provides a greater level of control. New businesses need to keep a tight lid on costs; capping certain flexible expenses to a percentage of volume helps accomplish this. A new business could vary a great deal from what was originally planned, and flexible budgets offer a real-time view of a business's expenses and revenues. The savvy business owner may not have time to go through the trouble of issuing a forecast for the static budget. The flexible budget accomplishes the forecast in one step (Bigelow, 2015). Include in your discussion the impact of controllability on the use of either in evaluating employee performance. The static budgeting would be a rigid measurement methodology of evaluating an employees performance. Either the employee abided by the budget and performed x amount of tasks or they exceeded the budget, which would have been negative performance on their part. In order to adhere to the budget the employee would have to be mindful of it and perhaps tracked the budget periodically so as to not exceed and this would reign positive for the employee. One advantage is that the performance expectation and outcome for measuring is clear. Yet, it doesnt provide for any actual environmental or market changes for an employee to perform even better. References: AccountingTools.com. (2015). What are the disadvantages of budgeting? Retrieved from: http://www.accountingtools.com/questions-and-answers/what-are-the-disadvantages-of-budgeting.html. Bigelow, L. (2015). Demand Media. Chron.com. Static vs. Flexible Budgets for New Businesses. Retrieved from: http://smallbusiness.chron.com/static-vs-flexible-budgets-new-businesses-20879.html. Static budgets are budgets that do not account for changes in volume and flexible budgets do account for changes in volume (Zimmerman, 2014, p. 667). With static budgeting, every line item is noted as a fixed amount and does not change based on volume. Flexible budgeting allows for comparison between line items based on variables related to changes in volume (Zimmerman, 2014, p. 241). The impact of the amount of control that the manager or employee actually has on the budget or volume is an important factor of budgeting. The controllability principle of responsibility accounting states that individuals should be held accountable only for the factors they can influence (Chenxi, 2011, p. 974). Employee performance should only be compared to actual outcomes in the budget (whether static or flexible budgeting) that the employees can have actual control over. The use of the budget as a fixed performance contract leads to unreliable performance evaluation and Controllability is not impartial and not a single personal action (Chenxi, 2011, p. 984). Budgets, whether static, or flexible by accounting for changes in volume, should only be used to base employee performance when actual items that employees have control over are evident in the budget planning. Unexpected events, such when external conditions changes outside the control of the employee, should not be held against employee performance when updating or planning for the budget. References Chenxi, F. (2011). Controllability, Budget Flexibility and New Model of Budgeting System, Journal of Modern Accounting and Auditing, (7) 9, 974-985 Zimmerman, J. (2014). Accounting for decision making and control (8th ed.). New York: McGraw-Hill. Respond to above (2) posts, 1-2 paragraphs each post, with APA reference in regards to static and flexible budgets and control over them.