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Establishing a budget is an important activity that any individual or business must do. As a university student, I perform budgeting exercise quite often, for example, planning my monthly budget for rent, food, utilities, entertainment and also budgeting to plan for taking a trip to India after final exam. For a business or organization, budgeting exercises can be, for instances, budgeting for next year’s sales revenue, buying a manufacturing plant, purchasing raw materials, hiring the number of labour, and many other. These few examples show that budgeting is a step one may use for controlling routine operations, to plan for major expenditures, and to help with financing decisions. However, not many people are fond of this important exercise. There are strong opinions about budgeting activity and how it could have such a big impact on the people especially in an organizational setting. Therefore, the purpose of this assignment is to discuss both negative and positive behavioural aspects of budgeting exercise.

A budget is a plan that outlines an organization’s financial or operational goal. It is an action plan. It helps a business allocate resources, evaluate performance, and formulate plans. Understanding the importance of budgeting is the first step in successful financial planning. Budgeting is intended to carry out at least three broad functions (Wiersema, 2005).
• Planning. This is the most obvious purpose of a budget, which is to quantify a plan of action. Planning is concerned with, for example, specifying the type, quantity, and quality of services that will be provided to constituents such as estimating service costs, and determining how to pay for the services.
• Controlling and administering. This purpose of budget helps assure that resources are obtained and expended as planned. Managers use budgets to monitor resource flows and point to the need for operational adjustments. Legislative bodies, such as boards of...