Explain the Terms “Planning”, “Control” and “Budgeting” and Discuss How These Terms Are Inter-Connected.

Planning and control are essential components of the budgeting process (Boer, Brouwers, Koetizier, 2007). In this answer I will show how budgeting can relate to both these aspects inside an organisation. To be able to discuss this, it is important to clarify what these three terms mean.

Planning - the design of a desired future and of effective ways of bringing it about. (Ackoff, 1981)

Budgeting – the process of identifying, gathering, summarizing and communicating financial and nonfinancial information about an organization’s future activities. (Needles and Crosson, 2011)

Control - consists of verifying whether everything occurs in conformity with the plan adopted, the instructions issued, and principles established. Its object is to point out weaknesses and errors in order to rectify them and prevent recurrence. (Henri Fayol, 1916)

All organisations have certain goals or objectives they want to achieve. Without these goals a business would be merely existing but with no point. Organisations plan for the “desired future” Ackoff (1981) so that they stand a better chance for success The planning process is essentially determination of these goals, an examination of alternative methods of achieving them and finally, a structured way of evaluating these policies (Davey and Vos, 1997). Boer, Brouwers, Koetizier, (2007) writes “the organizational objectives are translated into activities which are incorporated in short-term sub plans or budgets.” Putting objectives and goals into plans is an essential part of the planning process. Objectives and goals of a business separate into two categories: Long-Term and Short Term. Long-term goals define the strategic direction than an organisation will take over a ten-year period and are the basis of making annual operating plans and preparing budgets (Needles and Crosson, 2011). Short-term goals are much more detailed than long-term plans. The planning process relates to the budget as ultimately the budget is a short-term...