Đang tạo bản xem trước...
Learning Objectives By the end of this module you should understand: 1. The role played by budgets in an organization 2. The problems surrounding budgets and how to solve these problems 3. The techniques of preparing a master budget and supporting schedules 4. The nature of discretionary expenditure and how zero-base budgeting can assist in allocating resources Omar El-Kheshen – omar@arabacademy.com 2
Agenda 12.1 Introduction 12.2 Why Bother with Budgets? 12.3 Why Budgeting Gets a Bad Name 12.4 Budgeting in Action: The Go-Straight Trolley Company 12.5 Discretionary Expenditure and Zero-Base Budgeting Review Questions Case Studies Omar El-Kheshen – omar@arabacademy.com 3
In module 9, we’ve covered the behavior of different types of cost; where costs are broken down into variable and fixed costs Variable Costs Fixed Costs Costs that change in magnitude with Costs that do NOT change as production production or sales levels or sales move up or down provide: Useful ManagerialUseful ManagerialUseful ManagerialUseful Managerial InformationInformation e.g. break-even points & the impact on profit of changing sales mixes Omar El-Kheshen – omar@arabacademy.com 4
Module 10 described various procedures for spreading those costs using plantwide and departmental overhead rates Plantwide RatesPlantwide Rates DepartmentalDepartmental RatesRates based on: Predetermined Overhead Rate Budgeted overhead for accounting period Budgeted Production Units expressed in:expressed in: either or Units producedUnits produced AppropriateAppropriate activity basesactivity bases To determine the cost per unit of production or service We’ve also seen in Module 11, the requirement to identify only relevant costs for decision making Omar El-Kheshen – omar@arabacademy.com 5
Little space has been devoted so far to the predictive step in the management process "Budgeting"; which will be the subject of this module and the next Budgeting A plan of action, usually expressed in numbers and amounts, which sets targets for individuals and for the business over a defined future timeframe Management must give thought to the future in order to plan to meet its threats and opportunities Module 12 Module 13 Considers the mechanism Sets out the procedures for available to management to constructing the budget monitor the actual performance against the plan Omar El-Kheshen – omar@arabacademy.com 6
Agenda 12.1 Introduction 12.2 Why Bother with Budgets? 12.3 Why Budgeting Gets a Bad Name 12.4 Budgeting in Action: The Go-Straight Trolley Company 12.5 Discretionary Expenditure and Zero-Base Budgeting Review Questions Case Studies Omar El-Kheshen – omar@arabacademy.com 7
We have to always remember the human factor in businesses; business is made up of people People Tend to have an Do not share the Do not work unshakeable Are not same values, or towards the automatonsautomatons confidence in view the worldview the world their owntheir own same goal at thesame goal at the in the same way same pace judgment Budgeting process should help in harnessing, directing and controlling employees’ efforts and motivation Omar El-Kheshen – omar@arabacademy.com 8
Budgeting has 4 attributes: Coordination, Planning, Motivation and Control Coordination Planning Motivation Control It coordinates It encourages It promotes It provides a control activities within the planning motivation benchmark against same organization which to measure By planning, a Once the business’s actual performance The budget will megalomaniac budget is broken identify whether the personality of one down into its Without a budget aspirations of theaspirations of the senior official issenior official is constituent parts,constituent parts, managers do notmanagers do not sales team can be countered by the individual know how well their realized by the marketplace. E.g.: a departmental heads departments have production proposed twofold obtain a clear picture done; they think they department or increase in the of the route ahead are performing whether these marketing budget for for the next period, satisfactorily but should be trimmed in next year may not be usually a year have no way of order to match the sanctioned if sales confirming this limited output targets are under resources of pressure due to production overseas competition or perceived quality issues Omar El-Kheshen – omar@arabacademy.com 9
A budget is only a numerical expression of a plan, it is not the plan itself – referred to as strategic planning; which must precede the budget exercise Strategic Planning Strategic planning is the managerial exercise which attempts to ensure that a business accomplishes a sufficient process of innovation and change by: – Allocating scarce resources (cash, critical management talent and technological know-how) – Adapting to environmental opportunities and threats – Coordinating activities so as to reflect the business’s strengths and weaknesses Omar El-Kheshen – omar@arabacademy.com 10
Agenda 12.1 Introduction 12.2 Why Bother with Budgets? 12.3 Why Budgeting Gets a Bad Name 12.4 Budgeting in Action: The Go-Straight Trolley Company 12.5 Discretionary Expenditure and Zero-Base Budgeting Review Questions Case Studies Omar El-Kheshen – omar@arabacademy.com 11
There are some reasons why budgeting is getting a bad name; these should be overcome if the business is to use budgets as a significant management tool Few of the reasons which must be overcome: 1 Time TakenTime Taken 2 Lack of Top Management CommitmentLack of Top Management Commitment 33 A Form of PunishmentA Form of PunishmentA Form of PunishmentA Form of Punishment 4 Responsibilities Are BlurredResponsibilities Are Blurred 5 Moving GoalpostsMoving Goalposts 6 Budgeting Rewards InefficiencyBudgeting Rewards Inefficiency Omar El-Kheshen – omar@arabacademy.com 12
There are some reasons why budgeting is getting a bad name; these should be overcome if the business is to use budgets as a significant management tool Few of the reasons which must be overcome: 1 Time TakenTime Taken 2 Lack of Top Management CommitmentLack of Top Management Commitment 33 A Form of PunishmentA Form of PunishmentA Form of PunishmentA Form of Punishment 4 Responsibilities Are BlurredResponsibilities Are Blurred 5 Moving GoalpostsMoving Goalposts 6 Budgeting Rewards InefficiencyBudgeting Rewards Inefficiency Omar El-Kheshen – omar@arabacademy.com 13
The budget process should start as late as possible in the current year consistent with getting agreement by the start of the new year In Big Companies When to start Headquarters often start the budgeting process before the Budgeting? current financial year is six months old A good budget process is an iterative one where first thoughts Why so early? need to be amended by other managers’ first thoughts Why end up late? Face-to-face meetings Budget conferences Because managers do not know how the current year is panning out (i.e. how accurate last year’s budget is proving to be) before being asked for an assessment of next year If this year is only a matter of a few months old, managers will disregard the early steps in the process and supply unsubstantiated guesses which will require amendment as the year progresses, thereby undoing the advantage of an early start Omar El-Kheshen – omar@arabacademy.com 14
There are some reasons why budgeting is getting a bad name; these should be overcome if the business is to use budgets as a significant management tool Few of the reasons which must be overcome: 1 Time TakenTime Taken 2 Lack of Top Management CommitmentLack of Top Management Commitment 33 A Form of PunishmentA Form of PunishmentA Form of PunishmentA Form of Punishment 4 Responsibilities Are BlurredResponsibilities Are Blurred 5 Moving GoalpostsMoving Goalposts 6 Budgeting Rewards InefficiencyBudgeting Rewards Inefficiency Omar El-Kheshen – omar@arabacademy.com 15
Managers and departmental heads in the operating divisions very often resent the effort and self-control required of them as individuals to ‘keep within the budget’ Reasons Behind this: 1 They see apparent extravagant spending on the part of senior management personnel 2 They suspect that this level of spending is not required to carry out the functions of the individuals involved 33 They suspect the spending continues to be incurred even after theThey suspect the spending continues to be incurred even after the budgeted resources given over to that activity have been consumed A less-than-professional approach to their own responsibilities by top management will ultimately lead to: A breakdown of the budget process where managers do whatever pleases them, disregarding previously agreed targets and limits Omar El-Kheshen – omar@arabacademy.com 16
There are some reasons why budgeting is getting a bad name; these should be overcome if the business is to use budgets as a significant management tool Few of the reasons which must be overcome: 1 Time TakenTime Taken 2 Lack of Top Management CommitmentLack of Top Management Commitment 33 A Form of PunishmentA Form of PunishmentA Form of PunishmentA Form of Punishment 4 Responsibilities Are BlurredResponsibilities Are Blurred 5 Moving GoalpostsMoving Goalposts 6 Budgeting Rewards InefficiencyBudgeting Rewards Inefficiency Omar El-Kheshen – omar@arabacademy.com 17
Budgets are seen to be devices for control purposes only and for screwing down activities to the absolute minimum amount of resources required to do the job Reasons behind this belief: All discretionary expenditure Surplus staff are removed and such as entertaining and travel the remainder required to work are stripped out in sweat-shop conditions If this perception of budgets is widespread Top management deserves to be removed from office Through consulting with those employees who will be required to implement the budget, top management can guarantee support of those managers who had a hand in the construction of the budget Omar El-Kheshen – omar@arabacademy.com 18
There are some reasons why budgeting is getting a bad name; these should be overcome if the business is to use budgets as a significant management tool Few of the reasons which must be overcome: 1 Time TakenTime Taken 2 Lack of Top Management CommitmentLack of Top Management Commitment 33 A Form of PunishmentA Form of PunishmentA Form of PunishmentA Form of Punishment 4 Responsibilities Are BlurredResponsibilities Are Blurred 5 Moving GoalpostsMoving Goalposts 6 Budgeting Rewards InefficiencyBudgeting Rewards Inefficiency Omar El-Kheshen – omar@arabacademy.com 19
Managers in operating divisions feel distressed when corporate or centrally incurred costs, over which they have no control whatsoever, are allocated to them Examples of such costs: Grouping wide marketing & promotional activities Grouping executive salaries Grouping expenses such as theGrouping expenses such as the Grouping expenses such asGrouping expenses such as corporate fleet of aircraft centrally located R&D laboratories Corporate expenditure should be allocated to a budget holder who can be held responsible as it is unfair and demotivating to assess their performance on managing uncontrollable costs Omar El-Kheshen – omar@arabacademy.com 20
Hiển thị 20 trang đầu. Tải tài liệu để xem đầy đủ.
Chưa có bình luận nào. Hãy là người đầu tiên!
Bình luận (0)
Chưa có bình luận nào. Hãy là người đầu tiên!