MDC_Autumn 2013_3_budgets_practical.pptVIP

Management decisions and control Budgeting: Reasons for budgeting, practical applications Management Decisions and Control 22421/0 Lecture objectives A budget – what is it? How does a budget work? What affects the design of budgets? What are the different types of budgets? Master budget Operating budget Cash budget How do we construct a budget? (operating and cash budget exercise) A budget – what is it? A budget is a detailed plan summarising the financial consequences of an organisation’s operating activities for a specific future time period A budget – what is it? Planning Measurement Controls Reward and Compensation Budgets Financial Controls Non Financial Controls Long Range Planning Short Range Planning Administrative Controls Management Structure Organisation Structure Policies and Procedures Social Controls Clans Culture Values Strategy and Objectives Organisation Performance Activities External Environment Control package (Brown, 2005) In this subject we mainly adopt the control package typology. Each week we look at an individual control system and then we consider how these controls work together as a package. How does a budget work? Planning – quantify a plan of action Facilitating coordination – formal mechanism Allocating resources – evaluating choices of how to use resources Controlling profit and operations – measuring actual performance against planned performance Evaluating performance and providing incentives – tying remuneration to budget outcomes. Facilitating communication – what does it tell you? What affects the design of budgets? Planning considerations: E.g. Economic conditions, industry conditions, wage changes, inflation, product line change, productivity gains/losses Bottom-up or Top-Down Direction of information gathering and budget preparation Incremental or Zero-based: Incremental budgets: when last years budget is used as a starting point and changes are made on an incremental basis in relation to this. Zero ba