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3.7 - Coggle Diagram
3.7
Budgets
Outline of a financial year
Estimate of Income and expenses for a specific period
All departments have separate budget to form the master budget
Purpose
(PRIME)
Integration
Coordination between departments to achieve budgetary objectives
Motivation
Managers to monitor their performance through budgets
Responsibility
Every manager is accountable for their budget
Evaluation
Budgets provide a momentarily performance measuring tool
Planning
Budget Objectives
A plan n financial terms
Benefits
(FMCC)
Forward Thinking (Problem Solving)
Co-ordination
Motivation
Control and Authorisation
Behavioural Aspects of Budgeting
Budgets must be realistic and not demanding in an unachievable way
Budgets acts as control mechanism
Open communication helps in successful implementation
Budgeting Techniques
Imposed Budget
Top-down
Senior management set targets
Each department is a budgets target
Department manager to prepare the department budget
Quicker to prepare
Participitory Budget
Bottom-up
Department managers set draft targets
Budgets are combined and submitted to senior management
Time consuming to prepare
Participative and motivational process
Budgets Preparation Technique
Incremental Budgeting
Budget for the upcoming year is based on the current year results
Adjustable for any expected growth or decline
Suitable if the organisation is efficient
Encourage wasteful spending
Zero Based Budgeting
Every budget is starting from zero base
Evert item to be justified for approval
Steps
Prioritise the packages
Eliminate packages where cost exceed the value
Allocate resources to packages
According to priority
Defining activities
Decision packages
Budgets and Business Planning
Development of a business Plan
Identify and Assess strategic options the business might take
Select the strategic option and formulate a long term strategic plan, broken down into small short term plans such as Budget
Plans include targets for
Sales volumes and revenue
Inventories requirements
Receivables and payables
Labour requirements
Production requirements
Current Situation Analysis
(Position Analysis)
Analysing the current position of the business to contrast it to where it wants to be
Perform, review, and control
Establish Purpose statement and objectives
Purpose Statement
(Mission statement)
statement of intent about the essence of the business
Objectives
how this purpose will be achieved