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budgets - Coggle Diagram
budgets
BUDGET
target for revenue or costs for a future period of time
aligned with business objectives
INCOME
sets target for value of sale to be achieve
EXPENDITURE
gives budget holders a limit under which they must keep their departments costs
set annually and monitored on a monthly basis
DIFFICULTIES
process leads to comp = conflict between diff business functions
encourage managers to focus on ST not LT
unachievable = neg impact on motivation
only useful if data is perfect = inaccurate data hinders
time consuming
VARIANCE ANALYSIS
the difference between figure budhgected and the actual figure achieved
seeks to determine reasons for differences between actual and budgeted figures
TYPES
adverse :
actual figure worse vs budgeted
AV in rev/profit budget = lower
AV in costs budget = higher
favourable
actual figure better vs budgeted
FV in rev/profit buget = higher
FV in costs budget = lower
WHY
og budget unrealistic
target not met due to reasons beyond the budget holders cobtrol
not met due to factors within the budget holders cobtrol
actions towards variances once they've been identified..
adverse cost variances identifided
seek alternative suppliers
adervrse sales variance idifntiefed
review marketing activity = improve effiency
favourable cost variance identified
ensure output standards are met
favourable sales variance identified
reward client facing staff with performance based incentives
REASONS
control
allows managers to precisely citnorl their functional areas
coordination and communication
allows diff parts of business to operate as a part of a coordinated whole
communicated throughout organisation = provide framework
planning/monitoring
actively plans ahead
problems and solutions considered/solved in advance
motivation and efficency
allow target setting and performance management= measures success
spreads design making = activates managers who control them
TYPES
historical figure
based non historical data
uses last years budget as a guided adjust to known circumstances
zero based
don't allocate budgets = set to zero each year
expects each budget holder to justify a budget figure that they can work to for the coming year
unnecessary costs eliminated as costs controlled closesy
time consuming and required experts