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15 Cards in this Set
- Front
- Back
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Operating Budgets |
*important tool for effective ST planning and control in orgs *usually covers one year and states the revs and exps planned for that year |
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Characteristics of Budgets (a mgt plan) |
1. Est profit potential of the Bus unit 2. stated in monetary terms 3. covers a period of 1 year 4. it's a mgt commitment 5. reviewed & approved by a high authority 6. once approved, changes made only under certain conditions 7. periodically act compare to budget, variance |
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Budget Prep vs Strategic Planning |
1. both planning, types of planning diff. 2. 1 year (or 1 op cylcle- seasonal), several years 3. strat planning precedes budgeting (slice of the strat plan) 4. structured by responsibility centers, product lines |
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Characteristics of a Forecast (a prediction) |
1. may or may not be stated in monetary terms 2. can be used for any time period 3. forecaster has no responsibility to meet forecasted results 4. not usually approved by higher authority 5. updated frequently 6. variances aren't analyzed |
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4 Purposes of preparing an operating budget |
1. to fine-tune the strategic plan 2. to help coordinate the activities of the several parts the org 3. to assign responsibility to mgrs, to authorize the amts allowed to spend & to inform of the performance expected of them 4. to obtain a commitment that is a basis for eval a mgr's actual performance |
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Operating Budget Categories (6) |
1. Revenue Budgets 2. Budgeted production and costs of sales 3. marketing exps 4. general and admin exps 5. R&D exps 6. Income taxes |
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Other Budgets (4) |
1. Capital budget 2. budgeted bal sheet 3. budgeted CF statement 4. Mgt by Objectives |
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Advantages of Participative Budgets (2) |
1. generate commitment to meeting budgeted objectives, likely to be greater acceptance of budget goals 2. effective info exchanges, budget amts b-fit from the expertise of the budgetees (close to mkt), also budgetees have a clearer understanding of their jobs |
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Budget Preparation Process (4) |
1. Issuance of Guideline 2. Initial Budget Proposal 3. Negotiation 4. Review and Approval (consistency and satisfactory profit) |
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2 Types of Budget Revisions |
1. Procedures that provide for a systematic (say quarterly) updating of the budgets 2. Procedures that allow revisions under special circumstances |
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5 Reasons senior mgt approves achievable budgets for Bus units |
1. if target is too difficult, mgrs are motivated to take ST actions (may not be in the LT interest of the comp) 2. Achievable targets= reduced motiv. for mgrs to engage in data manipulation 3. mgt can divulge a profit target 4. hard to attain targets= imply overly optimistic sales targets 5. winning atmosphere when targets achieved |
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Budget Participation has 2 parts |
the budgetee is both: 1. Involved in 2. has influence over the setting of budget amounts |
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Participative Budgeting Works best in... |
A dynamic and uncertain environment |
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The Budget Department must walk a fine line between |
helping the line manager and ensuring the integrity of the system |
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Quantitative Techniques to improve budgetary process |
1. Simulation (used more) 2. Probability Estimates |
