Budgeting Flashcards
What is budgeting a key part of?
What do they use the financial information for?
What do managers need to consider as well as numbers?
What may managers have that might skew numbers?
Why might employees resent them?
Managerial accounting Planning and decision making Human nature Personal priorities The limits it puts on them
What are the 6 purposes of budgeting?
Planning annual operations Coordinating activities/goal congruence Communicate plans to managers, staff, board of directors Motivate managers Control activities Evaluate the performance of managers
What are the two types of budgeting?
Incremental and zero based budgeting
Incrimental
What does it use as a basis?
What is it adjusted for?
What are the changes made?
Previous years budget
Inflation and other cost/resource changes
Fairly small
What are the advantages of incrimental budgeting?(3)
What are the disadvantages?(5)
Simple
Suitable in a static business environment
Practical approach
Encourages rigid planning and incrimental thinking
Failure to encourage continuous improvement
Unsuited to dynamic business environments
Activities not justified
Spending what is in the budget in order to guard against cuts next year
Zero based budgeting
Why did it emerge?
What happens when a new budget is formulated?
Where does each department start from and what does it force managers to do?
To solve the issues of incrimental budgeting
All activities are re-evaluated
Zero base, look at each activity and justify the expense
What are the advantages of zero base budgeting?(4)
What are the disadvantages?(3)
Creates an environment that accepts change
Looks forward
Identifies existing inefficiencies
Involves managers
Time consuming
Managers require different budgeting skills
Encourages a short term view rather than driving value longer term
What are a growing body of literature criticising traditional approaches for?(5)
Time consuming
Failure to encourage continuous improvement
Ties company to a 12 month commitment
Being a yearly rigid ritual impeding flexibility
Lack of goal congruence between individuals and organisation
Beyond budgeting
What is beyond budgeting?
What is it to be used instead of?
What is it aimed at addressing?
Leadership philosophy
Alternative budgeting method to traditional methods
The perceived limitations of the other methods
Characteristics of beyond budgeting
What are rolling budgets?
What are they, do the not and result in?
Budgets produced on a quarterly/monthly basis
Flexible, do not rely on obsolete figures, more timely allocation of resources
Characteristics of beyond budgeting
What do rolling forecasts embrace KPIs based on?
What is benchmarking?
What can the efforts of managing be focused on rather than?
What does it allow operational managers to react to?
What does it encourage a culture of?
Balanced scorecard linked to organisations strategy
Comparing managers performance to external benchmarks rather than past performances
Improving future results rather than explaining past performances
The environment
Innovation
