business planning and control Flashcards
what does the planning and control cycle show
the flow relationship between how organisations make decisions relating to their future and how they ensure their plans come to fruition
what are budgets
budgets is a plan
- expressed in financial terms
- expressed in terms of resource utilisation
what does a budget quantify
short term goals which help achieve long term goals
what does PRIME stand for
what is a top down approach to budgeting
- involves top level strategic management team preparing a high level budget for the organisation based on its objectives
- then passed on to mid levee and operational levee managers to implement
- directors make budget allocations to specific departments and the people in charge of those departments will put together a more detailed plan
what is bottom up approach to budgeting
requires each operational department or business unit to determine its own budget. all of individual budgets are communicated upwards to the directors and then consolidated into company wide budget
give me an advantage of top down budgeting
- department budgets generally aligned with organisational goals
- more likely to incorporate ambitious targets - less likely to have budgetary slacks
- quicker budgeting process may be more efficient and clearer
give me an advantage of bottom up
-more commitment from operational managers
- local or specialist knowledge incorporated from the start
- may be more realistic
- may be more detailed
what circumstances is top down appropriate
-where company needs dramatic change
- where company needs quick change
- uniform activités
- where consistency is important
what circumstance is bottom up appropriate
- divisionalised responsibility centres
- where employee participation is important to encourage innovation
- decentralised organisation
examples of companies that need top down vs bottom up
top down =
hotel chains , restaurant chains
bottom up =
pharmaceuticals, technology firms
what are the golden rules for an effective budgeting setting process
- clear communication
- right stakeholders involved
- responsibilities are clearly established
- continuous monitoring of the budget setting process
- continuos budgetary control
what is a fixed budget
a budget which remains unchanged throughout the budget period (MASTER BUDGET)
when is the fixed budget prepared
before the beginning of the budget period - often a long time before which means it can become outdated
what is a flexible budget
a version of the budget which is adaptable depending on what assumptions are made about the planned activity levels or sales volume
often prepared to show budgeted revenues, costs and profit at different levels of activity/sales
