Performance analysis Flashcards
3 problems that can arise from using variance analysis
managers who set the budget are often not the managers responsible for achieving targets
the goals of the organisation may not be the same as the personal aspirations of the managers
control is applied at different stages by different people and managers interference can cause resentment
what kind of standards can cause a demotivating effect
low standard
ideal standard
why might you have 2 budgets
one for planning and decision making
one for motivational purposes
what is the ideal standard
highest possible level of achievement
what is the target standard
standard cost that sets performance targets at a higher level than is currently achieved but is realistic
what is the currently attainable standard
standard based on the levels that are currently being achieved which gives no incentive to improve performance but does prevent deterioration
what is the basic standard
this is from the original standard that is unchanged over a long period of time
what does the success of a variance reporting system depend on
if the managers agree that any adverse variance is there responsibility and they are in a position to control it
the managers need to believe the system is fair
the managers need to have incentives to be motivated
variances must be reported in a timely manner
4 advantages of participative budgets
improves morale and motivation
increase operational managers commitment
more realistic
co-ordination between units are improved
4 disadvantages of participative budgets
more time consuming
managers may want to lower targets so that they are no longer challenging
if employees opinions have been ignored in the negotiations they will feel demotivated
some managers may not be experienced enough to contribute usefully
3 advantages of top down budgeting
strategic plans will be incorporate
uses senior managers knowledge
quicker
3 disadvantages of top down budgeting
no feeling of team spirit
could cause unachievable budgets
organisational goals could be unaccepted by staff
what is the JIT Approach
that items should not be produced until they are required to meet sales orders
what is the business philosophy Total Quality Management (TQM)
get it right first time, and never be satisfied with the current achievement
3 goals of TQM
Involve all employees
Innovation
Provide the best customer service
