PM and Control

Question 1

What is the purpose of budgeting?

Answer 1

• Forecasting
• Planning
• Communication
• Coordination
• Control
• Authorising and Delegating
• Motivation
• Evaluation of performance

Question 2

What is the Principal Budget factor?

Answer 2

The factor that limits the activity fo the budget period.

e/g the lvl of sales. this is the first budget to be prepared.

Question 3

What types of budgets are there?

Answer 3

• Fixed budget
• Zero based budgeting
• Rollin gbudget
• Flexed Budget
• Incremental
• Activity Based
  *

Question 4

What is a fixed budget?

Answer 4

Remains unchanged irrespective of volume of output or turnover or lvl of activity.

Question 5

What is Zero based budgeting?

Answer 5

Manager only recieves resources of they can be justified. This reduces budgetary slack but is time consuming and costly.

Suits departments with different yearly projects.

Question 6

What is a rolling budget?

Answer 6

Regularly updated based on actual performance leading to more realistic targets.

Question 7

What is a flexed budget??

Answer 7

Adjusts the target to reflect the amount of work to be caried out.

May not motivate managers as the target changes until the close of the period.

Question 8

What is Incremental Budgeting

Answer 8

Based on slight changes from the preceding period’s budgeted results or actual results.

Question 9

Activity based budgeting

Answer 9

Identify drivers of overheads and costs spread over these on appropriate basis. Better understanding of costs causes should result in better decision making and performance.

Question 10

What are the two styles of participation in budgeting?

Answer 10

Top down budgeting- imposed by mgmt.

Bottom-up budgeting-budget holders set up.

If improperly handled may cause disfuntional activity.

Question 11

Importance of Targets

Answer 11

1. Not too easy or hard.
2. Controllable
3. Linked to appropriate rewards and penalties
4. Goal congruent

Question 12

Three approaches to use of budgets information by managers in PM?

Answer 12

1. Budget constrained style: cost overrun or rev shortfall subornidates fault.
2. Profit Conscious style: Long-term profitability and long term performance are the important measures. Overruns will be investigated but tolerated for LT success.
3. Non-accounting style: would have been public body approach at one point.

Question 13

What is responsibility accounting?

Answer 13

Separates costs and revenues into pools that are assigned to specific managers allowing them to prove performance.

Question 14

Difficulties of Budgeting for Non-Profits

Answer 14

• Little control over revenue
• There might be no revenue because G & S provided free.
• Org may be prevented from borrowing funds from one budget head to another
• Budgeting tends to be just for one financial year (i.e. short term rather than longterm) Incremental is most widely used