Week 8 - budgets

Question 1

Define a budget

Answer 1

a formalised financial plan for the operations of an entity for a specified future period.

Is core of mcs
Manages resources & creates value
short term

Used for:
planning
comms & coordination
allocate resources
eval performance 
control profit operations

Question 2

Describe the goals of budgeting

Answer 2

Determines resources needed

Defines responsibility & decision making authority to individual managers.

Monitors forecast operations against actual results (variance)

Tactical decisions are short term. Strategic decisions long term.

Question 3

Describe the budget cycle

Answer 3

• Vision & core comps
• Long term strategies
• Develop operating plans
• Master budget
• Monitor and compare
• Investigate variance
• Evaluate & reward

Question 4

a Master budget extends from strategy Define & draw

Answer 4

master budget a comprehensive plan for an upcoming financial period, usually a year.

Operational plan
(left side strategy, right side assumptions)
Sales
Costs
Capital exp

Financial Budgets (BIC)
Balance sheet, income statement, cashflow

Question 5

Define participative budgeting, list pros & cons

Answer 5

managers who are responsible for meeting budgets also prepare the initial budget forecasts,

• Pros – coordination & understanding, accuracy, identify w/targets, less gamesmanship
• Cons – exp & timer consuming, aggravates disagreements, allows padding

Question 6

List best practices in budgeting.

Answer 6

inclusive targets
achievable targets,
 match targets w rewards
 frequent feedback, 
only responsible for activities in control,

Question 7

Stewart & Fauerbach 1990 present the arguement against budgets - list.

QSPT

Answer 7

ignore:
quality
satisfaction, 
positive behaviour
targets become everything,

Question 8

List contemporary approahces to budgeting

Answer 8

• zero base – justify each activity every time. Ignores history, time consuming
• programme budgeting – each programme has a budget, control achieve via quantity / quality controls
• kaizan - targeted cost reductions across time

Question 9

List problems assocated with useing budgets

GABO

Answer 9

Gamesmanship,
achievable,
buy in?
overreliance

Question 10

Define padding & slack - why do they occur?

Answer 10

Padding – interntionally underestimating revenue or costs

Slack – difference between padded estmate & a realistic one

• Reasons – looks better, cope w/uncertainty, exercise control

Question 11

Bart (1988) suggest constraining factors against budget manipulation. List

Answer 11

historical comparisons,

rigid targets,

direct demand by managers