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Key Performance Indicators
Key Performance Indicators (KPIs) – valuable tool in monitoring plans. Relate to critical areas of plan that need to be monitored and managed. Specific measurements usually quantitative. Commonly displayed as a Traffic Light report, results shown in red, amber and green. Green – progressing to plan. Amber – variance to plan, need to review. Red…
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Behavioural Issues Relating to Budgeting
Problems with budgeting usually fall into following groups: Figures in budget are not actual figures, they are plans based on historical data, forecasts or human judgement. Accuracy of data could be responsibility of another business function. Preparation is managerial process requiring great deal of co-ordination. Information comes from different parts of organisation. Preparation can be…
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The Need for Prompt and Relevant Corrective Action
Variance analysis attempts to identify discrepancy between actual and planned results. Adverse/unfavourable variance should be investigated – determine cause i.e. inefficiency or external factor, Inefficiency could be caused by lack of motivation or inappropriate training. Steps should be taken to rectify issues. External factors, such as a downturn in market, are harder to accommodate. May…
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Accounting Variance
Variance – difference between budgeted figure and actual figure. Usually at end of budget period. Can be favourable (F) or adverse (A). Favourable variances – actual figure is better than budgeted figure. Adverse variances – actual figures are worse than budgeted figures. Managers examine variances to determine how improvements can be made.
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Budgeted and Actual Figures
Budgets set out in financial terms the responsibilities of executives in relation to requirements of organisations policy. Comparing actual results against budgeted results allows managers to meet the objectives of the policy or to determine necessary revisions of the policy. Budgetary controls assist managers with planning, coordinating and controlling of individuals activities and overall performance of…
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Monitoring Process
Budgetary control – business looks to future & states what it wants to happen and to achieve, then decides how to get there. How does a department know that it’s performance is satisfactory. Targets set to allow business to know if objectives have been met. Results achieved compared to targets set. Control is effective if…
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Budget Types
Budget Types Fixed budget Can be divided into different categories. Different planning approach to flexible budget. Based on fixed period of time & finding best way to achieve particular objective. e.g. Sales budget shows how sales targets will be met. Flexible budget Can change as business changes. Changing business conditions can result in different outcomes…
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Preparing a Budget
Starting point – identify key factor restricting organisations growth such as sales, human resources, physical space. All other activities determined by constraining factor.
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The Benefits of Budgets
Various potential benefits of budgets & budgeting such as: coordinating business and service operations plan ahead – often reveals need for action which may have been otherwise forgotten learn – effective budgeting systems contain feedback loops motivating managers budgetary targets focus attention Performance judged against targets – must be achievable, realistic, negotiated rather than imposed.…
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Process
Budgeting framework and standard costing framework are similar: plans set performance targets established outcome measures compared against targets corrective action taken if required Organisation should have corporate strategy, based on that: set of business/service strategies operational strategies business/service action plans Organisations within parts of public service which are not businesses or quasi-businesses. These set organisations’s…
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