New version page

FSU ACG 2071 - Chapter 5: Planning and Forecasting

Upgrade to remove ads

This preview shows page 1-2-3-25-26-27 out of 27 pages.

Save
View Full Document
Premium Document
Do you want full access? Go Premium and unlock all 27 pages.
Access to all documents
Download any document
Ad free experience
Premium Document
Do you want full access? Go Premium and unlock all 27 pages.
Access to all documents
Download any document
Ad free experience
Premium Document
Do you want full access? Go Premium and unlock all 27 pages.
Access to all documents
Download any document
Ad free experience
Premium Document
Do you want full access? Go Premium and unlock all 27 pages.
Access to all documents
Download any document
Ad free experience
Premium Document
Do you want full access? Go Premium and unlock all 27 pages.
Access to all documents
Download any document
Ad free experience
Premium Document
Do you want full access? Go Premium and unlock all 27 pages.
Access to all documents
Download any document
Ad free experience

Upgrade to remove ads
Unformatted text preview:

Chapter 5: Planning and Forecasting Unit 5.1 Planning and the Budgeting Process •Strategic planning: very broad and helps to identify the overall focus of an organization•Tactical planning: develops concrete actions that turn strategic plans into realityoType of tactical plan: budgeting process•Budgeting process is a means of allocation organizational resources among various divisions, projects, or other subsets of an organization What is a Budget?•Budget: an operating plan that's expressed primarily in financial terms (in dollars).•Has its beginnings in the organization's strategic planoAs managers develop the steps required to implement, a strategy, they begin also to develop the budget, which shows how resources will be used to operationalize those steps•Preparing a budget allows managers to plan for the future, reducing the need for kneejerk responses to unexpected situations•Also helps divisions within the organization to communicate with one another, getting them all going in the same direction toward overall corporate goals.oAs managers review divisional budgets, they can assess whether the divisions' strategic direction is in line with corporate strategy, and request corrective action if needed The Budgeting Process•Choices related to who created the budget or how standards are set may result in unintended consequences if managers aren't aware of how employees are affected by these choices. Information Flows •Information flows in 2 primary directions in the budgeting process.•In a top-down budget environment, executive management creates the budget, and that budget is then pushed down through the rest of the organizationoSometimes called imposed budget because those who must implement the budget have no input into itoThe most efficient method of budget preparation since it involves the fewest peopleoAlso, upper management has the best understanding of the organization's strategic direction and how to allocate resources to achieve the organization's goal•Bottom-up budget: the budgeting process begins at the lowest levels of management and filters up through the organizationoAt each higher level of management, the budget is reviewed and may be altered to satisfy the competing needs of various units within the organization•As changes are made to the budget, the best practice is for management to communicate the rational behind those changes to the affected unitsoReferred to as participative budgeting because those employees who'll be held accountable for meeting the budget participate in its creation•Elicits more commitment to the budget from employees since they have had some input into its creation•Time consuming•More circular budgeting than linear (unlike what the graph perceives) Behavioral Issues•Budgets should be used to guide employee actions and decisions throughout the year as part of an overall performance management plan.•Deviations from the budget can identify the need to correct a situation gone wrong•Budget is part of managerial control•As the year progresses, actual results should be compared to budgeted results.•A problem that is common in a bottom-up budget environment is one in which managers prepare the budget that they will eventually be evaluated against•Often, managers are tempted to include budgetary slack or, budgetary padding in the budgetoBudgetary slack causes consequences for the organization•First, resources may not be allocated in an optimal wayThe suboptimal allocation of resources may lead to the postponement or cancellation of projects that would be beneficial to the organization because resources don't appear to be available to fund them.•Second, if managers receive bonuses based on their beating a padded budget, they achieve additional compensation that they would not have earned had the budget been prepared realistically•Top-down budgets have behavioral issues as welloEmployees may feel that an imposed budget's unfair.oIf they're not committed to the budget, they'll have no motivation to attempt to meet itoAs employees fail to control expenses or generate revenues, the organizations resources may be wasted Starting Points•2 main ways to begin the budgeting process•The more popular way is the incremental approachoThe manager begins with the current year's budget and adds or subtracts funds for any anticipated changes in operationsoPerpetuates budget errors•Ex: if the manager padded this year's budget, that padding will carry forward to the next yearoPrograms won't be reviewed to ensure that they continue to meet corporate goals and objectives•The 2nd way to budget is zero-based budgeting, under which the budget begins each year at $0 and each individual budget item must be justifiedoMore time consuming and often used in governmental entities Time Frames•The most common time frame is 1 year.•A typical approach to preparing an annual budget is to compile detailed monthly budgets•To protect against uncertainties, some organizations will begin the budget period by breaking down only the 1st quarter into monthoAs the 2nd quarter approaches, managers review the budget and break it down into months•Other companies prepare a rolling budget, which always includes 12 months of dataoAs one month ends, it's removed from the budget, and the entire budget rolls forward 1 month.•Companies can revise budget estimates throughout the year5.2 Performance Standards•Standards specify the characteristics, rules, or guidelines that define a particular level of performance or quality Ideal versus Practical Standards•Standards generally fall along a continuum based on the likelihood that they'll be achieved•An ideal standard signifies perfection•At the other end of the continuum are practical standards, which represent a level of performance that can be attained with reasonable effort•The type of standard adopted can have a behavioral impact on workers. Product Standards•Manufacturing companies often set standards for the maximum cost that should be incurred to produce a unit of product•Such cost standards are useful in the planning (budgeting_ process and can be helpful in evaluating how well manufacturing operations are managed.•In developing product standards, managers much set a separate standard for each component of product cost-- direct materials (DM), direct labor (DL), variable manufacturing overhead (VMO), and fixed manufacturing


View Full Document
Download Chapter 5: Planning and Forecasting
Our administrator received your request to download this document. We will send you the file to your email shortly.
Loading Unlocking...
Login

Join to view Chapter 5: Planning and Forecasting and access 3M+ class-specific study document.

or
We will never post anything without your permission.
Don't have an account?
Sign Up

Join to view Chapter 5: Planning and Forecasting 2 2 and access 3M+ class-specific study document.

or

By creating an account you agree to our Privacy Policy and Terms Of Use

Already a member?