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Budget in multinational company

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Introduction

Budget in modern multinational companies Executive summary Lots of people realised that fixed budgets don't work in the 21st century. The mechanics of the budgeting process are inefficient and it locks managers into the past - into something they thought last year that it was right. We understand that better financial performance comes from competitive strategies, not from better financial management. The focus of budget is on financial outputs and excludes other performance measures. To be effective in a global economy with rapidly shifting market conditions and quick and nimble competitors, organization have to be able to adapt constantly their priorities and have to put their resources where they can create most value for customers and shareholders. In order to do that, they need the right concepts, management processes and tools. Recommondation: * Managers and their companies should be able to react more quickly to market changes. They shouldn't be restricted to an artificial and too long period such as the fiscal year to reconcile budgets with the business environment and to adapt them. * Benchmarking approaches enable firms to compare their performance with best-in-class results elsewhere as well as with internal peers. * Enterprisewide information systems and rolling financial forecasting have a key role to play in making the strategy-focused Scorecard a success. ...read more.

Middle

It also causes managers to act to achieve their short-term targets at the expense of long-term value creation. As a multinational company trade in the global market, worldwide events have a more dynamic impact, and as product life-cycles have shortened, budgets have became more inaccurate. Under half of UK organizations expressed a desire to reforecast and re-budgeting their budgets more frequently in order to manage future business performance (Knowles, 2005). In other words, the annual cycle based is unsuitable for multinational companies facing rapidly changing markets. 3. Budget in modern companies More companies in resent years saw the budgeting system as a 'tool of repression'. No wonder, that many companies are looking for improving the traditional budget-based way of steering and managing their business. In a recent survey, conducted by The Hacket Group among European companies (Daum, July 2003), 69% of the companies reported that they are still using traditional budgeting (3% have already no budgets, 28% use a reengineered approach), but that most of them intend to replace it within the next 2 years through a reengineered approach or even abandon budgeting at all. 4. What is a Budget When we are discussing about budgeting or abandoning budgeting, first of all we should define what a budget is. We can easily find lots of different definitions about it. ...read more.

Conclusion

The balanced scorecard has provided a strategic framework to help overcome of those problems. 'The Balanced Scorecard was designed to enable managers to map and describe their strategy, to balance short- and long-term goals, initiatives and measures, to align the actions of the 'top floor' and the 'shop floor', and to focus on the real drivers of financial performance.'(Fraser and Hope, 2003) The Balanced Scorecard gave us a broader perspective in performance management than the traditional budget, which was focusing just on the financial numbers. But most scorecards still play fiddles to a core management process driven by the annual budgeting cycle. Managers may will remain focused on achieving short-term financial results, therefore you will fail to become a more strategy-focused and adaptive organization. 6. Conclusion The traditional fixed annual budget systems are increasingly unsuited to modern business. At multinational companies, the emphasis is on managing performance over business cycle. New techniques such as the Balanced Scorecard and Activity- based management are bale to help managers understand their business success factors and cost drivers better. Fixed costs are controlled through Activity- based management; targets are set by the 'Balanced Scorecard' process, and it will contain more than just budgetary information, but some problem may remain. By separating re-forecasting process from the budget, rolling forecast allow to increase speed and accuracy and reduce the management time involved. Those tools allow the decentralization becomes more efficient in multinational companies and operations will have better performances and gain a great competitive success in the modern world. ...read more.

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