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Managing budgets.

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Introduction

BUDGETTING Budgeting is concerned with the implementation of the long-term plan for the year ahead. It's a clear indication of what is expected to be achieved during the budgeting period. (Conli Drury). Budgets are developed within the context of ongoing business and are ruled by previous decisions that have been taken within the long-term planning process. Budgets need to be formulated along the lines of executive responsibility. The organization has to be sub-divided into its major constituent parts as represented by the senior management functions, for example production, marketing, distribution, human resources, finance and administration. These major areas need to be further sub-divided, along the lines of management responsibility. This sub-dividing will continue through each descending level of management. Care needs to be taken to ensure that the fulfillment of every part of the budget is the direct responsibility of a designated manager, and that dual or overlapping responsibility for an operation is avoided. Control is applied in two stages. This is achieved by the preparation of budgets along the lines of executive responsibility. This ensures that every area of the budget is the responsibility of some designated executive who will oversee its operation, and will be accountable for the achievement of the budgeted levels of performance. ...read more.

Middle

A budget provides a standard that under certain circumstances a manager may be motivated to strive to achieve. However, budgets can also encourage inefficiency and conflict between mangers. If individuals have actively participated in preparing the budget and it's used as a tool to assist managers in their departments it can act as a strong motivational tool by providing a challenge. Alternatively, if the budget is dictated from above, and imposes a threat rather than a challenge, it may be resisted and do have a negative effect on motivation and moral. Control A budget assists managers in their management functions and controls the activities for which they are responsible. By comparing the actual results with budgeted amounts for different categories of expenses, managers can ascertain which costs do not conform to the original plan and thus require their attention. This process enables management to operate a system of management by exception, which means that a manager's attention and effort can be concentrated on significant deviations from the expected results. By investigating the reason for the deviations, managers may be able to identify inefficiencies such as the purchase of inferior quality materials. When the reasons for the inefficiencies have been found, appropriate control action is taken to remedy the situation. ...read more.

Conclusion

This type of budgeting aims to manage cost more effectively by authorizing the supply of only those resources that are needed to carry out activities required to meet the budget production and sales volume. Costs objects are the starting point; the way in which they are budgeted determines the necessary activities which are then used to estimate the resources that are required for the budget period. Activity based budgeting at BAE will involve estimating the production and sales volume by individual products and customers, estimating the demand for BAE's activities, determining the resources that are required to perform BAE's activities, estimating for each resource the quantity that must be supplied to meet the demand and take action to adjust the capacity of resources to match the project supply. Activity based budgeting will aid and support perpetual planning at BAE systems, help develop a flexible budget based on activity work load, this would make sense as BAE systems takes on many different projects at a particular time. Activity based budgeting will incorporate financial and non- financial alternatives into the budgeting process helping adapt to the changing business environment easier when change occurs. By using activity based budgeting BAE systems will identify waste and non-value in the budget and create action plans to eliminate it making the company more effective in its operations. ...read more.

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