Budgets CMD
- 1. Budgets Higher/Int 2 Business Management 2009-2010
- 2. What is a Budget? A Budget is a statement of future expectations . Budgets are usually financial in nature although they can be expressed in other units e.g. labour hours. A Cash Budget is a very common type of budget and can be used as an example of how budgets work.
- 3. Don’t Get Confused! A Cash Budget is produced for internal use within an organisation . It is a forecast of future events . A Cash Flow Statement is produced for external use based on past events .
- 4. Why Budget? The main uses of budgets are: Monitoring and Control - setting the budget then making comparisons with actual performance. Gain Information - lets managers see how well the business is performing. Set Targets - giving managers and employees limits to reach. Delegate Authority - the use of budgets allows managers to give responsibility to employees.
- 5. Cash Budgets The information contained in a Cash Budget represents estimated figures of the cash position of an organisation at a particular point in time .
- 6. Uses of Cash Budgets Monitoring the cash position of a particular department . As a decision-making tool to assess the validity of a particular project or scenario. As part of a submission to a lender to secure finance . Using a spreadsheet , changes can be made to the budget and the effects of these changes will automatically be updated in the rest of the budget.
- 7. Management Benefits The main benefits to management of using cash budgets are: Planning Organisation Command Co-ordinate Control Delegation Motivation
- 8. Benefit - Planning Management can look ahead to set aims and strategies . This allows problem-solving to be planned rather than having to react to situations as they happen. As an example , plan for when an additional loan or overdraft is required .
- 9. Benefit - Organisation Budgets allow management to ensure that the right resources are in the right place at the right time . Management must ensure that it can afford the resources that they require and are able to take advantage of any discounts available from suppliers.
- 10. Benefit - Command When management are able to make informed decisions , enabling them to instruct their subordinates . Each departmental manager must also know the department’s limits for requesting additional finance .
- 11. Benefit - Co-ordinate Management can give instructions to those in charge of departmental budgets and keep a clear overview of the business as a whole. Making sure that everyone is working towards the same goals .
- 12. Benefit - Control Evaluation of budgets, comparing the results with what was planned . Using Cash Budgets as a measure of performance gives management a tool that records quantifiable data in order to compare different department or branch performances .
- 13. Benefit - Delegation Management should make subordinates responsible for a suitable range of tasks and give them the authority to carry them out.
- 14. Benefit - Motivation Management have a responsibility to motivate their staff . This can be done by setting realistic targets in the budgets and introducing concepts such as teamwork , empowerment , and incentives for meeting targets or operating within the budget .