MA: Budgeting

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  • Created by: charlie
  • Created on: 30-05-17 11:47
planning + control cycle (5) stages
(1) Strategic planning (vision + mission) (2) LT plan to implement strategy (broad targets) (3) Budget with context of LT plan (4) Monitor actual results (control process) (5) Respond to deviations (single loop/ double loop feedback)
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Corporate objectives (financial/ non-financial)
FINANCIAL: profits/ market share/ growth/ risk NON-FINANCIAL: customers/ quality/ public profile/ relations
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Unit objectives (financial/ non-financial)
FINANCIAL: smart targets (inc profits by %) NON-FINANCIAL: smart (inc response time by %)
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Functions/ objectives of budget (7)
(1) planning + responding for year (2) co-ordination (goal congruence) (3) communication top down (4) motivation target (5) controlling (management by exception) (6) evaluating (bonus') (7) achieve objectives
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Resolving dysfunctional conflict (A-A-C-C-C) + (N) (reference)
(Thomas, 1975) Accommodate/ Avoid/ Compete/ Collaborate/ Compromise)/ (Fisher + Ury) Principled negotiation (TP)
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Feedback/ Feedforward as control
FEEDBACK (single/double loop): corrective actions to (A) + (F) variances (actual against budget) / FEEDFORWARD: avoiding problems before arise (forecast against budget)
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Behavioural implications of budgeting: +ves/ -ves (reference)
+VES: Motivation (Maslow) only if all contribute to setting/ implementing/ controlling/ -VES: managers setting aren't responsible/ goals differ/ control methods inconsistent (confusion)
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Maslow hierarchy of needs
SELF FULFILMENT: (1) Self-actualisation needs/ PSYCHOLOGICAL: (2) Esteem-needs (3) Belongingness-needs/ BASIC: (4) Safety needs (5) Physiological needs
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Negative attitudes in planning + control cycle: setting budget
SELF-ACTUALISATION: personality of managers/ attitudes to basing on past results/ ESTEEM: budget is restrictive/ BELONGINGNESS: no coordination/ PHYSIOLOGICAL: managers build in slack/ buffer for payment
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Negative attitudes in planning + control cycle: implementing budget
SELF-ACTUALISATION: strive to only achieve budget, lack of innovation + creativity (may over spend) / ESTEEM: won't push past budget level / BELONGINGNESS: lack of coordination / PHYSIOLOGICAL: if linked to bonus'
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Negative attitudes in planning + control cycle: controlling budget
SELF-ACTUALISATION: unconstructive feedback / ESTEEM: managers resent feedback + budgets are pressure devices/ BELONGINGNESS: held responsible for var. outside control / PHYSIOLOGICAL: danger of losing pay
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Budgets as motivation for control: difficulty (SELF-ACTUALISATION + ESTEEM)
usually set 2 budgets: EXPECTATIONS (planning + decision making/ may be too easy) ASPIRATIONS (motivation/ may be too hard)/ ESTEEM: (merchant) needs to be achieved 80-90% of time
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Budgets as motivation for control: performance evaluation (reference)
(Hopwood, Emmanuel) BUDGET CONSTRAINED (STRICT): punish (A) reward (F)/ PROFIT CONSCIOUS (FLEXIBLE): look for reasons behind (A) (F)/ NON-ACCOUNTING: based on value for money/ customer eval. (feedback)
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Budgets as motivation for control: performance evaluation (financial/ non-financial/ multi)
Financial: NPV/IRR/ARR/Payback/ Non-financial: customer feedback/ Multi-critieria: checklist/ multi-weighted scoring model/ balanced scorecard (K+N)
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Budgets as motivation for control: bonus' +ves/ -ves/ solution
+VES: motivation depending on characteristics manager (Maslow needs) + how challenging targets are/ -VES: dysfunctional behaviour (padding budget for funding)/ SOLUTION: divided bonus' system (self-needs/ belongingness needs/ LT goals)
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Budgets as motivation for control: participation in setting budget: TOP DOWN
small org,/ newly formed/ poorly skills op. staff/ +VES: quick/ senior input/ use of strategy/ total resources/ -VES: asymmetry gap/ loss of motivation/ too hard to achieve/ punishment device/ ignores op. staff progression
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Budgets as motivation for control: participation in setting budget: BOTTOM UP
larger org./ well established (skill + past data)/ economic booms/ +VES: motivating/ more accurate/ co-ordination/ provides training/ -VES: time + cost/ resentment if changes/ padding introduced/ requires high skill + low risk
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Budgets as motivation for control: participation in setting budget: Negotiated budget
(Fisher + Ury) bargaining process: between what operation managers WANT + what senior managers think is FEASIBLE/ +VES: buy-in tool boosts effectiveness (not clerical device)/ -VES: depends on degree/ contingent factors
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Principled negotiation (reference)
(Fisher + Ury) separate people from problem/ focus on interests not positions/ create outcome of mutual gain/ use objective criteria/ USES: budget setting targets (bridge asymmetry + goal congruence)
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Criticism of traditional budgeting systems: beyond budgeting (reference)
(Hope + Fraser) (1) time consuming/ costly (2) fail to focus on users/ shareholders (3) rigid + slow process (4) not cost reducing (not ZBB) (5) stifled uncreative environment (6) unethical behaviour
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Other budgeting methods (4)
(1) ZBB: expenditure starts at 0 (solution to incremental) / (2) ABB: based on ABC (non clear input-to-output) (3) Incremental (inefficiencies in starting point) (4) Line item (non profit org. just control costs for maintaining operations)
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Alternative budgeting methods (2)
(1) (Hopwood) Non-accounting style: balanced scorecards/ adaptive rolling forecasts (reflect economic trends + less dysfunction)/ (2) external performance measures (relate KPI with competitors will STRETCH management as don't know level to reach)
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Card 2

Front

Corporate objectives (financial/ non-financial)

Back

FINANCIAL: profits/ market share/ growth/ risk NON-FINANCIAL: customers/ quality/ public profile/ relations

Card 3

Front

Unit objectives (financial/ non-financial)

Back

Preview of the front of card 3

Card 4

Front

Functions/ objectives of budget (7)

Back

Preview of the front of card 4

Card 5

Front

Resolving dysfunctional conflict (A-A-C-C-C) + (N) (reference)

Back

Preview of the front of card 5
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