Budgeting Operational Plans
- Author Joanna Webster
- Published February 13, 2021
- Word count 1,147
The ability to effectively manage the company's activities requires access to timely and accurate information. Data is a key instrument for a business analysis, forecasting, controlling systems, evaluating and good financial decision-making. In order to receive correct information at the appropriate time, a company must set up a reliable financial reporting system that refers to the process of delivering financial data to the information users.
Deloitte Development LLC determines three major components of financial reporting: people, processes, and systems. First of all, reporting systems depend on the people involved in the process, clarity of their roles and responsibilities, and a level of intra-organizational communications. A second component is policy considerations that include processes and timelines, performance measures, appropriate documentation, and the benchmarks. Finally, financial reporting should be based on the suitable information software for providing accurate and compliant disclosure. A harmonized coordination of the elements provides the business with sustainable information for decision-making and budgeting process implementation.
For the full arrangement of a sustainable information system, managers should optimize budgeting cycle and process. The first usually takes an immoderate amount of time and resources to be completed. The time spent will be worth it if only the data received are accurate and provide a necessary base for corporate decisions. A typical planning process starts with the communication of a company's strategy and objections by chief executives. Then, the budgeting process follows several stages. At first, a special department models a budget with a deep analysis of the business environment and the use of accurate forecasting tools and assumptions. After generating and approving, the budget must be implemented. Simultaneously, all the numbers should be controlled and tracked against results. Finally, the actual performance must be analyzed to evaluate the budgeting process. The latter refers to the scheduled type of activities that require accurate timelines for the best outcomes. The budget cycle means the time from creation and evaluation of budgets. The stages of budget cycle form a framework for creating a reliable and proficient budget.
An important question for the current businesses is to ensure that budgeting remains relevant for the company. Generally, any firm may use either operational budgets or activity-based budgeting. Both approaches as elements of budgeting help managers to track actual expenses and revenues, forecast future performance, and create reserves. Nevertheless, using of each method separately has some specific merits and demerits.
Operating budgets represent a traditional style, where the previously planned figures for revenues, expenses, and profitability are analyzed and increased according to the growth forecasts. Additionally, they include expected inflation, economic factors, and growth trends for the industry and company. The method is easy to implement and helps to track the activities of the entire corporation. Nevertheless, there is a considerable drawback. Traditional budgeting may give accurate figures for variable costs that have a direct link to production or sales, for example, direct labor or materials. Concerning support departments of the company, the figures will not be so accurate, as their costs are mostly fixed and driven by such factors as sales orders. To mitigate the drawbacks of the method, activity-based budgeting was developed.
An activity-based approach to budgeting links the activities to costs, giving managers a better understanding of costs and resources allocation. It is based on activity-based costing and a number of different principles. The use of the method is especially vital for the producers of customized products for determining true costs of the activity. The disadvantages of the approach include a difficult implementation that can be costly and time-consuming with the need of highly-qualified specialists. Moreover, ABC reports usually include data that cannot be used for external reporting.
Nevertheless, positive sides outweigh the drawbacks. Companies using activity-based budgeting gain many benefits including: establishing more realistic plans, improving accuracy in determining resource needs, establishing better connections between costs and results, and allocating costs to personnel responsibilities. The main advantage of the method is that costs are more accurately associated with the business activities providing a precise budgeting process and effective corrections. Finally, activity-based budgeting exposes non-value costs, identifying wasteful products. With the effective use of this method, executives have greater control over the cost structure creating added value for the business.
When the approach is determined, the company will need to follow some budget guidelines for improving the planning process. A major issue, especially for new enterprises, is to manage business expenses within the budget. Hence, the first recommended guideline for the company concerns costs and includes several steps. The first stage is to divide the expenses into the variable and fixed determining needless costs. Further, executives should brainstorm and research cost-cutting strategies and amendments together with the personnel. The third point is to share plans within the departments and continuously review them. Moreover, employees should be encouraged to keep the budget via the reward systems. Finally, it is important to obtain special budgeting software for the better interpretation of the data.
The next guideline worth concerning refers to the understanding of business drivers and constraints. The company must build a clear view of the factors important to its success and how these aspects relate to the major indicators used to assess the corporation's performance. Such vital elements may include production capacity, inventory limits, lending rates and many others. A general understanding of the issue provides a sound base for decision-making.
According to the next guideline, budgets are built modularly and multi-dimensionally. A strategy of dividing the budgeting process into smaller manageable parts is crucial considering different needs of each business area. A multi-dimensional budget model might show earnings by product, customer, time period or geographical location. Such budgets represent a flowchart for better analysis and maintaining.
According to the following approach, managers should use different budgeting techniques for diverse needs. For example, planning employee costs comprises two issues current and new workers. While for the current personnel a manager must consider questions like benefits, promotion, tax rates or layoffs, for the new staff there are additional concerns, such as time and justification for recruiting, annual salary and others.
Finally, one of the simplest ways of budgeting is the use of percentages. There is a developed level of percentages for every budget category. For example, it is recommended to allocate 10 percent of profit to investment and reserves. Transportation expenses should be below 20 percent of the total amount. Using this guideline, the company should take into account its peculiarities and business conditions.
Hence, no business entity can refute the importance of accurate and valid financial information. Correct data is a sound basis for the planning process and the assessment of business performance. Effective budgeting based on the accurate reports serves as a strategic tool for analysis, modeling, and collaboration.
If the article was cognitive for you, proceed to read more papers on https://essayswriters.com/ from our premier essay writers. Most of the articles are written by Joanna Webster, a professional writer.
I’m Joanna. I’m one of the premier essays writers in the USA living in Miami.Article source: https://articlebiz.com
There are no posted comments.
- CMI programme at Edge Hill helps build stronger team at Pakawaste
- Your PMP Study Plan 2021: 7 steps to PMP Exam Success
- What Is the ABC Test for Independent Contractors?
- 12 Key Factors that Support Transformation into an Anti-Fraud Culture
- How To Get Company Registration in Dubai for Your Business Setup in Dubai
- Europe CEO of the year 2021
- "All races have an opportunity to put their best foot forward in life", says Dr. Marcia
- Advantage Of Using HTML Website Templates
- The Top 10 Reasons Employees Leave Their Jobs — And How To Combat Them
- Five Ways To Create A More Inclusive Workplace
- 6 Big Reasons Why Professional Copywriting Services Can Be a Game Changer For Your Business
- 4 Benefits of Monitoring Your Print Environment
- Using Sales Analytics To Boost Your Performance
- Top 3 ways to improve virtual business meeting during covid-19
- Is 2021 the Year to Take Your Business Digital?
- A qualitative view point of Managerial skills
- Management Operating Systems: Effectively managing your operations for enhanced performance
- Should I Invest During the Pandemic?
- Gender gap in entrepreneurship
- 6 Productivity Hacks That (Actually) Work for Your Small Business
- Social Entrepreneurship
- How to choose a Marketing Strategy for any Marketing Campaign?
- The Billionaire Guide On Startup Accelerator Program That Helps You Get Rich
- How can Marketing be done post COVID?
- Crazy for Study launches calculus solutions - Get Textbook Solutions Manual PDF
- Debt management
- 5 core personality traits that will get you a job
- Procurement - It's Methods and Process?
- Should You Renovate Your Office?