M 4:1 - The purpose and benefits of budgeting 1.2 Budgets in the context of planning and control
Planning
Budget ● Making choices between alternatives
● A quantitative statement ● Primary decision-making activity
● For a defined period of time ● Budgeted values
● Includes : planned revenues, expenses, assets, liabilities and cash flows
Control
1.1 Purposes and benefits ● Measuring and correcting actual performance to ensure that the strategies that
Main purpose and benefit of using a budget are chosen and the plans for implementing them are carried out
● Assist with the achievement of the organization’s objectives ● Actual results
● Compel planning
● Communicate ideas and plans Budget
● Coordinate activities ● The link between planning and control
● Provide a framework for responsible accounting
● Establish a system of control
● Motivate employees to improve their performance
● Allocation of resources
,Planning and control cycle
Step 1 Identify objectives
● Maximize profits
● Increase market share
● Produce better quality products in the market
● “Where do we want to be?”
Step 2 Identify alternative courses of action
Strategies that might enable the organization to achieve its objectives:
● Position audit/analysis
○ Information gathering exercise
○ “Where is the company now?”
○ Looking inwards and outwards of the organization
Step 3 Evaluate strategies
● Sustainability
● Feasibility
● Acceptability
Step 4 Choose alternative courses of action
● Coordinate them into a long-term plan
Step 5 Implement a long-term plan
● Broken down into smaller parts (budget : short-term plan)
Step 6 Measure actual results and compare with the plan
Step 7 Respond to divergences from plan
● Long-term plan should be reviewed
● Feedback loop and information
● Performance reports
○ Detailed comparisons of actual results vs. budgeted results
● Corrective action
○ Actual outcomes conform to planned outcomes
● Responsibility accounting
, M 4:2 - Steps in budget preparation 2.1 Budget committee
● Coordination and administration of budgets
Budget preparation ● Consists of senior executives
● Ideally begins towards the end of the strategy planning stage ● Assisted by a budget officer (usually an accountant)
● Once objectives and strategies have been decided upon ● Representatives from sales, marketing, production etc
● Important in coordination and control
● Responsibility sits on a Budget Committee Functions of the budget committee
● Coordination and allocation of responsibility for the preparation of budgets
● Issuing of the budget manual
● Timetabling
● Provision of information - assist in the preparation of budgets
● Communication of final budgets to managers
● Monitoring the budgeting and planning process
○ Compare actual and budgeted results
, 2.2 Responsibility for budgets 2.3 Budget manual
● Lies with the managers who are responsible for implementing them A collection of instructions on how to use the tool, systems and software related to the
○ Sales manager - sales budget, selling overhead cost centre budgets budgeting process
○ Purchasing manager - material purchases budget
○ Production manager - direct production costs budget Contains the following:
Explanation of the objectives of the budgetary process
● Purpose of budgetary planning and control
● Objectives of the various stages of the budgetary process
● Importance of budgets: long-term planning and administration
Organisation structures
● An organisation chart
● A list of individuals holding budget responsibilities
An outline of principal budgets
● The relationships between them
Administrative details of budget preparation
● Membership
● Sequence of preparation
● Timetable
Procedural matters
● Sample forms and instructions
● Account codes/chart of accounts
● Name of budget officer - enquires to be directed to him/her
Planning
Budget ● Making choices between alternatives
● A quantitative statement ● Primary decision-making activity
● For a defined period of time ● Budgeted values
● Includes : planned revenues, expenses, assets, liabilities and cash flows
Control
1.1 Purposes and benefits ● Measuring and correcting actual performance to ensure that the strategies that
Main purpose and benefit of using a budget are chosen and the plans for implementing them are carried out
● Assist with the achievement of the organization’s objectives ● Actual results
● Compel planning
● Communicate ideas and plans Budget
● Coordinate activities ● The link between planning and control
● Provide a framework for responsible accounting
● Establish a system of control
● Motivate employees to improve their performance
● Allocation of resources
,Planning and control cycle
Step 1 Identify objectives
● Maximize profits
● Increase market share
● Produce better quality products in the market
● “Where do we want to be?”
Step 2 Identify alternative courses of action
Strategies that might enable the organization to achieve its objectives:
● Position audit/analysis
○ Information gathering exercise
○ “Where is the company now?”
○ Looking inwards and outwards of the organization
Step 3 Evaluate strategies
● Sustainability
● Feasibility
● Acceptability
Step 4 Choose alternative courses of action
● Coordinate them into a long-term plan
Step 5 Implement a long-term plan
● Broken down into smaller parts (budget : short-term plan)
Step 6 Measure actual results and compare with the plan
Step 7 Respond to divergences from plan
● Long-term plan should be reviewed
● Feedback loop and information
● Performance reports
○ Detailed comparisons of actual results vs. budgeted results
● Corrective action
○ Actual outcomes conform to planned outcomes
● Responsibility accounting
, M 4:2 - Steps in budget preparation 2.1 Budget committee
● Coordination and administration of budgets
Budget preparation ● Consists of senior executives
● Ideally begins towards the end of the strategy planning stage ● Assisted by a budget officer (usually an accountant)
● Once objectives and strategies have been decided upon ● Representatives from sales, marketing, production etc
● Important in coordination and control
● Responsibility sits on a Budget Committee Functions of the budget committee
● Coordination and allocation of responsibility for the preparation of budgets
● Issuing of the budget manual
● Timetabling
● Provision of information - assist in the preparation of budgets
● Communication of final budgets to managers
● Monitoring the budgeting and planning process
○ Compare actual and budgeted results
, 2.2 Responsibility for budgets 2.3 Budget manual
● Lies with the managers who are responsible for implementing them A collection of instructions on how to use the tool, systems and software related to the
○ Sales manager - sales budget, selling overhead cost centre budgets budgeting process
○ Purchasing manager - material purchases budget
○ Production manager - direct production costs budget Contains the following:
Explanation of the objectives of the budgetary process
● Purpose of budgetary planning and control
● Objectives of the various stages of the budgetary process
● Importance of budgets: long-term planning and administration
Organisation structures
● An organisation chart
● A list of individuals holding budget responsibilities
An outline of principal budgets
● The relationships between them
Administrative details of budget preparation
● Membership
● Sequence of preparation
● Timetable
Procedural matters
● Sample forms and instructions
● Account codes/chart of accounts
● Name of budget officer - enquires to be directed to him/her
