EXECUTIVE SUMMARY.

Added on - 16 Sep 2019

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EXECUTIVE SUMMARYPlanning, control and performance management is crucial for any business operations and is oftenfacilitated through budgets. This report analyses the various traditional and alternative budgetingtechniques and their effectiveness within the given set of conditions. Part 1 provides understandingof the traditional budgeting techniques and its applications on Leeworthy Ices. It further discussesthe disadvantages of such technique for Leeworthy Ices owing to changes in the business structureand regulations. Part 2 evaluates the new alternative budgeting techniques and its application to thebusiness of Leeworthy Ices. It further analyses the appropriateness of one budgeting technique overthe other. Past 3 Concludes.1
ContentsIntroduction...........................................................................................................................................3Part 1 Analysis.......................................................................................................................................4Benefits of Traditional Budgets (Incremental budgets).....................................................................4Application of traditional budgeting approach to business like Leeworthy Ices................................4Relevance of traditional approach.....................................................................................................5Part 2 Analysis.......................................................................................................................................7Alternative budgeting systems..........................................................................................................7Potential Applications of alternative budgeting systems and problems............................................8Which ones better? Traditional or alternative budgeting systems....................................................9Part 3 Conclusion.................................................................................................................................10References:..........................................................................................................................................112
IntroductionBusiness operations require continuous monitoring and adequate planning. This is crucial to ensurethat the right people are rewarded for their contribution to the overall profitability of the business.Budget is the basic and prominent tool for planning, control and performance management. Thebusiness operations and underlying analysis has underwent changes in the nineteenth century andso has been the budgeting approach. The traditional approach to budgeting like incremental budgetswere once effective with stable business conditions. However, these too are being replaced withalternative budgeting techniques that facilitate changes in business strategies and economicenvironment to be factored within the budget itself. Even though traditional budgeting techniquesare still prevalent in the business today, modern corporations have gradually adopted the newalternative budgeting techniques in the form of rolling budgets, ABB and ZBB.Leeworthy Ices with its headquarters in UK will face the economic unknown impact of Brexit.Further, it is strategizing on building on new opportunities through expansion of manufacturingfacilities or joint ventures with business partners in new markets. This calls for a shift fromtraditional budgeting tool towards dynamic alternative budgeting techniques.3
Part 1 AnalysisBenefits of Traditional Budgets (Incremental budgets)Traditional budgeting system like incremental budgets is a planning and control tool for the businessoperations. Business operations typically involves use of resources in the form of raw materials,manpower and other utilities. These resources are not freely available and hence requires adequateplanning from the business end to ensure smooth and economical procurement. Thus viability of theoperations are maintained. The ice-cream manufacture business operations requires inputs of rawmaterial like milk and milk products which have a very short shelf life and required to consumedfresh to ensure quality output.The incremental budget outlines the range and scale of activities for the upcoming current year onthe basis of the actual performance and expected demand for the company’s product. Thus thebusiness managers have the required funding and the level of operations to be achieved for theupcoming year. This helps the business managers to plan out the activities and manage scalability oftheir operations. The incremental budgets assumes similarity of business conditions in the upcomingyear as well and hence is an useful planning and control tool under stable economic and businessconditions.The incremental budget provides a benchmark for comparison of the actual performance. It servesas a measure point to adjudge the actual performance of the business and its managers. The overallvariance in the actual profit in comparison with the budgeted profit may be due to efficiency orinefficiencies of a particular department. Incremental budgets will facilitate to determine thecontributors to the overall profitability vis-à-vis the budgeted profits. This control mechanismensures that the efficiencies are suitably rewarded and any inefficiencies could be addressed in thefuture. (Cardos, 2014)This dual role of planning and control tool of the incremental budgets helps in the overalldevelopment of the business. With a plan in place in the form of budgets, the managers can arrangefor resources in a timely manner at a reasonable price. In absence of the business plan for the year,the managers would have to shell out premium for sourcing raw materials and labor, if it were tosuddenly scale up operations. Moreover, it may lose out on servicing the consumer demand and losethe market share. Thus incremental budgets helps the business to bank on the expected (budgeted)surge in demand and avoid paying unnecessary premium for it resources.4