P4 Advantages and disadvantages of different types of planning tools

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 2............................................................................................................................................1
P4 Advantages and disadvantages of different types of planning tools.....................................1
M3 Applications of planning tools for preparing and forecasting of budgets............................3
P5 Management accounting system to respond to financial problems.......................................3
M4 Management accounting leads organizations to achieve sustainable success......................5
D3 Evaluation of planning tools for responding to financial issues...........................................5
CONCLUSION................................................................................................................................6
REFERENCES ...............................................................................................................................7

INTRODUCTION
Management accounting is a professional that looks at the events that happen in and
around the world a business while considering the needs of the business. With the help of these
data, management perform all its functions like as preparation, coordinate, staffing, leading and
controlling (Brierley, and Gwilliam, 2017). In this report select the company is BCM
construction that is related to medium scale construction.
This study relate to the information about different types of planning tool and identify of
advantages and disadvantages of budgets. Using different type planning tools for preparing and
forecasting budgets, company adopting management accounting system for solving financial
problems.
TASK 2
P4 Advantages and disadvantages of different types of planning tools
Budgetary control is a system that are using for comparison to existent income with
formed income. This system mention to that managers how well apply of cost and operations for
particular accounting period.
Budgets are using as planning tools regarding to management process, that helps to
estimate of costs, incomes and resources for a particular period. It is reflecting to reading of
future financial goals and conditions.
Fixed budgets – A fixed budget is a budget that is based on financial plan on the site of selling
particular amounts of goods during a time period. It does not change and flex when sales or some
other activity increases or decreases (Burkert, and et.al., 2014).
Advantages – It is primary tool for measure the success of small business both in long term and
short term periods. It also helps to support the entire business to financially accountable when
making large and small expenditures.
Disadvantage- The biggest disadvantages of this budget is lack of flexibility because mostly
companies using highly inevitable sales volume and costs. On broad level companies companies
experience fluctuated year to year.
Flexible budgets – A flexible budget mainly using for revenues and expenses are produced for
current production as a estimation and baselines. It is more useful for company because
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according to changes situations, company will be changes in estimate plan of related to revenues
and expenses.
Advantages – It is providing more benefit to organization regarding to irregular earnings,
seasonable expenses and less stress. Because when any situation change in the company that
time according to changes in the budget.
Disadvantages – Many time changes in the budget that is confusing to top management,
regrading that create many problems for company such as cheating, less disciplines and create
confusion. These are problems reason for conflicts between management and employees.
Incremental budgets – This budgeting mainly based on the assumption of making small change
to the present budget for arriving at the new budget. This type of budget is simple, but it also is
not generally recommanded by most professionals (Chatfield, and Vangermeersch, 2014).
Advantages – This method of budgeting is very easy to utilize and does not estate any analysable
calculations. This can be achieved for different departments without much issue as one does not
need any elaborate analysis irrespective of the department is consideration.
Disadvantages – In this budget have lack of invention and no cost reducing for mangers related
to business. With this budget businesses run into conservative mode and also differ from reality
as budgets benchmark.
Zero based budgets – It is an approach of management accounting that involves preparation and
scratch of the budget with zero base. It involves re evaluation every line item of cash flow
statement and justifying all the expenditure that is to be incurred by the department (Fayol,
2016).
Advantages – The major advantages of this budgeting is they are allocate resources with
efficiency that are based on benefits and needs. It is helps to focused operations, lower costs and
more disciplined execution. It is also using as flexible budget for relating items of the budgets.
Disadvantages – There is disadvantages relating to budget such as it is time consuming, for this
budget requires manpower and also require knowledge. Employees does not aware for the details
for resources intensiveness short term planning.
Variance analysis – It is the study of deviant of actual activity versus planned or forecasted
activity in budgeting or management accounting. This is basically concerned with how the
difference of planned and actual behaviours indicates how business performance is being
effected.
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Advantages – It is acts as a control mechanism for large deviation on key items helps the
company in knowing the causes and it helps management look into possible ways. It is using as
efficient budgeting activity as management wishes to have lower deviations for making detailed
budgetary decisions.
Disadvantages – Variance analysis as an activity is based on financial results which are released
much later after quarterly closing. There may be taking time gap that are affected to ability to a
certain extent.
M3 Applications of planning tools for preparing and forecasting of budgets
Planning tools and its application vital components of management accounting and it is
directly related to budgets. Flexible, fixed, zero based, incremental and variance analysis are
major tools for developing plans to prepare budgets. According to different methods of
controlling budget for BCM construction limited, managers need to make use of several planning
tools (Heinicke, Guenther, and Widener, 2016). There are specify that tools flexible budget is
using by mostly companies because it prepare easily and required changes do easily according to
market situation. Fixed budget is type of tool like as contingency tools are taken into account for
controlling business risks those are grow in the sections.
P5 Management accounting system to respond to financial problems
Financial issues are attendant with organizations are characterized as monetary issues that
can creates stress. In BCM construction limited can be simply found that the managers are
having many problems respect to management accounting system. It bearer critical situations to
manage financial resources of business. In this system including various kind of financial issues
such as customer contentment, decrease in revenue and increase in cost. These issues can
resolved by using following tool are as:
Key Performance Indicator
Key performance indicator is a measurable amount that presents how effectively a
company is a achieving key of business objectives. BCM construction use KPI to measure their
success at arrival targets of the company. Companies use key performance indicators for
reaching targets to evaluate multiple levels of success (Marelli, 2015). The purpose of KPIs is to
reminder progress towards carry out the strategic objectives that are typically communicated in a
strategy map. KPIs typically included in a reporting scorecard or dashboard that enables top
management, the board or other stakeholders to focus on the metrics deemed most critical to the
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success of an organisation. KPIs divided into two parts such as financial KPIs and non financial
KPIs that are presents KPIs in both ways.
Financial KPIs are broadly based on income statement or balance sheet elements, and
may also report changes in sales growth like as customer portion, product families and channels
or in cost collection (Key performance indicator. 2018). Non financial KPIs are other measures
used to assesses the activities that an organisation sees as important to the attainment of its plan
of action objectives. Veritable non financial KPI include measures that relate to operations,
customer relationship, cycle time, employees and the organisation's supply chain or its pipeline.
Benchmarking
It is using for measuring of the quality of an organisation's plan of action, policies,
programs and products. It is instrument to compare one company with another company for
identifying ways to gain competitive profit. Key points of BCM construction limited are
compared with Anglo American Plc. Area of underperformance and over performance can be
identified with benchmarking. Different types of benchmarking apply by company such as
SWOT, cooperative bench marking and best practice (Morden, 2016). Managers of the company
also compare the performance of their processes and products externally with those of
competitors and best in class companies and internally with other operations that perform similar
activities in their own firms. The objective of bench marking are (1) to find out where and what
amend are called for (2) to analyse how other forms attain their high performances levels and (3)
to use this contents to better performance.
Anglo American PLC BCM Construction limited
This is an global production company and
largest producer of platinum in whole world.
Thus it will be healthful for it, if this company
uses benchmarking to achieve best practices.
As there are many technologies used in this
industry. Anglo American PLC can take help
of benchmarking for compare to other
companies for bring effectiveness in work
(SAFARI, and Dehghan, 2017).
In this organization which is involved in
construction process uses job costing system.
Because it will identify direct material, direct
labour and overhead with applying this system.
It uses for modify ratio if cost of each job and
task will be allocated and disclosed in right
way. In this system also gainful and non-
profitable areas will be identify for
improvement. .
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Financial issues such as indecent budgeting
can be resolved by applying system of
monetary fund reports in business. This will
help in conformity of track record of all
revenues as well as expenditures.
Financial indicators helping to improve better
instrument to control and manage cost as in
this manufacture this can reason serious issues.
Because they have limited resources and they
want to be put in secondary uses.
It is also applying to bench marking for
minimum expected result. Because with the
help of this tool can be estimate those financial
problems and solving with the helps of these
tools.
Job cost accounting system mostly apply by
construction companies because they need to
direct material, overhead and direct labour. It is
easily identify financial problems for solving.
M4 Management accounting leads organizations to achieve sustainable success
Management accounting helping to companies to getting success, even if an organization
is not working properly. Financial problems can occur due to state of mind. But, with the help of
management accounting all these problems can be solved as it establishes a proper working
system. In management accounting, there are many systems are there along with reporting
system which helps in non-stop judgement of financial execution (Parker, and Fleischman,,
2017). Here, sustainable success refers to overall growth of all the departments in BCM
Constructions limited. This can be achieved as management accounting is applied in every
department whether finance or human resource. Success is directly related to proper decision
making and in management accounting, reports are prepared to analyse performance. On the
basis of evaluation of performance, decisions are taken.
D3 Evaluation of planning tools for responding to financial issues
Planning tools helping for found financial problems in BCM construction limited for It
has been found that company need to face several inner problem those are create in BCM
construction limited. In order to control various imparts that are affiliated with budgets of a
company. Flexible budget planning tool is taken into account as one of the reliable tool which
will be taken into account to control business risks those are moving the overall performance of
the organisation (Prencipe, Bar-Yosef, and Dekker, 2014). While increment planning tools is
used to calculate future issues those are affecting performance of the company can be resolve by
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using Key performance indicators. It can be resolve by using financial governance rules those are
made for the intention of moving business in more impressive way.
CONCLUSION
From the above report concluded that, management accounting is important part to of
accounting that helping to BCM construction for efficient management and it is modify their
financial management. Although, it is not inevitably to be acquire but internal stakeholders stay
satisfied as well as identified about overall performance of the organisations. Different types of
planning tools to help BCM construction for preparing budgets and also for budgetary control.
It's application also helping to preparing and forecasting of budgets, and its provides importance
of management accounting system. With the help of management accounting system and
planning tools solving financial problems to lead organisations for sustainable success.
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REFERENCES
Books and Journals
Brierley, J. A. and Gwilliam, D., 2017. Human Resource Management Issues in Accounting and
Auditing Firms: A Research Perspective: A Research Perspective. Routledge.
Burkert, M. and et.al., 2014. Relating alternative forms of contingency fit to the appropriate
methods to test them. Management Accounting Research. 25(1). pp.6-29.
Chatfield, M. and Vangermeersch, R., 2014. The history of accounting (RLE accounting): an
international encylopedia. Routledge.
Fayol, H., 2016. General and industrial management. Ravenio Books.
Heinicke, A., Guenther, T. W. and Widener, S. K., 2016. An examination of the relationship
between the extent of a flexible culture and the levers of control system: The key role of
beliefs control. Management Accounting Research. 33. pp.25-41.
Marelli, A., 2015. The evolving role of environmental management accounting in internal
decision–making: a research note. International Journal of Accounting, Auditing and
Performance Evaluation. 11(1). pp.14-47.
Morden, T., 2016. Principles of strategic management. Routledge.
Parker, L. D. and Fleischman, R. K., 2017. What is Past is Prologue: Cost Accounting in the
British Industrial Revolution, 1760-1850. Routledge.
Prencipe, A., Bar-Yosef, S. and Dekker, H. C., 2014. Accounting research in family firms:
Theoretical and empirical challenges. European Accounting Review. 23(3). pp.361-385.
SAFARI, G. M. and Dehghan, F., 2017. Audit quality and Market value of corporate cash
holdings
Online
Key performance indicator. 2018. [Online]. Available through:
<https://www.cgma.org/resources/tools/essential-tools/kpis.html>
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