Budget Participation, Responsibility Centers, and Business Strategies

This report delves into the significance of budget participation within organizations, evaluating its advantages and disadvantages. It explores strategies to mitigate risks associated with budget participation, particularly in decentralized and multidivisional structures, emphasizing the roles of decentralization and multidivisional organization techniques. The report differentiates between various responsibility centers, specifically highlighting investment centers and their functions. Furthermore, it examines the application of revenue and cost centers within marketing departments. The analysis extends to successful companies like Apple, Amazon, and Starbucks, dissecting their business strategies (low cost or differentiation) and core competencies. The report also includes an overview of the budget planning process, the importance of inter-communication, and the strategic considerations of the mentioned companies. The report provides valuable insights for students studying finance, management accounting, and business strategy, offering practical examples and theoretical frameworks for understanding key concepts in organizational budgeting and performance analysis. The report also provides a detailed analysis of the business strategies and core competencies of successful companies like Apple, Amazon, and Starbucks.

RUNNING HEAD: Budget Participation in an Organization
BUDGETING AND CONTROLLING

Budget Participation in an Organization
Table of Contents
Question 1.......................................................................................................................................................................2
Answer A....................................................................................................................................................................2
Answer B....................................................................................................................................................................3
Question 2.......................................................................................................................................................................4
Answer A....................................................................................................................................................................4
Answer B....................................................................................................................................................................5
Question 3.......................................................................................................................................................................5
Answer 3.....................................................................................................................................................................6
References.......................................................................................................................................................................7
1

Budget Participation in an Organization
“Budget Participation is a double-edged sword”.
Question 1. Explain and evaluate the significance of the above statement?
Answer A: “Budget Participation is a double-edged sword” the given statement states that, the
essential features of management effective controlling the Budgets system. And itself include
some pros and cons. Here are description of some pros and cons:
The pros of budget system are:
1. Budget itself introduce savings of money as well time. Budget planning is the important
part of the management the process of budget is include planning, organising people,
time and money in the organisation, the main goal of budget planning is to achieve the
target in given time.1
2. Usually the essential principles of promoting the budgets are generally dependable on
inter communication and correspondence. This might be viewed as applying the self-
evident, however the formal technique will influence deals to work conversely with the
operations or to gain the benefits for the clients.
3. Budget planning are the guidelines for any action plan in any organisation.
The cones of the budget system:
1. Planning of budget does not provide flexibility, and decision making. Also budget
planning is time consuming.
2. Budget planning requires excessive knowledge to prepare the budgets. Consider certain
assumptions and estimates.
3. Planning of budget system may blame for outcomes to other departments.
4. When an organization plan a budget system the senior management team needs tp plan a
strategic rigidities to achieve the goal in coming next year.
1 Zainuddin, Suria, and Che Ruhana Isa. "The role of organizational fairness and motivation in the relationship
between budget participation and managerial performance: A conceptual paper." Australian Journal of Basic and
Applied Sciences 5, no. 12 (2011): 641-648.
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Budget Participation in an Organization
Question B: With respect to planning in a decentralised, multidivisional organisation, what can be
done to minimise the risks associated with budget participation?
Answer B: In budget participation organization has to face many risks. To avoid or minimize the
risks decentralisation and multidivisional of organisation technique can be used by the company.
1. Business planning for Budgeting and Forecasting: As per the Aberdeen and SAP
report the best three drivers for planning and estimating are to enable association to
manage showcase instability, adjusting methodology and doing cost control.2
2. Risk Adjustment in budgeting participation: Budgeting planning has three Strategy of
adjusting the risk planning of operations, reporting of management, cost management.
3. Multidivisional organisation planning: In budget participation to reduce the risk
planning and control responsibilities are the main factors. The duty of the senior
executives to assigned the human and operational responsibilities to their respective
division.3
4. Decentralization planning to reduce the risk: Every business planning need a structure
to reduces risks. It needs Top-Down approaching for the centralized decision making.
5. There are few more points to reduces the risk :
 Better alignment of planning with corporate goals.
 Corporate need to control the cost management in organisation.
 To create volatility need to change the dynamically account.
 Need a sufficient buy-in to deliver the expected results.
2 Marques, Rui Cunha, and Sanford Berg. "Risks, contracts, and private-sector participation in infrastructure."
Journal of Construction Engineering and Management 137, no. 11 (2011): 925-932.
3 Jones, Gareth R., and Gareth R. Jones. "Organizational theory, design, and change." (2010).
3

Budget Participation in an Organization
Question 2: (A) In what situations will an organization choose to make their business units
investment centres instead of any other types of responsibility centres? Briefly explain your
answer.
Answer A: In any organisation a unit head is responsible for all the activities this is called
responsibility centres. Whole organisation are divided into different department and all
responsibility centres use some resources for the outputs. Every management point of view the
responsibility centres is different for example according to marketing manager the sales,
distribution and advertising department is the responsibility centres.4
There are four types of responsibility centres:
1. Revenue Center,
2. Expense Center,
3. Profit Center, and
4. Investment Center
Investment center is also a responsibility center in which the head of department is responsible
for earning rate of return. Profit centre also can become an investment center in this the whole
concentration on assets employed. It differ from other centres or we can say organisations choose
to make their business units into investment center because of it has feature to calculate on the
basis of the rate of return earned on the possessions in that center.5
Question B: Can a marketing department be either a revenue centre or a cost centre? Explain.
Answer B: Revenue Center:
Revenue center is the part of responsibility centres. Revenue center are the segment in which
productivity does not directly compared to response costs but measured in financial terms.
Revenue generated by it is the main target of management. The best example of the Revenue
center is a sales department. The adequacy of the middle is not judged by how much deals
income surpasses the cost of the inside. Or maybe spending plans are set up for the income focus
and the planned figures are contrasted and the genuine deals.
4 DRURY, COLIN M. Management and cost accounting. Springer, 2013.
5 Pekgün, Pelin, Paul M. Griffin, and Pınar Keskinocak. "Centralized versus Decentralized Competition for Price
and Lead‐Time Sensitive Demand." Decision Sciences (2016).
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Budget Participation in an Organization
Usually in revenue center the out does not directly related to the cost. In revenue center the main
focus of the management to control the cost.
Cost center or Investment center:
A profit center can be cost center because both requires some form of capital investment. In a
cost center all activities are controlled bur he head of department or manager he is the only one
who is responsible person for all. A example we can take a automobile manufacturing company
sell their parts or products at some departmental stores some branches of multiple shops these are
called investment or cost center. Where cost can be mark out this place are known as cost center.
A person team, a division, a department, a machine, a project all are the part of cost center.
Another example of cost center we can take as such IT department, accounting department.
Question 3: Identify three of the most successful companies or organizations today, in your
opinion.
Briefly explain why they are so successful. For each company, identify:
1. Its business strategy (low cost or differentiation).
2. Its core competencies.
Answer 3: In my opinion three most successful companies in 2017 are:
1. Apple (Computers)
2. Amazon.com (Internet services and retailing)
3. Starbucks (Food Services)
 Business Strategy of Apple: The business strategy of apple is “they sell their
products to their own stores”. Apple Company has adaptive nature of advanced
technologies and features6. They are very fond of new technologies. The innovation
list of apple is include IPad, IPhone, Mac book, Apple TV, IPod. The first innovation
of Apple was IPad which has the capability of store thousand songs. As the part of
6 Wheelen, Thomas L., and J. David Hunger. Strategic management and business policy. pearson, 2017.
5

Budget Participation in an Organization
business strategy Apple was continuously expanding his business through third –party
digital content and applications of apple through the iTunes store.
 Core Competencies: Apple Company has expert staff to making good software,
hardware’s and services. The apple devices are easy to operate in compare to other
company’s software devices. The ecosystem of apple also provides to their customer
good services and easy operate applications as well.
 Business Strategy of Amazon.com: The main target of Amazon Company is home
service market. The business strategy of amazon to fulfil the customer demands on
time and give the first priority to their customers.7 The most recent announcement of
amazon is “Amazon Go”. This announcement is related to avoid the long queues for
the customers and “just walk out technology” for that shoppers need to download the
amazon app in his smart phone.
 Core Competencies: Now a days amazon moving ahead to simple online shopping’s
and delivery and also moving into ecommerce. The simple steps of amazon is
following is segmentation, targeting, positioning in market. Amazon also has position
itself as go global act local in e-commerce.
 Business strategy of Starbucks: The founder of Starbucks is Jerry Baldwin and
Gordon Bowker.8 They have the strategy to satisfy and fulfil the requirements of their
customers. Now Starbucks are expanding their business in every country by their
smart strategies.
 Core competencies: The competitors of Starbucks are McDonald and Dominos.
Starbuck usually distribute their products at their stores, this strategy make the
customer’s top faith on the Starbucks.
7 Keller, Kevin Lane, M. G. Parameswaran, and Isaac Jacob. Strategic brand management: Building, measuring, and
managing brand equity. Pearson Education India, 2011.
8 Rothaermel, Frank T. Strategic management. McGraw-Hill Education, 2015.
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Budget Participation in an Organization
References
1. Zainuddin, Suria, and Che Ruhana Isa. "The role of organizational fairness and
motivation in the relationship between budget participation and managerial performance:
A conceptual paper." Australian Journal of Basic and Applied Sciences 5, no. 12 (2011):
641-648.
2. Marques, Rui Cunha, and Sanford Berg. "Risks, contracts, and private-sector
participation in infrastructure." Journal of Construction Engineering and Management
137, no. 11 (2011): 925-932.
3. Jones, Gareth R., and Gareth R. Jones. "Organizational theory, design, and change."
(2010).
4. DRURY, COLIN M. Management and cost accounting. Springer, 2013.
5. Pekgün, Pelin, Paul M. Griffin, and Pınar Keskinocak. "Centralized versus Decentralized
Competition for Price and Lead‐Time Sensitive Demand." Decision Sciences (2016).
6. Wheelen, Thomas L., and J. David Hunger. Strategic management and business policy.
pearson, 2017
7. Keller, Kevin Lane, M. G. Parameswaran, and Isaac Jacob. Strategic brand management:
Building, measuring, and managing brand equity. Pearson Education India, 2011.
8. Rothaermel, Frank T. Strategic management. McGraw-Hill Education, 2015
7