Management Accounting: Planning Tools & Financial Problem Solving

This report discusses the application of planning tools by managers in management accounting to address and solve financial problems within organizations. It evaluates the advantages and disadvantages of budgetary planning tools such as cash budgets, zero-based budgeting, and act...Read More

HOW MANAGERS COULD USE
PLANNING TOOLS AND RESPOND
TO FINANCIAL PROBLEMS

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
Advantages and limitations of different types of planning tools which are used for budgetary
control system..............................................................................................................................1
Adoption of management accounting systems in solving financial problems.............................3
CONCLUSION................................................................................................................................4
REFERENCE...................................................................................................................................5

INTRODUCTION
Financial problems are considered as one of the biggest problem for every business but
there are various planning tools which can be applied to get rid from financial issues. Tesco is
the multinational company which deals in retail sector. Company operates in many countries and
have wide product portfolio. This report will discuss about the merits and demerits of budgetary
planning tools and how it is to be used for forecasting budgets. Further it will evaluate that how
management accounting helps company ins achieving sustainability and solving financial
problems.
MAIN BODY
Advantages and limitations of different types of planning tools which are used for budgetary
control system.
Budgetary control system-
Under budgetary control income and expenditure are managed. In practical life, planned
income and expenditure are compared with the actual income and expenditure to find out that
there is the requirement of taking corrective actions or not (Drummond-Brown and Sófusdóttir,
2018). It is not the one time process but it is continuous process which helps management in
doing proper planning and coordination.
Types of planning tools are as follows:
cash budget-
cash budget refers to ascertaining cash flows of the company within specified time period like
quarterly, monthly, weekly and annually. Majorly this budget is used to find out that the
business have sufficient amount of cash budget so that they can operate within the time frame or
not. So this budget helps business to know about its cash needs. So it is important that company
manage their sales and expenses properly to attain optimal cash flows.
Advantages-
if company will always spend in cash than they will be able to avoid debt. With the help of cash
budget, company can plan their budget in a proper manner. This budget have two paths whether
business can meet their ends needs or else they have to went through consequences. It is the
procedure which involves proactive management so that company have enough cash to fulfil
their daily needs. This budget is helpful in dealing with financial problems.
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Limitations-
this budget is prone to the danger of theft. As cash is very easy to steal because it is difficult to
trace it. It restricts on the ability to develop credit profile (Chugunov and Makohon, 2020).
Zero based budgeting-
it is the budgeting method in which budget is made from the scratch or zero base. Under this
budgeting, expenses of the next period are calculated over actual expenses which are to be
happened.
Advantages-
this budgeting method provide accuracy as compared to other budgeting method. It is also
helpful in reducing costs as it provides transparency within costs. It is also helpful in
overcoming from budget inflation.
Limitations-
this method is the time consuming method. When company will make budget from zero base
than it requires large number of manpower.
Activity based budgeting-
this budget is made on the basis of various business activities. Under this budget, businesses
form base with cash or expected business activity. The activities which are chosen for this
budget is properly evaluated by the business in order to estimate business costs. This budgeting
have some different approach, as it helps business to concentrate on budget or activities of
business.
Advantages-
it gives the opportunity to fresh start, as businesses which went through changes can utilize
activity based budgets. It is also used by those companies which are wanted to fresh start their
budget. When compared with traditional budgets than this budget is helpful in achieving
company goals (Oulasvirta, 2019). As it consider business as a whole and not only on individual
departments.
Limitations-
it is the time consuming process as each activity has to be examined carefully to identify cost
drivers. This type of budget can only prepare by those managers which have special skills and
knowledge, as technical knowledge is needed in this budgeting process. As this budget
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consumes more time and require skilled employees which means that company has to be
incurred more costs for preparing this budget.
Adoption of management accounting systems in solving financial problems.
Benchmarking-
it is the procedure to compare performance and business processes to best practices from
the other organisation. This is the tool which is used to measure the performance. Example:
Tesco uses this technique for measuring productivity per unit.
Merits-
this tool is helpful in making company's profile and helps in saving over money and time, as it
adopts the practice of superior competitors.
Demerits-
this technique do not help in solving every problem which can help company in attaining
competitive advantages. In order to improve performance it require proper balance.
Balance scorecard-
it is the management accounting tool, which helps business to improvise their internal operations
in order to manage their external results. Example: Sainsbury uses this technique in order to
make effective decisions in the future.
Merits-
with the help of this technique, communication flows easily and it also provide better alignment.
As employees of the company are able to link their goals within different business level
(Hanefeld and et.al., 2018). It also provide better structure to business strategy.
Demerits-
this system cannot be used as it is as every businesses need to tailored it depending on their
business needs. If business has to attain success using this, then it is to be applied from the
bottom to the top of the company.
Key performance indicator-
this is the tool which tells that how efficiently company is achieving its business objectives
(What is a KPI., 2021). Example: Tesco uses this technique at various levels in order to analyse
their success and to achieve the planned target.
Merits-
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KPI is helpful in solving learning gaps, if company will not able to attain their objective than it
guide those companies that their employees are required to give training. It also promote
employee empowerment, so that corrective actions can be taken.
Demerits-
KPI consumes more time. KPI does not provide results or change overnight, company has to
wait for few months in order to observe outcomes.
Management accounting, helps businesses in taking crucial business decisions so that
effective business performance can be delivered. In order to attain sustainability, they combine
financial experts and business strategy (Siawsh and et.al., 2021). This accounting system
understands that why it is important to bring various parts of business together. Managers of the
company can also apply various management accounting tools to achieve sustainable success.
CONCLUSION
Through this report it can be concluded that there are various budgetary planning tools
which can be used by companies like cash budget, zero based budgeting and activity budgeting.
The report has discussed about tools like benchmarking, balance scorecard etc. which can be
used by the managers to solve financial problems of the business.
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REFERENCE
Books and Journals
Chugunov, I. and Makohon, V., 2020. Budgetary projection in the system of financial and
economic regulation of social processes. Baltic Journal of Economic Studies. 6(1).
pp.130-135.
Drummond-Brown, S. and Sófusdóttir, S., 2018. Playing the Game-A Study of Budgetary
Gamesmanship within Financial Planning Processes.
Hanefeld, J. and et.al., 2018. Towards an understanding of resilience: responding to health
systems shocks. Health policy and planning. 33(3). pp.355-367.
Oulasvirta, L., 2019. Budgets and budgetary accounting.
Siawsh, N. and et.al., 2021. Exploring the role of power on procurement and supply chain
management systems in a humanitarian organisation: a socio-technical systems
view. International Journal of Production Research. 59(12). pp.3591-3616.
Online
What is a KPI., 2021. [Online]. Available through:
<https://www.klipfolio.com/resources/articles/what-is-a-key-performance-indicator>
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