GBS003 Managing Financial Resources: Woolworths Budget Analysis Report

This report provides a detailed analysis of Woolworths Group's financial resource management through its operating budget. It identifies the budget's composition and key elements, including revenue, operating expenses, wages, interest, and administrative costs. The report further examines the budget preparation and monitoring processes, highlighting the steps involved in creating a budget, such as information collection, base budget development, data analysis, and review. It also discusses the process of monitoring the budget, including collecting actual results, comparing them with budgeted figures, calculating variances, determining the reasons for variances, and implementing corrective actions. The report also addresses common pitfalls in the budgeting process, such as a lack of strategy, and emphasizes the importance of continuous monitoring and revision to ensure efficient resource management and higher revenue generation. Desklib offers a platform for students to access this and other solved assignments and past papers.

Managing financial
resources

Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
Select a budget of a company and identify its composition along with its key elements............3
Prepare and analyse budget preparation and monitoring process................................................6
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................11

INTRODUCTION
Finance is a blood of any business. It is the most important aspect on which the whole
business performs its functions and daily operations. The management of this money in business
is of most priority to the organisations. Mismanagement of funds leads to the failure of business.
They can be managed by preparing efficient budget and their effective implementation (Ait-
Laoussine and Gault, 2019). The company chosen in this report is Woolworths Group. It is a
biggest food retailer of Australia. It has number of chains of grocery stores and supermarkets.
The report discusses about the budget and its composition. It further analyses the preparation and
monitoring process of budget along with commenting on its cost structure. It also discusses in
detail about the budget prepared.
MAIN BODY
Select a budget of a company and identify its composition along with its key elements.
Operating budget of Woolworths
Particulars $m $m
Revenue 49500
Operating expenses 10813
Wages and salary 3000
Interest 701
Advertisement 320
Cost of maintenance 1580
Insurance 30
Depreciation 77
Rent and utilities 220
Legal fees 100
Fixed expenses 558
Selling expenses 650

Administrative expenses 3577
Operating income 38687
Above stated is a planned or budgeted statement of operating expenses of firm. Operating
expenses refers to the costs that are incurred by firms to continue its daily operations. This is a
cost that a firm is required to incur to perform its activities. Operating budget shows the expected
amount of expenses that will likely to occur during the year on conducting its various activities.
This plan is very important for businesses to determine the expected amount of operating
cost that would be incurred. After this estimation, companies decide its capital requirement and
frame plans that from where the required amount is to be arranged. This also helps them in
making plans about the manner particular costs can be reduced and managed. It also aids the
managers in finding out the ways in which the resources of he company can be best utilized so
that figures related to them is controlled. It also helps the organisations in further planning of
funds acquisition.
The budget is prepared before one to two months of starting of tear. This is prepared on
the basis of past data, needs of company and its future expectations. There are various persons
who are involved in its preparation such as the management, employees and the heads of
labourers and workers. They make analysis of the previous expenses and analyse the level of
work company is going to do in its coming year. They make use of different techniques and tools
for making this estimation. Organisations also keep in mind the changes that can take place in
the market and keep a scope of such costs in its estimations.
According to the plan, Woolworths is expecting to generate a revenue of $ 49500m in a
year. In respect to that it has estimated that it would incur $ 10813 m operating expenses and this
is about one forth part of the total revenue earned by firm. Out of all the expenses, the major part
relates to the administration and wages and salaries of employees and labourers. They are also
the most important expenses of the company. Salaries are given to the managers and staff
members of the firm who attends the cash counter and guides the customers. Whereas wages are
provided to the labourers like cleaning staff, security guards and helpers. These two expenses
constitute the maximum part of operating cost of company. They all expenses are variable and
tends to change with the number of customers, goods sold and other factors. Apart from this,

there is a fixed expense of $ 558 m. out of this, a portion of amount is paid by firm as a lease
payment every year.
Selling expenses of $ 650 m is an indirect expense which is estimated by the firm on the
basis of the sales anticipated by the firm. The expenses of firm are incurring unevenly and fixed
expenses are around twenty-th part of the whole operating expenses. The company is making
payment of around $ 30m for the insurance of its assets and employees. It is expecting to pay $
220 as a rent and providing service of utilities to its staff members and customers visiting the
store. It is also anticipating a payment of around $100 m as a legal fee. This expense is not fixed
and depends on the legal formalities that the business may require to fulfil. Also, it is thinking of
to pay $ 320 m as advertisement expense. But this cost can be reduced by company as
Woolworths is a big firm as is well known to its customers. It does not require to spend this
amount on marketing.
The information is gathered from the prior year income statement. All the estimations are
made taking in view the results of last year and estimations for the future. Woolworths is a big
firm and follows lot of important steps to prepare their budget. They also properly monitor all the
steps of implementation and take a review report on daily basis.
Woolworths, while preparing any budget looks at all its previous years’ costs and take a
deep analysis of all these costs. After collecting this information, it checks out current market
situations, changes taking place in prices and its future plans or programmes it is going to
conduct (COSMIN and MIHAELA, 2019). On the basis of this information, it decides the
amount of expenditure it has to do on various things. For example, if the firm is going to increase
its production level, then it will require more labourers and the expense on wages will increase.
After that a proper base budget is prepared which is then send to higher authorities for approval.
They properly check the whole budget and analyse the need of change in that. Then, the final
budget is prepared with all alterations. This plan is normally flexible and is ready to be altered
any time with situation. Also, it consists of the scope for contingency.
Woolworths only prepares the budget; it keeps a look at the performance of this plan
from time to time. They keep a track on all the activities and discovers any kind of discrepancies
at any time so that no problem occurs in the functioning of company (Jin, 2020). They also tries
to find out the reason due to which these problems are occurring and to what extent they are
controllable. At this time, the budget is also continuously revised by Woolworths according to

the market situations and the risks and challenges occurring in internal as well as external
environment. All the actions plans are prepared by the firm with accuracy and focus which help
it in managing all its resources efficiently and generating higher revenues.
This is how Woolworths carry on its budget preparation and monitoring process for its
operations.
Prepare and analyse budget preparation and monitoring process.
Budgeting refers to the process of framing a plan related to the anticipated expenses and
incomes. It is prepared by companies to get a rough estimation of the money that will be used for
carrying out a function and amount that could be achieved from it. There is a process that must
be followed for preparing a proper budget (Kazakov, Howick and Morton, 2021).
Steps to prepare a budget
 Collect information- this is the very first step of preparing a budget. Here, the information
related to various expenses and incomes is gathered with the help of amounts of previous
year. The expenses which have not occurred in that time but can occur is next year are
also determined. Then their cost at present time are either estimated or determined from
the market.
 Development of base budget – After this, the budget preparing team prepares a base plan
in which all the estimated values are written and a rough plan is prepared for it. This plan
is prepared on the basis of data that has been gathered from historical knowledge.
 Access Data and Prepare Budget – Next step is to do a deep analysis of the data and
checking whether the estimation made are correct according to the present market
situations and the current requirements of firm. This simply means that at this point the
budget is properly analysed by looking at all the aspects. After this, the new and actual
budget is prepared. This fresh plan is made by considering all the failing point of
previous budget and as per the needs of organisation (Mambulu‐Chikankheni, Eyles, and
Ditlopo, 2018).
 Review Budget – On preparing the new budget, it is again reviewed and revised of
checking out whether the new plan is prepared as per the full requirements or not. This is
then finalized for the future use.
This is how a budget is prepared for companies. After the preparation of this plan, their
comes a need of monitoring the performance of the budget.

Process of monitoring budget
 Collect actual results- At very first, companies collect the information related to the
actual results driven from the project. These are received from the operations actually
taking place in the firm. The activities are normally performed according to the budget
prepared for it (Naghizadeh and et. al., 2017).
 Comparison of actual results with budgeted one- Next step is to compare the planned
results to the budgeted values. This comparison is very simple and difference occurring in
between them are considered to be the variances.
 Calculating variances- The term refers to the difference between the actual and the
planned results. This variation can also be calculated in the form of percentages. For
instance, there is a planned expense of $ 32000 but in reality the cost incurred is $ 40000.
Here, the difference of $ 8000 is the variance and the actual cost incurred is more than the
planned value.
 Determine the reason of variance- After the determination of variance, it is important to
ascertain that why that variation has occurred what is the reason behind this difference. If
some variances are in positive direction, even then it is important to check out the cause
behind it, so that the activity resulting in this positive direction can be continued in
future. The negative variations can be because of many reasons such as any delay in
work, some kind of error or over expenditure. It must be kept in mind that variances are
not due to improper implementation always. It can be because of poor preparation of
budget as well or making changes without any plan (Ng, Sweeney and Plewa, 2019).
 Correcting action- Now, it is time to take action for the correcting all kind of
discrepancies and errors. Here, various plans are also made to diminish the variances and
bringing the results of future actions as per the plan. If there are any problem in budget,
then they are also rectified.
It is very important to note that variances can be checked and corrected only if the
management keeps a check on work thorough out whole work and keep matching it with budget
on regular basis. Because it is no use to track the budget after the completion of work. If this is
undertaken in between then it can help in managing the cost and quality in time.

At the time of preparation of budget, it must be kept in mind that there are various problems
that must be addressed while making plan. There are some of the pitfalls that takes place
common in this process. These are discussed below:
Pitfalls of budget process
 Lack of strategy – Many a times, a person while making plan does not have any strategy
in their mind. They just formulate a plan and do not involve any technique in determining
the action plan and its effectiveness. Such budgets normally fail to match with actual
results. It is always important to formulate some strategy while preparing any budget so
that the desired results seemed to be realistic (Resnik and et. al., 2021).
 Underestimating the costs- this is a big problem which people usually commits. They
could not properly judge the amount of money that would be levied on conducting all the
operations. Whenever cost is undervalued, the actual cost of the product goes very high
resulting in big variation among the actuals and the planned ones. Thus, it is very
important to review the cost of all the products, from history as well its present price in
market.
 Setting wrong price- Setting of wrong prices is also a problem. Fixing a high price which
is unacceptable by customers or a lower one that is not beneficial for the business, both
are incorrect. A price must be set while keeping in mind that it is able to cover all the
costs incurred for the manufacturing of that good and is also able to generate at least
minimum profits required for the business. On the other hand, it should be adjusted in
such a manner that it is easily accepted by more number of customers.
 Absence of contingency plan – It is a plan that helps the managers in coping out with any
kind of problem that can occur at the time of implementation of plan. This is very
important part of any budget. Many businesses do not keep a second option and because
of this, they have to face lots of problems. This plan gives another option to the person at
the time of failure of first one. So, a firm should always make a contingency plan.
So, budgets can be used by companies for the managing its resources efficiently and with
efficiency. There are various ways through which the budget preparation process can be
improved (Yumagulova and Vertinsky, 2021).
Actions to improve the process of budget

 Maintain flexibility - It is important that the budget is not rigid. There should be
flexibility in the preparation process of budget so that they can change the amount at
any time and any changes occurring in the business can easily be implemented in the
budget. Maintaining flexibility helps in creating more accurate budget that can help in
bringing better results for the company.
 Proper communication - There should be effective communication among all the
departments so that the entire process of budget has minimum level of issues. All the
points must be communicated as soon as possible so that strategies can be formulated
in time (Borg, 2021).
 Involve all the concerned persons - Every person has knowledge of its own field and
no other person can have this deep knowledge related to any other person. So, all the
concerned persons should be involved while preparing the budget so that all the
required aspect can be considered while the preparation of budget. Also, every person
has its own perspective which can help in framing more efficient plan.
 Keep a backup plan – one cannot be ready for all type of situations but there are some
scenarios which can be predicted in advance. So, while formulating a budget, it is
important to have another plan that can be implemented if any such problem arises.
This simply means that the companies must be ready for all the kind of situations
while making any plan.
So, in this way, the budget of firm can be improved. If companies, follow all these
suggestions then they can improve their performance to a great extent. This will also help them
in enhancing their profits.
CONCLUSION
From the above analysis, it can be stated that there are various types of budgets prepared by
firms which helps them in framing their action plan and ascertaining the level of expenditure that
is going to take place. But it is important to note down that the organisations must frame their
budget while keeping in mind all the costs and analysing the situation of market. It is equally
important to monitor the application of budget so that variances can be calculated beforehand
and action can be taken to rectify it. There are some situations in which the difference occurs
because of presence of errors in the budget itself. It should be free from any kind of problems
and should be prepared with due focus. There are various methods by which the variances

occurring in firms can be properly managed. Also, there are modes through which the process of
preparation of budget can be improved.

REFERENCES
Books and Journals
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Managing cash flow during a period of crisis: the Maltese COVID-19
experience (Master's thesis, University of Malta).
COSMIN, G.I. and MIHAELA, B.I., 2019. MANAGING, MINIMIZING AND PREVENTING
FOOD WASTE FROM ROMANIA IN THE EUROPEAN CONTEXT.
Agricultural
Management/Lucrari Stiintifice Seria I, Management Agricol,
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enterprises.
Entrepreneurship Research Journal,
10(1).
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resource/agent qualitative modelling perspective.
European Journal of Operational
Research. 290(1). pp.386-400.
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Journal of Service
Research. 22(2). pp.156-172.
Resnik, D.B. and et. al., 2021. For the “good of the lab”: Insights from three focus groups
concerning the ethics of managing a laboratory or research group.
Accountability in
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Yumagulova, L. and Vertinsky, I., 2021. Managing trade-offs between specific and general
resilience: Insights from Canada's Metro Vancouver region.
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