Report: Alternative Budgeting Systems for Vision Mix Plc. (Finance)

This report provides a comprehensive analysis of budgeting systems for Vision Mix Plc., an international TV manufacturing company. It begins with an executive summary outlining the company's financial standing and market position. The report is divided into two parts, the first part covers the purpose of budgeting, the budgeting process, and the application of traditional budgeting methods, along with their appropriateness for the business. The second part delves into alternative budgeting methods, including rolling budgets, zero-based budgeting (ZBB), and activity-based budgeting (ABB). The report evaluates the advantages and disadvantages of each approach, offering recommendations for Vision Mix Plc. based on its specific needs. The analysis includes a detailed examination of the application of different budgeting approaches within an organization, along with the process of implementation and advantages of each method. Finally, the report suggests the most appropriate budgeting methods for Vision Mix Plc. to enhance its financial planning and decision-making processes.

BUSINESS FINANCE

Executive Summary:
Vision Mix Plc. is the international TV manufacturing company which also produces
cameras, lights and sound equipment and selling about 60 different types of products. This is
operating within the market for about 25 years ad revenue is that of 250 million with having
listed on London Stock Exchange. The particular report covers the various types of alternative
budgeting systems which could be helpful for company over specified period of time.

TABLE OF CONTENTS
PART 1............................................................................................................................................1
i) Purpose of preparing budget, its process and how budget could help in development of
business........................................................................................................................................1
ii) Application of traditional budgeting approach with example for business budgeting............1
iii) Appropriateness of traditional budgetary system for part of business...................................2
PART 2............................................................................................................................................3
iv) Alternative budget methods...................................................................................................3
v. Application of different budgeting approaches in an organisation..........................................5
vi) Analysing one of the method which is appropriate for Vision Mix Plc.................................6
REFERENCE..................................................................................................................................7

PART 1
i) Purpose of preparing budget, its process and how budget could help in development of
business
Budgets are the most important and essential part of any company whether operating on
larger or smaller scale. This comprises of forecasting of income and expenses for firm in way of
decision making process including all type of expenditure which company need to make. The
main purpose of preparing budgets is allowing firm to create all type of spending plan for the
available funds with company (Fu, 2015). This will also ensure that company is having enough
amount of money in spending on each of the things which are important. The Vision Mix Plc. is
using traditional method of budgeting but it was also included that this approach is not good for
company to manage their next year process of budget as well.
Budgeting is the most important process for company which will be having effects on
forecasting, income, expenditure and is proper tool for decision making which help in managing
and monitoring business performance. So the following is been included to as purpose of
budgeting:
Forecasting of income and expenditure- This
is the most important purpose of forecasting
which is termed to as expecting or determining
income and then expenditure for company. It is
very much important for firm that they are
predicting the need and want of people or customers so that they could be able to make profit.
Tool for decision making- This is another purpose of the preparation of budgets which includes
providing framework for the decision making. The course of action to be included within
purpose so that course of action to be having planned out.
Monitoring business performance- This would be regarded to as last purpose of monitoring
business performance which could be deciding over monitoring performance of business
especially that of actual budgets.
ii) Application of traditional budgeting approach with example for business budgeting
Incremental budget- This type of budget is prepared by using the previous year budget or the
actual performance of basis within incremental amounts added into the new performance. This is
called to as the forecasting process which includes the actual result comparison with its
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expectation one so that next year budget could be determined. One of the biggest disadvantages
of this type of budgets is its inefficiency as it will be consuming too much time and resources of
management.
Top-down- In this type of budget senior level managers of company will be taking steps for
setting out goals of budget and then this will be imposed on others for taking as goals for Vision
Mix Plc (WEI, KIRSCH and KERNOHAN, 2016). the disadvantage is that only senior level will
be included within this type of budget formulation while it would then be imposed on others.
While this is not that much time consuming as only certain type of people will be planning out
for the formulation of this budget.
Fixed budget- This is type of budget which is prepared for specified period of time which is
usually called to as fiscal or financial year. The major disadvantage could be that related to its
low change responsiveness which means that there will be no reviewing it for longer duration of
time. While as it is prepared for one year only so there will be no need to review it for at least a
year period which is regarded to as positive point for it.
iii) Appropriateness of traditional budgetary system for part of business
There are many alternatives for these traditional budgetary system that company could
use for its planning and formulating of budgets over specified period of time. As it could also be
included that all type of traditional budgeting methods will be having its own alternative and it is
not necessary that they are been used for all parts of company. These traditional approaches to
budgeting will be having most important role to be followed within the respect of company
which will allow firm to provide its framework over controlling and regulating of rules (Gay,
Schultz and Braun, 2018). It is necessary at all the time that traditional budgetary system could
be used for all department of Vision Mix Plc.
There are many advantage of these traditional budgeting approach like it help Vision Mix
Plc. to provide the framework for controlling of funds in and out flow from company. This is
also included to as organisational cultural as it is most essential part of departments of company.
Thus, it may be a risky decision to abolish this fundamental method of operating as suggested
within the budgeting concept. The process of traditional budgeting will also be having
accommodation in need with decentralising as most of the functions and system of company
need to be decentralised by senior level managers. Vision Mix Plc. could use this traditional set
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of budgeting as they will be using or putting coordination of budget assumption across all type of
departments.
Rolling budget- Vision Mix Plc. could be using this type of budgeting technique which helps
them to continuously improve the actual budget based on changes which could be taking place
on each month.
Flexible budget- Vision Mix Plc. will also be using this type of budgeting technique which
includes the revenue and cost generating over specified period of time so that budget could be
prepared.
PART 2
iv) Alternative budget methods
There are many alternative type of budgeting which Vision Mix Plc. should be using
apart from the traditional one which would be most helpful for company in formulating periodic
budgets. As it could include that Vision Mix Plc. (Rognoni, Sommariva and Tarricone, 2016). is
using traditional budgeting system and its Finance Director did not think that it is most
appropriate for company as there are many types of changes which could be impacting business
of Vision Mix Plc. It was also included that if there is any sort of change within the approach of
budget then this should be made in coming next year only so that it could be significantly
making out changes. There could be included certain alternative budgeting methods which are
suggested for Vision Mix Plc. so that they could be lowering down the impact of not using any
sort of default.
Rolling budget-
This is that type of budget which is based on continuously updating within the time frame
for remaining stable with the actual period so that budget could be having certain amount of
changes within period of 1year. Thus this type of budget would be including incremental
extension of the existing budgeting model in way of doing the business and extending it for over
one year. It would also be having certain advantages and disadvantages over specified period of
time like it is reflecting dynamic nature of business environment. This is the advantage of rolling
budgets which includes that it would be recognising all type of anticipated difficulties over
period. While the disadvantage include that it is very much time consuming preparation of
budget which means that managers would be spending too much time in preparation of every
time fresh forecast.
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The rolling budget, in effect, starts the year all over again. The budget variances year to
date are deleted like a fresh start (Vargas and Espinoza, 2016). But this can be a disadvantage,
because some companies find that no matter how many times they re-forecast, they still
experience unacceptable budget variances. The problem could be their forecasting methods.
ZBB-
Under this type of budget includes the process from the ground to upper level which
means that this budget would be prepared every time for the first time only. This is the reason as
to why it is called to as Zero-Based budgeting as the budgets which is prepared under this is
starting from value of zero and nothing from last year could be includes into this current year.
One of the major merit of this budgeting system is this is very much flexible budget and
only focus on operations of business over the lower down cost. Against the regular methods of
budgeting that involve just making some arbitrary changes to the previous year’s budget, zero-
based budgeting makes every department relook each and every item of the cash flow and
compute their operation costs. This helps in efficient allocation of resources (department-wise)
as it does not look at the historical numbers but looks at the actual numbers. Budget inflation:
Since every line item is to be justified, zero-based budget overcomes the weakness of
incremental budgeting of budget inflation. Zero-based budgeting is a very time-intensive
exercise for a company or a government-funded entities to do every year as against incremental
budgeting, which is a far easier method. Making an entire budget from the scratch may require
the involvement of a large number of employees (Baxter, 2017). Many departments may not
have an adequate time and human resource for the same.
While the demerit is that it is having complete possibility for getting manipulated by the
managers of company and it will also be biased based on short term planning. Zero-based
budgeting aims at reflecting true expenses to be incurred by a department or a state in the case of
budget making by the government. Although time-consuming, this is a more appropriate way of
budgeting. At the end of the day, it is a company’s call as whether it wants to invest time and
manpower in the budgeting exercise to provide more accurate numbers or go for an easier
method of incremental budgeting.
ABB-
This is also called to as activity based budgeting which divides the budget of all
departments in way of recording, researching and analysing all expenses based on activities and
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the cost which they are incurring. This will be generally included to as adjusting the previous
budgets and accounting for inflation or business development as well. This type of budgeting is
majority used by companies which are new and small as they could only define each activities
that are driving the business and need to be included within the use of cost drivers.
The advantage of this type of budgeting method is that it allows more control over
budgeting process with including revenue and expense of planning occurring with precise with
providing useful information. Whereas disadvantage is that it is very much costlier that all
traditional budgeting technique where it could be requiring more information.
It could be concluded that Vision Mix Plc. could be using any type of budgeting method
for incorporating the changes within the budgeting system that is related to company. ABB, ZBB
and rolling budget could be used by company so thhat it could help them in evaluating results
and budgeting system as well.
v. Application of different budgeting approaches in an organisation
Alternative method of budgeting is more effective of Vision Mix Plc. in comparison of
traditional budgeting method because the tool support management of day to day activities. Like
implication of incremental budgeting which is traditional budgeting approach can be risky for the
business because in this Vision Mix Plc. will be focused on making assumption over changes
with regard to current business performance.
However, there is zero based budgeting approach which helps company in focusing on
specific activities and things which are essential for the business to be managed. In this the
finance team of organisation aim at making assumption by double checking the need of change
and improvement in particular area (Ekanem, 2014). It is effective for manufacturing firm
because it enables flexible approach of managing changes which assist in managing cost
effectiveness in services.
Apart from this, there is activity based budgeting method enables transparency in budget
process in which the company is able to directly allocate budget according to different activities.
Vision PLC is a manufacturing firm where it is essential for the organisation to set and plan
budget according to activities (Activity-Based Budgeting (ABB), 2013). When implementing
ABB it is important to have critical understanding over all the activities of organisation. The
process is for short-term and enables huge cost investment. Apparently, it can be argued that
ABB is beneficial to be implemented in Vision Mix Plc. because it is based on evaluation of each
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and every activity. Further, the approach will assist the business in attaining competitive
advantage by eliminating the chances of bottle necks. In this budget is set by considering
business as one unit which helps in determining relevant cost involved in every activity. Thus, it
can be said that implication of AB budgeting approach in manufacturing firm will assist the
company in improving relationship of functional unit of Vision Mix Plc.
vi) Analysing one of the method which is appropriate for Vision Mix Plc.
It could be included that ABB budgeting approach is the best suited for Vision Mix Plc.
as this could be helping in evaluating all type of activities which company is having so that they
could be able to understand how they are managing their work. Other than this Vision Mix Plc.
could also use ZBB which is having another best approach used by company in which they are
not using or having any kind of amount left from last year’s budget (Baxter, 2017). As the ABB
will be allowing more control over the budgeting process planning out all revenue and expense
within the planning process was including and providing useful data regarding all type of
projection.
Thus ABB will also be management to having its increment control over the budgeting
process and aligning with the budgeting with having overall goal of company. While it is also
very much costlier as compared to others like that of traditional so Vision Mix Plc. should be
considering both the positive and negative side of approaches. ZBB is that under which all type
of activities are considered to as not having use of other funds or resources which are required by
department. These both methods could be used by company so that their budgeting could be
appropriate for the Vision Mix Plc.
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REFERENCE
Books and Journals:
Baxter, G., 2017. Mock Me! A guide to developing a first rate training tool on a second rate
budget. Journal of the Georgia Public Health Association.
Ekanem, E.E., 2014. Zero-based budgeting as a management tool for effective university budget
implementation in University of Calabar, Nigeria. European Journal of Business and
Social Sciences. 2(11). pp.11-19.
Fu, M.C. ed., 2015. Handbook of simulation optimization (Vol. 216). New York: Springer.
Gay, J.G., Schultz, N.M. and Braun, S., 2018. Budget Impact Analysis of Enzalutamide for the
Treatment of Metastatic Castration-Resistant Prostate Cancer Patients Progressing after
Docetaxel in the Mexican Public Healthcare System. Value in Health, 21, p.S21.
Rognoni, C., Sommariva, S. and Tarricone, R., 2016. Diffusion of Trans-Arterial
Radioembolization for The Treatment of Intermediate-Advanced Hepatocellular
Carcinoma in Italy: A Budget Impact Analysis. Value in Health, 19(7), p.A687.
Vargas, C. and Espinoza, M.A., 2016. Budget Impact Analysis of Sunitinib Versus Best
Supportive Care for The Treatment of Metastatic Renal Cell Carcinoma in Chile. Value
in Health, 19(7), p.A718.
WEI, Y., KIRSCH, A. and KERNOHAN, N., 2016. Comparing Alternative Budget Allocation
Models To Support Strategic Wildland Fire Program Analysis Across Us National
Parks. International Journal of Safety and Security Engineering, 6(2), pp.238-245.
Online:
Activity-Based Budgeting (ABB). 2013. [Online]. Available through:
<https://www.cgma.org/resources/tools/essential-tools/activity-based-budgeting.html>.
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