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Budgets CMD


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Budgets CMD

  1. 1. Budgets Higher/Int 2 Business Management 2009-2010
  2. 2. What is a Budget? <ul><li>A Budget is a statement of future expectations . </li></ul><ul><li>Budgets are usually financial in nature although they can be expressed in other units e.g. labour hours. </li></ul><ul><li>A Cash Budget is a very common type of budget and can be used as an example of how budgets work. </li></ul>
  3. 3. Don’t Get Confused! <ul><li>A Cash Budget is produced for internal use within an organisation . It is a forecast of future events . </li></ul><ul><li>A Cash Flow Statement is produced for external use based on past events . </li></ul>
  4. 4. Why Budget? <ul><li>The main uses of budgets are: </li></ul><ul><ul><li>Monitoring and Control - setting the budget then making comparisons with actual performance. </li></ul></ul><ul><ul><li>Gain Information - lets managers see how well the business is performing. </li></ul></ul><ul><ul><li>Set Targets - giving managers and employees limits to reach. </li></ul></ul><ul><ul><li>Delegate Authority - the use of budgets allows managers to give responsibility to employees. </li></ul></ul>
  5. 5. Cash Budgets <ul><li>The information contained in a Cash Budget represents estimated figures of the cash position of an organisation at a particular point in time . </li></ul>
  6. 6. Uses of Cash Budgets <ul><li>Monitoring the cash position of a particular department . </li></ul><ul><li>As a decision-making tool to assess the validity of a particular project or scenario. </li></ul><ul><li>As part of a submission to a lender to secure finance . </li></ul><ul><li>Using a spreadsheet , changes can be made to the budget and the effects of these changes will automatically be updated in the rest of the budget. </li></ul>
  7. 7. Management Benefits <ul><li>The main benefits to management of using cash budgets are: </li></ul><ul><ul><li>Planning </li></ul></ul><ul><ul><li>Organisation </li></ul></ul><ul><ul><li>Command </li></ul></ul><ul><ul><li>Co-ordinate </li></ul></ul><ul><ul><li>Control </li></ul></ul><ul><ul><li>Delegation </li></ul></ul><ul><ul><li>Motivation </li></ul></ul>
  8. 8. Benefit - Planning <ul><li>Management can look ahead to set aims and strategies . </li></ul><ul><li>This allows problem-solving to be planned rather than having to react to situations as they happen. </li></ul><ul><li>As an example , plan for when an additional loan or overdraft is required . </li></ul>
  9. 9. Benefit - Organisation <ul><li>Budgets allow management to ensure that the right resources are in the right place at the right time . </li></ul><ul><li>Management must ensure that it can afford the resources that they require and are able to take advantage of any discounts available from suppliers. </li></ul>
  10. 10. Benefit - Command <ul><li>When management are able to make informed decisions , enabling them to instruct their subordinates . </li></ul><ul><li>Each departmental manager must also know the department’s limits for requesting additional finance . </li></ul>
  11. 11. Benefit - Co-ordinate <ul><li>Management can give instructions to those in charge of departmental budgets and keep a clear overview of the business as a whole. </li></ul><ul><li>Making sure that everyone is working towards the same goals . </li></ul>
  12. 12. Benefit - Control <ul><li>Evaluation of budgets, comparing the results with what was planned . </li></ul><ul><li>Using Cash Budgets as a measure of performance gives management a tool that records quantifiable data in order to compare different department or branch performances . </li></ul>
  13. 13. Benefit - Delegation <ul><li>Management should make subordinates responsible for a suitable range of tasks and give them the authority to carry them out. </li></ul>
  14. 14. Benefit - Motivation <ul><li>Management have a responsibility to motivate their staff . </li></ul><ul><li>This can be done by setting realistic targets in the budgets and introducing concepts such as teamwork , empowerment , and incentives for meeting targets or operating within the budget . </li></ul>