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Memo essay example


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Topic: The CEO’s Memo to Budget Managers; Type: Memo; Subject: Accounting and Finance; Academic Level: Masters; Style: APA; Language: English (U.S); Number of pages: 3 (double-spaced, Times New Roman, Font 12); Number of sources: 1

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Memo essay example

  1. 1. Running head: memo Topic: The CEO’s Memo to Budget Managers Type: Memo Subject: Accounting and Finance Academic Level: Masters Style: APA Language: English (U.S) Number of pages: 3 (double-spaced, Times New Roman, Font 12) Created by: Number of sources: 1 
 Sample case Budgets positively and negatively affect how the management act and perform. Managers commonly increase spending, especially at the end of the budget period, a process called "use it or lose it." However, this process can negatively affect an entity's goal. Managers spent this amount with fear of the amount being reduced by supervisors in the following financial budget. As such, managers tend to overspend at the end of the year, even it if it means spending impulsively. Requirement: As the CEO, write a memo to the budget managers directing them not to employ this method. You should offer a logical rationale and if possible, an alternative to this approach.
  2. 2. Memo !2 TO: Budget Managers FROM: CEO 22nd October, 2014 RE: CHANGE OF BUDGETING PRACTICES “Use it or lose it" Approach This memo serves to advise you on the need to refrain from the “use it or lose it” practice of time-limited budget. This approach leads to unnecessary and wasteful spending of the available resources meant to gear our organization ahead if effectively utilized. In addition, this spending potentially results in lower value spending as the opportunity cost to our entity by using about-to-expire finances is effectively zero. The low-quality spending at the end of the budget period is driven by the fact that various departments in our organization tend to spend funds on low-value undertakings. In addition, they are likely to engage in so many transactions, thereby compromising effective management of these transactions. Available Options to Address "Use it or lose it." Use of rollover budgets As the budget managers, this memo advises you to adopt the practice of rolling over the budget as this would potentially increase efficiency in resource utilization and avoid the inefficiency from the wasteful budget-end spending. Under this system, you would carry out the
  3. 3. Memo !3 budgeting on an annual basis as is the norm, but instead of expiring at the end of the fiscal year, unused finances are added to the newly formulated budget in the forthcoming period. You are solely required to break the annual budget into months or quarters and then add each in the future after the just ended one is dropped. Intuitively, our various departments will not engage themselves in a wasteful fiscal year-end spending as these funds would be used for higher value undertakings in the next budget period. This rolling budget will always make you remain focused on the future as it makes you think about the next full term and not just the remaining part of the current fiscal year. In the same context, the continuous budget makes the budgeting process an ongoing process and not a once-a-year exercise. Participative budgeting This memo also views it prudent to advising you on the need to adopt and embrace a bottom-up approach to the budgeting process. This is where, as the top managers, we need to greatly get the input of lower level employees in our budgeting process. As the top management, our core role is just offering general budget guidelines and leaving the lower level to drive the development of their units’ budgets. The various budgets will then be grouped into the middle level to form a divisional budget that is eventually submitted to you as the budget managers or committee and later to the top management for review for consistency and coordination. The purpose of engaging all people in our entity is from the understanding that there are behavioral implications in budgeting other than the technical aspects. Whereas the technical aspects of budgeting concentrates on mathematical computations of projected revenues and costs, their implementation and achievements rely on the behavioral aspects, use of people. This
  4. 4. Memo !4 implies that the behavioral aspects and technical aspects of the whole budgeting process should not be separated. You are therefore advised that, the efficient use, as well as the application of the budget, is profoundly influenced by employees' commitments and attitudes to the ideals of the budgetary process. The budget so developed should be the one that encourages all levels of employees to exhibit behavior that is in line with the objectives of the organization. This will prevent them from engaging in unnecessary and wasteful spending of funds and other resources. Employees also see participative budgeting as self-imposed and thus improve their morale, performance, job satisfaction and commitment to our organization’s goals and targets. Therefore, a meaningful participation of the lower level managers and subordinates in the budgeting process offers them a chance to participate in the decision-making process on goals that suit them and the firm. The participative budgeting also fosters a great sense of care and responsibility making employees carry their duties with the required due care and diligence as they would like to identify with the achievement of budgets. If conducted in a sensitive and positive manner, the budgeting process leads to increased motivation as well as improved goal congruence between the entire organization and an individual. The advantages we stand to Enjoy through Proper Budget Process Formulation Our organization will have a well-orchestrated roadmap to guide its employees in achieving its objectives. This will make it easy for results interpretation and the ability to foresee potential problems. It will also enable us to evaluate activities to assess whether they will help
  5. 5. Memo !5 our organization achieve its goals. We will easily be able to establish whether a given plan optimally allocates resources among the entity’s various activities. Another advantage is that a proper communication of strategic goals from the top management and feedback from employees and lower-level managers on the goals is supported. Performance evaluation will also be enhanced by comparing the budgeted performance goals against the actual results.
  6. 6. Memo !6 References Horngren, C. T., Sundem, G. L., Burgstahler, D., & Schatzberg, J. (2013). Introduction to Management Accounting. New Jersey: Pearson Education, Limited. Created by: