How to arrange the budget work -- Management and application of the budget control program

Author: Garbutt Douglas
Publisher:
Publish Date: 2003-01-01
Features: "How to Set Up Budget Work—Management and Application of Budget Control Procedures" is a practical guide for business organizations to set up budget work, based on the current professional skills and experience of management accountants. This guide aims to help management accountants: apply financial rules to the management of the organization; establish and operate a budget control system. It also helps non-financial managers and small business executives understand the positive role of budgets in the organization's planning and control. This guide summarizes current concepts and practices related to budget control and provides an index of the main contents of budget control. The terminology used in this book is as consistent as possible with the revised "CIMA terminology." The format and procedures of the cases in the book also demonstrate how companies use budgets in the management of the organization. The internal logic of this book is applicable to all systems in a company, but due to different product types and sales markets, the procedures and actual operations adopted by each system are different. The technical characteristics of products and services provided by companies are changing rapidly, which will also affect the types of information systems required by the company. The size of the enterprise will affect the communication patterns within the organization and in the budget control system. Naturally, the types of budgets adopted by the enterprise also reflect the organization's structure and management style. This guide attempts to help the practical operations of management accountants, managers, and executives, and strives to include the most up-to-date content while providing reliable information. The cases in the book are based on real-life situations but cannot be applied rigidly. Readers can seek solutions from the book, but must adapt them to local conditions when applying them. Budgets are essentially a management tool, and managers of non-financial departments such as sales, production, and services can use this book as an introduction to the core concepts and procedures of the budget control system. Much of the content of this guide is derived from company guidance manuals, but disagreements are resolved through individual communication with senior management accountants in the company. Each chapter begins by raising some key questions discussed in that chapter. In answering these questions, the book is based on the experience of large companies and integrates suggestions on how to solve these problems in practice. The guide starts by defining some important terms and then focuses on critical decisions that are essential for the smooth operation of budget control, involving scope, objectives, demand confirmation, and responsibility, among others. To effectively prepare budgets, organizations must determine who will lead the budget preparation organization and what structures and procedures committees and management need to establish to achieve business objectives. Generally, the general manager is expected to take the lead role to ensure organizational and financial feasibility. Management accountants also play an important role in budget preparation, as the financial feasibility of sales and operating budgets needs to be evaluated frequently. Many issues require complex and careful analysis, and continuous updates of profit and loss statements, cash flow statements, and balance sheets are necessary. Budget preparation must first clarify the company's strategic plan. By comparing the current situation with the ever-changing environment, companies develop strategic plans to bridge the gap between expectations and possible outcomes, which leads to the establishment of business objectives and, subsequently, the formulation of financial objectives and budget preparation. From the perspective of budget objectives, the key objectives are primarily financial, as management uses budgets as an important tool to achieve business and sales plans. Revenue and profit budgets must be strictly based on the analysis of product markets and the market share the company expects to achieve. Sales policies must establish detailed marketing mixes for new, existing products, and services based on the product life cycle. The preparation of operating and expense budgets must be based on a systematic approach that determines the necessary output of each business activity and, consequently, allocates resources needed to achieve goals. Budgets need to determine factors such as performance indicators, efficiency indicators, staffing levels, and costs. It is also very important to include all equipment to be invested during the budget period, as well as related maintenance and repair costs, in the budget. Cash flow and working capital budgets measure the organization's funds rather than profitability. Although cash flow and working capital budgets may cover a period longer than the budget period, they must be prepared at all stages of budget control, regardless of whether profit and loss statements and balance sheets are prepared. Performance monitoring and control are based on the comparison of actual and budgeted figures, and control points must align with the content of budget reports. The budget control system must be integrated with other management information systems and must provide timely feedback in the form of frequent reports for adjustments. During the budget period, some companies combine budget figures, actual figures, and forecast figures to evaluate performance more objectively. Budget review meetings discuss the results of the budget, where both non-financial and financial indicators are equally important. The purpose of the budget control system is to formulate and implement plans, coordinate relationships between teams and departments, and monitor performance based on the plan. The system only works effectively when used by managers and executives and when corrective actions are taken. Professor Kaplan thoughtfully pointed out that management accounting is in crisis. This book examines the ever-changing production and sales environment of enterprises and some widely publicized new manufacturing strategies, such as "world-class manufacturing" and "just-in-time." Of course, to adapt the company's budget control system to real-world needs, some traditional budget preparation methods must be abandoned. Chapter 10 summarizes case studies of budget control systems provided by participating companies. Chapter 11 provides practical forms used in real-world operations. The book also includes a bibliography and index.