4. Introduction to Budgeting

Question 1

What are the 5 benefits of budgeting?

Answer 1

Control
Responsibility
Integration (communication and co-ordination)
Motivation
Evaluation

Question 2

What are the three methods of forecasting how figures will change over time?

Answer 2

1. Simple average growth
2. Estimates based on judgement and experience
3. A time series

Question 3

What are the 4 components used in time series to forecast future trends?

Answer 3

1. Trend (T) - underlying long term movement over time in historic data
2. Seasonal Variation (S) - short term periodic fluctuations
3. Cyclical Variation (C)
4. Random Variations (R)

Question 4

What is the equation for time series using the additive model?

Answer 4

TS = T + S

Question 5

What is the equation for time series using the multiplicative model?

Answer 5

TS = T x S

Question 6

What is the difference in assumption between the additive and multiplicative model of TS?

Answer 6

The additive model assumes seasonal variations are independent of the trend, the multiplicative model assumes that they are linked to the size of the trend

Question 7

What are the steps in identifying the trend using moving averages?

Answer 7

1. Calculate the moving averages over a set number of periods
2. Centre the moving averages if using an even number
3. Calculate the seasonal variations (TS - T or TS/T)
4. Calculate the forecast : Trend portion is the average increase per period, SV is the average SV from step 3

Question 8

When using linear regression to predict trend changes, what is the additional step needed for creation of a forecsat?

Answer 8

Adjusting for seasonal variances

Question 9

What are data outliers?

Answer 9

Data that do not fit with the other results in a population, that can skew results if used to calculate a forecast but can provide useful insight if analysed alone

Question 10

What is big data?

Answer 10

Extremely large data sets that may be analysed computationally to reveal patterns, trends, and associations, especially relating to human behaviour and interactions

Question 11

What are the 3 Vs of big data?

Answer 11

Volume
Velocity
Variety

Question 12

What are the uses of big data in budgeting? (7)

Answer 12

1. Make estimates more accurate
2. Identify and analyse opportunities
3. Building a detailed picture of customers
4. Building a better picture of competitors
5. Compare customer behaviour to the organisations
6. Identify cost savings
7. Provide clarity on external factors

Question 13

What are the 4 main issues with big data?

Answer 13

1. Large and complex so requires sophisticated systems (expensive and need updates)
2. Veracity (4th V) - how reliable is the data?
3. Problems with assessing data outliers
4. Analysing what is most important from the mass of data is complex and time-consuming