Budgets Flashcards
All this Budgets (14 cards)
Types of Budgets
Standard - Forecast
Rolling - Perpetual
Incremental - PY +%
Zero Based - Ground up justifications
Activity Based - Informed based on ABC
Product Life Cycle Budget
Master Budget
General Budget Limitations
- Costly
- Can be Complex
- Time Consuming
- Budget Gaming
- Budget Slack
- Performance floors
- Do not promote value creation
- Short Termism
- Creative Accounting
What is Budgetary Slack?
Intentional overstatement of Expenses or understatement of Revenues. Often to protect against performance pressure.
What is Budget Gaming?
Spending the budget to achieve personal or organizational advantages at the expense of efficiency or transparency
Budgets are what type of Tool
Feedback, and feedforward. Dependent on use.
Budget Benefits
- Communicating plans
- Define goals
- Coordinating Activities
- Uncover Potential Bottlenecks
- Future thinking and Planning
- A means of allocating resources
International Budget Constraints
- FX Fluctuations
- Inflationary Regions
- Economic Variation of Environments
- Local Government Policies
Budgets v Standards
Standard is expected for one unit
Budget is expected for total units
The basis of Standards - Practical
Should be set at all levels, realistic and attainable. Better to consult all areas of the value chain.
The basis of Standards - Ideal
Based on perfection, unattainable, demotivating.
Young’s Findings on Budgetary Slack
Managers with;
Top down Performance Pressure,
Private Knowledge,
Low Risk outcomes
and Participation in budgets
Increase slack.. Contingent
Budgets for Cost Centres
Flexible Budgeting.
- Entails adjustments to rising costs, if in relation to rising performance.
^Measurable by Variance Analysis
Usually requires adjustment on variable and semi variables.
Ex post budget adjustments
Typically corrections for incremental budgets
