Budgets, Planning And Control Flashcards

Question

What is a KPI?

Answer 1

Key performance indicator: A metric to quantify the performance an organization aims to achieve

Answer 2

Profitability, management effectiveness, liquidity, solvency, investor ratios

Answer 3

The traditional approach to budgeting where the previous period are used as a basis for the budget

Answer 4

Zero-base budgeting: it rejects the principal of incremental budgeting and advocates it should be prepared from 'scratch' or zero.

Answer 5

Should this expense and activity be performed at all? How much should the activity cost? What is the level of activity required?

Answer 6

``` Decision package (each stand alone activity) should be identified and described. Evaluate and rank decision packages in order of importance. Resources are allocated accordingly. ```

Answer 7

ZBB challenges the current way of doing things - Incremental preserves the status quo by adding inflation and adjusting for volume. ZBB identifies and removes unnecessary activities and expenditure - incremental does not questions activities undertaken. ZBB compels employees to question wasteful expenditure - incremental may lead to inflation-based increase for such expenditure. ZBB leads to greater staff involvement, which may lead to greater job satisfaction and motivated staff. Starting from zero base forces staff to stay up to date with the latest developments - Incremental less likely to force managers to study the environment. ZBB can be very advantageous to service departments where output is sometimes difficult to quantify - incremental depends on output

Answer 8

Incremental is less likely than ZBB to result in radical changes to operations, which makes for more stable organizational environment. ZBB can be very time consuming - incremental is simpler with less effort. ZBB is more complicated and could require management skills which organization may not possess. Info systems may be inadequate to provide the info required to identify decision packages and to rank them for ZBB making incremental more viable

Answer 9

Known as a continuous budget and prepared on a regular basis for the next year or short-term.

Answer 10

The time required to prepare them properly

Answer 11

The concept to use expected values where there is a great degree of uncertainty about future events.

Answer 12

An expected future trend pattern obtained by extrapolation based on the notion that past events can serve as an indication of what will happen in future.

Answer 13

Linear regression Scatter diagrams Correlation

Answer 14

Obtain info on future sales from sales personnel. Conduct market research. Apply mathematical methods.

Answer 15

Change according to change in activity levels

Answer 16

Drawn up for a specific activity level

Answer 17

Some may lack necessary numerical skills and tech knowledge to prepare a budget properly. It may be a very busy period and find it hard to find time for a budget. May not be aware of the importance of a budget, failing to understand the bigger picture. May have the perception that it will be used as a punitive device if they fail to meet targets. May perceive the budget process as a bureaucratic exercise and attempt to get it out of the way as effortlessly as possible.

Answer 18

Managers may have an attitude of doing just enough without trying to beat the targets. Sometimes seen as an amount that has to be spent in governmental organizations. Managers may find it difficult to interpret control reports because of lack of financial training. In cases where control reports are not prepared timeously, such info loses its value and managers may be more likely to ignore it. Managers may resist the budgetary control process if they feel that they have not had control over either the budget-setting or variances.

Answer 19

Budget is imposed from the top down on the line managers (in other words: imposed by senior management)

Answer 20

Managers are encourage to participate in the budget-setting process

Answer 21

Imposed are easy for senior management to ensure budget is in line with long-term business strategy. Easier to ensure co-ordination between different business units for imposed. Senior managers may be in a position to make better decisions owing to their experience for imposed. Imposed can be set in a shorter period of time and mean the budget may be more accurate because it is based on more recent info. Line managers do not have the opportunity to build in any budgetary 'slack' (cannot set budgets that are easy to attain).

Answer 22

When imposed, line managers can be dissatisfied and feel their position does not receive necessary recognition. Line managers often have better understanding and more experience of the operations of their division because of active involvement. The budgeting process can be seen as an opportunity to gain ideas from line managers about ways of improving the operation of their units. Because senior management is not always in touch with detail of circumstances faced by a specific unit, they may impose unachievable budgets.

Answer 23

Budgets are as a result of a process of negotiation between line managers and senior management.

Answer 24

They take a considerable time to prepare.

Answer 25

The resulting budgets will probably be very realistic and are therefore likely to be accepted by all parties

Answer 26

Info should be communicated to line mangers who is in a position to take corrective action. Reports should highlight significant variances. Reports should be clear and understandable. Reports should be as accurate as possible. Reports should be timely,

Answer 27

Needs to have regular contact with line managers. Should make time to discuss control reports with line managers. Meaning and implication of info in the reports should be explained to line managers, keeping accounting jargon to the minimum. Report should be clear and understandable. Need to ensure info in report is both accurate and timely.

Answer 28

``` Time consuming & expensive. Provide poor value to users. Fail to focus on shareholde value. Can be too rigid and prevent fast response. Protect rather than reduce costs. Stifle product and strategy innovation. Focus on sales targets rather than customer satisfaction. Are divorced from strategy. Reinforce dependency culture. Lead to unethical behaviour. ```