Planning And Budgeting Essay

2151 words - 9 pages

I’m the Service Manager in a service company that provides the after sales services and technical support to industrial machineries, it’s part of a group of companies specialized in trading the industrial equipment. The product range of our sister companies varies from small portable machines like welding and plasma cutting machines to the capital CNC machine-tools machineries, which are exclusively distributed by them. The company categorizes these machines based on the technology.
Our objective is to provide outstanding services to those machines since the company is responsible to install and commission them, train customers how to operate them, and perform the repair work ...view middle of the document...

To achieve this objective the company has to have a good financial standing in order to keep the business running, and to keep developing the skills of their service engineers and the processes of handling service calls and spare parts operations and logistics.
In service business, the major cost element is the salaries of service engineers, operation staff, and other overheads, which are categorized as fixed cost, so cost behavior do not vary with output, hence; when the service work volume is decreased, the cost remain same but it will have an impact on the net profit. The demand of keeping the budgeted result lined up with the actual result will create an aim to the company to keep their service engineers always engaged with a service job, since if a day of a service engineer is not sold, the potential revenue for that day is lost forever!
For that reason, market potential for each category of machines and expected revenue should be studied carefully as well as the required number of service engineers to cover the market requirements for that particular category. And the budget should be monitored closely throughout the year, and if there is any service revenue short that affecting negatively the net profit, a corrective action should be taken.
Corrective actions could be taken directly on the service department either by reducing the number of service engineers in case that the service for all machines categories not meeting the performance expectation, or in case that the utilization in one category is much more than the others, then an action could be taken to divert and develop the service engineers skills of the week category to make them fit in the strong one, so that man power requirements is balanced and will be matched with the market potential, and so the expected service revenue will be achieved.
Moreover, that aim - keeping the budgeted result lined up with the actual result - will drive the company to develop more services products like preventive maintenance and customer training which will diversifying the sources of income.
What people says about this topic
Before fiscal year end, the group board of directors submits the company management with group overheads share which will be covered by the company along with the targeted net profit, company management will add up their own expenditure to run and grow the business according to the business strategy, and so the total expenditure figure is calculated. Based on the total expenditure and the required net profit target the company build up their sales target. This gives the impression that the company management is setting up budget which can be described as a Participatory Budget or a Self-Imposed Budget.
A budget that is prepared with full cooperation and participation of managers at all levels (Brewer, 2009, p. 381).
In this budget, managers will be involved in each step of preparing it, which gives them the motivation to achieve the budgeted goals, and they will be more...

Find Another Essay On Planning and Budgeting

Capital Budgeting in small Firms Essay

815 words - 3 pages . The basic reason of the long duration is the planning involved and the expectations with capital budgeting. The overall fraction of capital assets is smaller as compared to the current assets of the company. Capital expenditure benefits an organization for longer then a year and capital budgeting is used to generate and evaluate capital expenditure. (Dr. Sharron Garrison, 2005). Dr Sharron explains in his research that in capital budgeting cash

Zero-Based Budgeting Essay

700 words - 3 pages Unlike traditional budgets, zero-based budgeting requires the justification of each and every expense outlined in the budget. Zero based budget planning starts from the zero base line and each element of the budget is analyzed. Managers or department heads, if a government entity, will justify the reasoning behind their budget request. Most budgets are incremental which automatically increases the previous year’s budget. Depending on the review

management accounting

1508 words - 7 pages different and make management process in the public sector differ greatly from the private sector. Management accounting is a system that provide the organisations with information that will facilitate organisations in planning, controlling and budgeting process. It is different with financial accounting as it provides organisation with non-financial information that will help public and private sector managing their organisations and achieve

Benefits of Activity-Based Budgeting

1482 words - 6 pages enthusiasm and passion on working.ConclusionThe basic principle of ABB is to work out the cost according to activity or work flow. It is different from traditional budgeting method which is based on the cost factors. The resource requirement is from planning activity or workload in order to make sure that it meets the frequent change of customer needs, department's target and strategy, change in work flow and service, and efficiency increase, etc. Based

Cost of Capital

512 words - 2 pages The cost of capital and bond rating are very important in the capital budgeting process. “Capital budgeting is the planning process used to determine a firm's long term investments such as new machinery, replacement machinery, new plants, new products, and research and development projects.” ( Most companies finance their capital projects by either issuing stock, issuing debt, and reinvesting prior earnings. There are

The Budgeting Proccess

2204 words - 9 pages I am going to talk about my workplace and how budget is formulated, and at last I am going to close with my conclusions. Zero-Based Budgeting (ZBB) Zero-Base Budgeting is a process in which building your budget from a zero based and not basing it on pervious years budgets. It is a new technique of planning and decision-making. It reverses the working process of traditional budgeting. Every department function is reviewed comprehensively and all

Cost Accounting Software Regarding the Budgeting Process

2044 words - 8 pages data for better performance. Bibliography: 1. Polihroniadis, Mihalis. "Logistika Programata : Budgeting, Business Planning, Cash Flow Control" Oikonomia p 05. Nov. 03 1998 2. Litsis, Moisis. "I Simasia Tou Logismikou Stin Epihirisi" Oikonomia p19. Mar. 11 1999. 3. Sarris, Kostas. "I Tehnologiki Epanastasi Stis Epihirisis Archise" Oikonomia p14. Nov. 03 1998. 4. Lorenzi, Peter , Skinner, Steven J. , Ivancevich, John M. : "Management Quality And Competitiveness". Irwin McGraw-Hill (1997).

Understanding of Budgets

3001 words - 12 pages budgeting is to serve the needs of management in respect of the judgements and decisions. Making forecasting about future needs and developments is very important to companies. Many future events almost defy accurate prediction. An accurate forecasting can help organisations define good budget objectives. Because of intentional and unintentional bias, sometimes it is difficult to predict.PlanningBudgeting is planning for a future period and, as

The Pros and Cons of Participative Budgeting

1277 words - 5 pages Advantages and Disadvantages of Participative Budgeting Participative Budgeting is the situation in which budgets are designed and set after input from subordinate managers, instead of merely being imposed. The idea behind this sort of budgeting is to assign responsibility to subordinate managers and place a form of personal ownership on the final budget. Nearly two decades of management accounting research has resulted in equivocal

Using Budgets as Planning and Monitoring Tools in Management

612 words - 3 pages Financial management involves planning, controlling and monitoring financial resources to achieve organizational objectives. One of the key tools used for planning and controlling is the budget. A budget is a key management tool for planning, monitoring, and controlling the finances of an organization. It estimates the income and expenditures for a set period of time. Budgeting is centred on the efficient allocation of scarce organizational

Budgeting: Management’s Influence on the Budget Process

1652 words - 7 pages “managing the numbers”. Advanced Budgeting System The traditional budgeting system is usually a company’s only management system. However, the traditional budgeting system has become “inefficient” and “outdated; has encouraged managers to “game the system”; and is not linked to the company’s strategic planning (Horvath 2004). Companies who normally rely on this type of budgeting system are at a disadvantage as more companies are turning to

Similar Essays

Planning And Budgeting Essay

619 words - 2 pages For any business it is important that the owner or manager understand the way in which the costs are made up and how a profit can be made. In order to assess the break even point and potential profits the different types of costs need to be assessed.There are two types of costs, those that are the same no matter what level of business or production is undertaken, such as rent, these have to be paid even if there is no production. The second type

What Is The Importance Of The Concept Of The Product Cycle For Business Planning And Budgeting?

1572 words - 6 pages amount of revenue brought in by the product at certain stages. All products have varying life spans depending on several factors; some have shorter spans like months whereas some items last a lifetime such as petrol fueled vehicles. In any event, when a business decides on putting out a new product the concept of the product cycle is of utmost importance to planning and budgeting. The product cycle concept suggests that all products go through

Incremental Budgeting Essay

1477 words - 6 pages the end of the fiscal year”. Therefore this shows that rolling budget reinforces constant planning and takes into account emerging conditions whereas incremental just assumes working activities will continue the same way. Another, difference could be is that incremental budgeting is simple and easy to implement whereas rolling budget is simple but hard to implement because in rolling budgeting managers have to continuously produce a budget

The Strengths And Weaknesses Of The Traditional Budgeting

1467 words - 6 pages benefits of great business planning are obvious - better use of capital, more efficient operations and many other. According to the article on FT, the indexes of traditional budgeting include: product profitability, department costs, unit sales, and capital efficiency ratios.Richard Barrett, VP of International Marketing at ALG Software, comments, "The annual budget is still the most widely used performance management process and the primary tool