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.
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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...