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Chapter 6 -- Budgets and Decentralized Performance Measures

Chapter 6 -- Budgets and Decentralized Performance Measures...

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Chapter 6 – Pgs. 180-187 I. Budgets and the Budgeting Cycle a. Introduction i. A budget is: 1. The quantitative expression of a proposed plan of action by management for a specified period 2. An aid to coordinate what needs to be done to implement that plan b. Strategic Plans and Operating Plans i. Budgeting is most useful when it is integrated with a company’s strategy 1. Strategy: a. Specifies how an organization matches its own capabilities with the opportunities in the marketplace to accomplish its objectives II. Advantages of Budgets a. Coordination and Communication i. Coordination: 1. Meshing and balancing all aspects of production or service and all departments in a company in the best way for the company to meet its goals a. Forces executives to think of relationships among individual
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Unformatted text preview: departments and the company as a whole, and across companies ii. Communication: 1. Making sure those goals are understood by all employees b. Framework for Judging Performance and Facilitating Learning i. Budgets enable a company’s managers to measure actual performance against predicted performance 1. Budgets can overcome two limitations of using past performance as a basis for judging actual results: a. Past results often incorporate past miscues and substandard performance b. Future conditions can be expected to differ from the past ii. A company’s budget should not be the only benchmark used to evaluate performance 1. Creates an incentive for subordinates to set a target that is relatively easy to achieve...
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