Opportunities and challenges lie ahead top management

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opportunities and challenges lie ahead Top Management : Goals and objectives of the organisation to be achieved Low level managers : contribute their ideas and provide feedback Help managers coordinate activities across the organisation
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Budgets and the Organization Performance evaluation Budgeted performance goals provide a better basis for evaluating actual results Relying only on the past performance or historical results would allow to inefficient performance evaluation Changes in economic conditions, technology, personnel, competition limit the past comparison
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Budgets and the Organization Evaluation of Activities Current activities are the starting point for planning but it differs from one to another Automatically assume the same activities for the new budget Some use a form of Zero Base Budget
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Zero-based Budget A zero- based budget: Requires justification of expenditures for every activity, including continuing activities. Starts with the assumption that current activities will not automatically be continued; every activity starts at zero budget.
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Zero-based Budget
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Zero-based Budget 1. Zero Based budgeting simply means building your budget from Zero : Zero based budgeting is a repeatable process to build a sustainable culture of cost management 2. Implementing Zero Based budgeting requires cutting “to the bone”:The degree of cost reduction is based on the company’s top -down target 3. Zero based budgeting will overwhelm your business and prevent it from doing anything else : Initial rollout of a new zero-based budgeting program can be led by a central team and completed in four to ten months
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Zero-based Budget 4. Zero based budgeting only focuses on sales, general and administrative costs 4. Zero based budgeting is not designed for growth-oriented companies : It is successfully used by growing companies to redirect unproductive costs to more productive areas that drive growth
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Learning Objective 2 Possible Human Relations Problems
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Possible Human Relations Problems Problems in implementing budgets: Low level of participation in the budget process, Lack of acceptance of responsibility for the final budget, Incentives to lie and cheat in the budget process, Difficulties in obtaining accurate sales forecasts
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Possible Human Relations Problems Budget participation and acceptance of the budget The advantages of budgeting are fully realised only when employees throughout the organisation accept and take responsibility for the firm budget An environment where there is a two-way flow of information reduces negative attitudes.
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Participative Budgeting Low level managers sometime have negative attitude toward budgeting – Budget’s purpose is to limit spending When all levels of managers participate in setting the budget, the negative attitude will be reduced and the quality of decisions will be improved. Participative budgets are formulated with the active participation of all affected employees.
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Learning Objective 3 Incentives to lie and cheat
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Incentives to lie and cheat Budgets provide targets for managers and motivate them to achieve the organisation’s objectives Managers may want to increase the resources allocated to their department Managers of large units with more resources to have higher pay, higher status, greater prospects for promotion
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