Step 1: Find and identify the objectives.
With this part is very necessary to attach to the work method, it help to push out a clear and specific aim/goal to make the employees in the company knows what benefit to them and to lets them have a good working method that effectively for the company.
Increasing, developing the profits, income and revenue.
Make sure every product is satisfying the customer
Make a production schedule and promise to give the high-quality products.
Looking for the new sources of revenue.
Step 2: Identify potential strategies
When the organized knows what is the aim/goal, they will try to achieve with any situation. First, they will give out a schedule write out step by step to show how to achieve the goal with the fastest and easiest way. Second, focus on it and gathering all information, data to understand more detail against the goal. Third, they need to identify the capacity and competitiveness, both of it also are necessary tool in the plan. SWOT analysis is indispensable.
Step 3: Evaluate the whole strategies
When everything is solving, the potential system is also addressed, the method of evaluation for the main goal must be implemented in a reasonable and realistic manner. Therefore, the enterprise must use the best organic system to absolutely complete goals as soon as possible, and also accurately.
Step 4: Choose the alternative courses of action.
Within this step, the company’s business must choose the good strategy to support the long/short term financial plan. Long-term financial plan is including: estimated cash flows, expected long-term profitability, capital expenditure plan, balance sheet forecasting, goals description long-term and verbal strategies.
Step 5: Implement the long-term plan.
The businesses will diver the long-term planning to many smaller parts to lets the employees seen it with the positive way, motivate them to finish each part more smoothly. Separate the whole plan, often classify and sharing the plan for a certain time period. The long-term plan is accomplished from the budget, task. And with the short-term aims are implement the business strategy. The enterprise raising every year is also a beneficial for the budget for the specific objective to achieve the perfect plan that receive benefit from it.
Step 6,7: Ensure the results and compare with the plan.
From all of the information about the comparing the long-term plan with the actual figures we receiving a balance sheet, help to reflected all the expected long-term plan. From that, the business now has ability to set an aim through the progress during the business operations. When the aim is set within it, it will be the pool to let the employees to base in it. To anti-situations and issues during that can occur, the company will take the alternatives and repeat all of the giving out steps.
The advantage and disadvantage of different types of planning tools used for budgetary control
Budget implementation process usually takes much effort and time. For the development of the budget, the appropriate types of budgeting were divided. Understand the characteristics of different types of budget help businesses have effective financial management methods and easy access to success.
An incremental budget is a budget prepared using a previous period’s budget or actual performance as a basis with incremental amounts added for the new budget period.
• The allocation of resources is based upon allocations from the previous period.
• This approach is not recommended as it fails to take into account changing circumstances
• Moreover, it encourages “spending up to the budget” to ensure a reasonable allocation in the next period. It leads to a “spend it or lose” mentality. (By Jim Riley, tutor2u, n.d).
The budget is stable and gradual changing.
Manager can make their departments on a consistent basis
The system is relatively and is very easy to understand and achieve
The impact of change happens very easy to see, and can edit if necessary.
Conflicts should be avoiding
No incentive to investing new ideas
Also, no incentive to reduce costs.
Have to encourage spending up to the budge from that the budget is maintained next section.
The priority may have changed when the budget was set originally
Zero based Budget
Zero based budgeting in management accounting involves preparing the budget from the scratch with a zero-base. It involves re-evaluating every line item of cash flow statement and justifying all the expenditure that is to be incurred by the department.
Thus, zero-based budgeting definition goes as a method of budgeting whereby all the expenses for the new period are calculated on the basis of actual expenses that are to be incurred and not on the incremental basis which involves just increasing the expenses incurred in the previous year at some fixed rate. Under this method, every activity needs to be justified, explaining the revenue that every cost will generate for the company. (By Business dictionary, n.d)
This type of budget requires the manager need to identify the sperate way of performing each activity. This process makes the manager consider against other ways to run the business
Efficient allocation of resources, as it is based on needs and benefits
This approach drives managers to find cost-effective ways to improve activities
This approach detects inflated budgets
It is useful for service departments because criteria are not always easy to identify
It increases staff motivation
Also increases the communication and coordination within the organization about certain decisions.
This approach identifies opportunities for outsourcing.
There are also some issues can effect to the application of Zero Based Budgeting