Budget Planning and Control – Assignment Instructions And A Sample Answer

Budget Planning and Control

Imagine that the Michaels tasked you with preparing a budget plan.

Write a three to four (3-4) page paper in which you:

  1. Describe the company that you have previously worked for (Michaels). Determine at least two (2) compelling reasons that this company should prepare and manage a budget. Predict the two (2) most likely positive and negative financial outcomes for this company if it properly or improperly performs effective budgeting.
  2. Outline a high-level budget plan for the company. In your high-level budget plan, recommend the most appropriate budgeting phases for the company.
  3. Propose two (2) methods and techniques that the company should use to manage its budget over time in preparation for the fact that budgets are ever changing. Justify your response.
  4. Imagine that the company is facing a financial challenge that is causing the actual amounts of money that it spends to become significantly off target from its budgeted amounts. Prepare an action plan to resolve the budget misalignment. In your action plan, recommend at least one (1) budgeting technique to resolve the budget and actual discrepancies. Provide a rationale for your response.

Budget Plan Example – Budget Planning and Control

Michaels stores, Inc. is a company in North America dealing with arts and crafts retail chain. Currently, it operates over 1,262 stores. Michaels as well deals with the production of  10 exclusive and private brands which includes studio décor, recollections, creatology, bead landing, celebrate It, Ashland, Artist’s Loft, Art mind, Loops & Threads and craft Smart. The organization’s headquarters is located in Irving, Texas. An average Michaels contains 40,000 products of different kinds in an 18,200 square feet of the selling space. It is the largest chain in the United States with competitors all around Europe and Canada.

There are several reasons why this company might be in need of a budget. It has quite a number of employees and a very high net income of US$4.2 Billion and a revenue of US $4.2 Billion dollars by 2011. With this kind of income being dealt with, the company thus needs to have a budget so as to utilize the cash in a better way. The reason why the company might be in need of a budget is because it needs to create a financial road map on the finances that it generates. It gives the company a chance to get to know how finances have been used in the business operations. They thus need to review the previous budget if they had one so as to make a determination of how well the guidelines were followed and reasons why variances occurred. For this fact, not all variances depict a negative situation in a business. Budget variances may have occurred due to unexpected growth in the company sales revenue. The company may thus need to increase the budget to cater for future increases in the sales.

The company is clearly growing at a high rate since it has to extend its services to a wider area so as to deal with the stiff competition. This might be another reason for a need of the budget. They need to plan for any future growth. This might be of help if the company is in need of future growth or expansion. The capital that is saved on a regular basis can be placed in a reserve account and designated for the selection of the new business opportunities. The budgeting will ensure that the company is ready for other business opportunities and thus very helpful when making a quick decision about this. The capital may be of use during the low economic times which acts as a safety net for the payment of the regular business expenses.

There are several benefits that come forth if a budget is well prepared. The positive financial outcome related to a properly prepared budget is that it can bolster revenue. Having a concrete amount of capital in place helps an organization to secure more revenue through grants as well as other sources of funding.The organization can thus increase the coverage on its mission. A properly prepared budget enables the organization to have an internal control. It can monitor its finances and thus avoid wastage. This enables the organization to ensure profit maximization and proper allocation of funds. An organization may also suffer the consequences of a poorly prepared budget. This may lead to the company being cut off from utility companies. This may lead to cases such as staying in the dark and thus affecting the business processes and hence lead to low production. This will translate to financial losses in the company. It may also lead to what might be termed as ‘debt spiral’. It can lead to the company taking out the credit that they can’t afford to clear the capital on.

A high-level budget makes a summary of labor, the materials as well as other costs which are incurred during the life of the project and the costs after the completion of the project. The following is a budget estimate of the company.

Cost type FY05-06 Total
Phase 1
Labor $ 100,113 $ 100,113
Material $75,056 $75,056
Other $10,000 $10,000
Sub Total $185, 169 $185, 169
Phase II
Labor $125,000 $125,000
Sub Total $125,000 $125,000
Total Budget $110,113 $110,113

Other costs that are applicable include the potential attendance at the project management as well as process improvement industry conferences.

A budget has several phases. There are some phases however that should never be surpassed. Preparation of the budget is one of the phases. This is the initial phase before anything more is done. Generation of the budget opens ways to the other subsequent phases. This stage looks at the things that are needed and the initiatives that can be started. Evaluation of the budget is also another phase. The auditing and evaluation of the budget takes place at this stage and looks into the ways the money can be used effectively. This is important in evaluating where the money generated returns.

There are several methods that can be used to manage a budget over time. One of the method is to ensure forecasting of the budget continuously. Lack of continous forecasting may lead to ultimate failure of the budget. A frequent oversight ensures that the budget does not get far out of hand. Another method is to continuously ensure that the team is informed about the budget. The project team has to be aware of the budget and this shows ownership of the project (Chen et al, 2002). It will enable the reduction of misappropriation of funds.

Once there is a misalignment on the budget, several measures have to be taken in order to realign it in the right way. For example, the company needs to work on getting as many insights as it can. The company should ensure that all its executives are able to bring forth diverse forms of insights to the table. They should be aware of the ways strategy and the financial forecasting are able to relate to the business policies and how their role and the contribution in the company is responsible for affecting its success. Formulation of the budget should be done with a lot of unity. This is very crucial to the successful implementation of this strategy. The budgeting should be actually treated as a mechanism for earmarking resources that will help in the achievement of the strategic result.

Second in the plan, the company should also have a long-term vision. The annual budget is meant to cover a period of 12 months. Several business initiatives however take more time to start performing. This makes the annual plan to seem ineffective. Most time, people regret not having thought of a long-term plan that would have prepared them for such a challenge. When an organization works out the budget for the long-term plan, it ensures the organizational goals align with the budgetary aspects.

The organization should be able to measure the performance indicators. It enables the organization to be aware of their financial health and thus be able to plan effectively (De Renzio, Azeem & Ramkumar, 2006). There are several web-based softwares that are able to guide the organization in not only monitoring their finances but also to manage it, track the transactions and receive/send invoices and thus prevent the accounting gaffes.

A budgeting technique that can be employed in this case is the zero-based budgeting technique. It requires that budgeting commences keeping in mind the assumption that every cost has zero base. Every item that requires expenditure is worked through and a decision is made as to whether the purchase can be considered essential or not(Cheek, & Cheek Logan, 1977). Different purchasing options are then looked into and the item is then purchased at the lowest possible prize.

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