The Westmont Hospitality Group is a hospitality management company from Ontario, Canada which has enjoyed relative success within the past ten years. It is currently worth $700 million and is still actively involved in making new company acquisitions and managing additional hotels (“Bloomberg,” 2019). The Westmont Hospitality Group is also renowned for its proclivity towards fixed budgets, allowing it to stick to pre-planned objectives without substantial variations. Adherence to this particular financial framework has allowed the company to thrive within the industry and also made it possible for the company to present its future objectives.
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A fixed budget is eye-catching due to a myriad of potential future benefits presented by this particular approach. For instance, the implementation of this type of budget is meant to create a scenario where the company deals with an unchanging list of expenses, further averting the fluctuation of revenue. Additionally, this budget type also appeals to me due to its unchanging nature. This ensures that a company responds appropriately to the market devoid of any unpredictable changes. Projected revenue, thus, becomes foreseeable which then allows a company to detect any anomalies. Moreover, a fixed budget framework also creates a monopoly situation where a company’s objectives and set goals take precedence, with customers expected to accept current market pricing.
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Several strengths and weaknesses are associated with fixed budgets. One of the major strengths of this type of budget is its ability to allow organizations to measure profits. The allocation of a specific amount of money as overhead costs often means that any remainder now becomes the profit. A fixed budget, therefore, allows a company to accurately quantify profits through the allocation of specific amount towards necessities (Jain, 2017).
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Additionally, fixed budgets are also instrumental in allowing companies to gauge and measure performance. Fixed budgets are based on the idea that a specific amount is supposed to be allotted towards a specific endeavor within a specified timeframe. It now allows companies to measure yearly budgets, especially when seeking to create a robust plan for future long-term success. These forms types of comparison allow organizations to better manage their cash flow with the primary objective of obtaining a stronger financial result. Thus, fixed budgeting eventually allows business executives to assess changes within the current business model in application while measuring positive financial alterations. Fixed budgets are also known for their ability to lower operational costs for major organizations. This is primarily due to the fact that such businesses are expected to operate within a specified financial limit to avert the possibility of making losses. A company is then forced to improvise and make savvy business decisions which are less risky and likely to prove beneficial to the company. Any change implemented within the business is then expected to lie within the precincts of the prevailing budget.
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The main weakness of a fixed budget is its rigid nature. For instance, a lack of flexibility essentially prevents managers from allocating additional funds to areas which are clearly underperforming. Additionally, it also assumes that the linearity of costs is the only reality that organizations grapple within on an operational level. Fixed budgets also rely on the supposition of continuity even when costs are discontinued within an organization’s overall framework.
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