Companies that win big today play by different rules. Somehow, they still have to keep score on whether they're building for future growth or living on past accomplishments. What is particularly interesting about companies that change the game is that they often find new ways to measure their performance.
There are two types of control, namely budgetary and financial. The following case that we are about to discussed concentrates on budgetary control only. Budgetary control is defined by the Institute of Cost and Management Accountants (CIMA) as:
"The establishment of budgets relating the responsibilities of executives to the requirements of a policy, and the continuous comparison of actual with budgeted results, either to secure by individual action the objective of that policy, or to provide a basis for its revision"
;Budget is basically a formal statement of the financial resources set aside for carrying out specific activities in a given period of time.
It helps to co-ordinate the activities of the organization. An example would be an advertising budget or sales force budget. Budgetary control, on the other hand, is actually a control technique whereby actual results are compared with budgets. Any differences (variances) are made the responsibility of key individuals who can either exercise control action or revise the original budgets.
A good budget is characterized by the following:
* Participation: involve as many people as possible in drawing up a budget.
* Comprehensiveness: embrace the whole organization.
* Standards: base it on established standards of performance.
* Flexibility: allow for changing circumstances.
* Feedback: constantly monitor performance.
* Analysis of costs and revenues: this can be done on the basis of product lines, departments or cost centers.
CASE STUDY: CERIA RESTAURANT
Of all business activities, budgeting is one of the most important and, therefore, it requires...