Adding Value Through Budgeting

7 Oct No Comments

Discussion 1: Adding Value Through Budgeting

Budgeting is an important part of an organization’s overall planning. Through budgeting, each part of an organization’s structure can be identified for decision making and control. A reasonable budget can allow an organization to allocate resources and provide a plan and direction for the organization. A budget can also help measure performance and ensure that managers are held accountable for their decisions.

Consider your professional experience and knowledge from this week’s Resources and/or Optional Resources as you answer the following Discussion questions:

After reading the article “Budgeting Perspectives From the Real World,” assess how and why budgeting adds value to an organization. Based upon your professional experience, how useful is the forecasting, strategic plan, and budgeting process to your organization? What are the reasons that make these processes useful to your organization?

By Day 3

Post a cohesive and scholarly response based on your readings and research this week.

By Day 5

Respond to at least two of your colleagues’ postings in one or more of the following ways:

Ask a probing question, substantiated with additional background information, evidence or research.

Share an insight from having read your colleagues’ postings, synthesizing the information to provide new perspectives.

Offer and support an alternative perspective using readings from the classroom or from your own research in the Walden Library.

Validate an idea with your own experience and additional research.

Make a suggestion based on additional evidence drawn from readings or after synthesizing multiple postings.

Expand on your colleagues’ postings by providing additional insights or contrasting perspectives based on readings and evidence.

Adding Value Through Budgeting

Budgeting in any business, as well as personal life, is important, in my opinion. Budgeting allows us to set guidelines to stay within and better manage finances and employees.

In my past and present positions we have used budgets for differing factors within the organizations, however, I am most familiar with employee/time budgeting. This has been consistent throughout the different organizations I have worked for (all have been for-profit companies). By looking back on prior year(s) data we are able to (try) determining the amount of workforce that is need for a certain time frame (usually broken down by hours or half days). Although, this is not an average of 100% by any means, as the needs of consumers change so do the needs of the business. However, over all with the fluctuation of one or two days, this method has seemed to work.

By budgeting employee hours this allows us to have the correct number of employees available to meet the customer needs but not too many where the company is paying wages to employees to do nothing. By factoring in hours needed and wages we are able to come up with schedules that meet the company needs and wage budgets.

As outlined by Shastri and Stout, there are definitely challenges with this budgeting process, particularly; the accuracy of budgeting estimates . Needs change from year to year and day to day, ensuring the accurate number of employees are scheduled can be difficult and sometimes are over or under budgeted.

Hi Professor,

Cost overrun/ Budget overrun of over 50% and higher are common in a large percentage of projects and are common for major infrastructure projects (Carstens, D., Richardson, G., & Smith, R., 2013, p. 173). Many factors can be the cause of cost overrun, such as poor scope control, poor estimating, poor requirements definition, technical factors, psychological factors and more (Carstens, D., 2013, p. 174). The Boston Big Dig is one of the fifteen worlds’ biggest cost overrun projects with 324% budget overrun and eight years behind schedule (CIMA, 2013). The “Big Dig” budget went from an estimated cost of 2.5 billion to an actual 15 billion and with interest on debt to 24 billion (Flint, A., 2015). Some of the factors that contributed to the budget overrun aside from schedule overrun were mistakes in designed-blue prints did not lined up properly, miscalculation in tunnel alignment, guardrails that turned lethal in car accidents due to poor quality and design, light fixtures that were not properly installed and cost 50 million to replace and sea water leaks (Flint, A., 2015). Some of the causes to cost overrun were due to construction process such as improper concrete mixing and faulty epoxy that cause ceiling panels to collapse and crushed/killed a passenger car. This issue was not only caused by faulty construction process but also by unnecessary elaborated engineering design of the panels to maintained proper ventilation that was later to be found that ventilation worked fine by leaving the ceiling bare (Flint, A. 2015). Approximately 1 billion was identify in design flaws, and the designed firm ended up reimbursing about half of that (Flint, A., 2015). This project had inherently inadequate cost control, since the project was a joint venture between public and private sector (government failed to protect taxpayer money by lack of regulating contractors) but no signs of systematic corruption were found (Flint, A., 2015).

There were many lessons from this project that would provide reduction or cease cost overrun such as project integration is critical to success, goals and incentives must be mutual and integrated into contracts throughout the project life cycle to ensure quality, safety, financial soundness and commitment to meeting schedule and budget, continuous improvement and rigorous oversight are both essential and constant innovation and a culture of collaboration (Greiman, V., 2010). Other recommendations to stopped cost overrun are: pre-testing of design and safety, quality control and assurance for construction materials and processes, better management practices, cost control, research and testing of geological area (site conditions).

References

Flint, A. (2015). 10 Years Later, Did The Big Dig Delivered? Boston Globe Magazine.

Carstens, D., Richardson, G., & Smith, R. (2013). Project Management Tools and Techniques: A Practical Guide. Boca Raton, FL.: CRC Press.

CIMA (2013). 15 World’s biggest cost overrun projects. Financial Management, FM Magazine. fm-magazine.com/infographic/prime-number/15-world’s-biggest-cost-overrun-projects#

Greiman, V. (2010). The Big Dig: Learning from the mega project. APPEAL NASA. appel.nasa.gov/2010/07/15/the-big-dig-learning-from-a-mega-project/

Hinson, G., (2009). Cost Overruns in Construction: Reasons and Solutions. Construction Business Owner. constructionbusinessowner.com/topics/accounting/accounting-finance/c

Hi Christina,

I agree the budget adds value to the organization by improving the plan and providing a financial roadmap for the company. Without it, a company would have difficulty keeping track of their resources and end up spending way too much money. The budgeting process also helps their key stakeholders such as their employees, developers, programmers’, and managers’ plan out product prices based on approximate manufacturing costs. It also helps them decide just how much money they can distribute to each department. Without the budgeting process, a company may end up spending entirely too much money on marketing, for example, when they should have put the money into maintenance.

References

Shastri, K., & Stout, D. E. (2008). Budgeting: Perspectives from the real world. Management Accounting Quarterly, 10(1), 18–25.

Zimmerman, J. L. (2012). Accounting for decision making and control. (Laureate Education, Inc., custom ed.). New York, NY: McGraw-Hill.

Chapter 6, “Budgeting”

Hi Bailey,

I agree forecasting, strategic planning, and budgeting processes have a major impact on the stakeholders’ decisions of a company because it encourages them to think ahead, to predict the unpredictable and always be a step in front of their competition. It also enables their workers to recognize the required goals as well as their objectives. It assists the company in deciding if there is a sufficient amount of employees to meet the production activity in smooth and effortless time period. It answers the questions on inventory needed to be increased or decreased and if there is a possibility of growth. All in all, forecasting, strategic planning, and budgeting processes helps Apple Inc. feel more secure in planning for future events and tracking how well they will do overall.

References

Shastri, K., & Stout, D. E. (2008). Budgeting: Perspectives from the real world. Management Accounting Quarterly, 10(1), 18–25.

Zimmerman, J. L. (2012). Accounting for decision making and control. (Laureate Education, Inc., custom ed.). New York, NY: McGraw-Hill.

Chapter 6, “Budgeting”




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