BUDGETING PROCESS

Improve The Budgeting Process

TO: The Board of Directors,

Advocate Limited

FROM: Management Accountant

SUBJECT: Improving The Budgeting Process Control Project Funding And Spending

In a recent economist intelligence unit survey financial directors ranked budgetary reform as their top priority. Other research suggests that 80 percent of companies are dissatisfied with their planning and budgeting processes. There is a phenomenal amount of interest in re-engineering these archaic practices too. Yet, a survey published by CFO Magazine revealed that, even when firms claim they have re-engineered them, most respondents were still dissatisfied with their current planning and budgeting processes.

Traditional budgeting methods are too time consuming and costly. They are also too unresponsive to today's competitive and turbulent environment. Furthermore, they are counter-productive in that they are usually affected by gaming, corporate politics and horse-trading tactics. Some estimates suggest that planning and budgeting processes use up to 20 percent of all management time. The Hackett Group assesses that a mean of 25,000 person days are used per billion dollars of sales on planning and budgeting. To state then that there is an opportunity for significant improvement in most organizations has to be an understatement.

I have been asked to provide suggestions to improve the budgeting process and to introduce a strong control environment around project funding and spending. Therefore, I have prepare a report as following in which have discussed in detail about the process of budgeting and control environment.

Companies that apply a well thought out strategy allocate their resources to their operational objectives in ways that are more consistent with their strengths. This is particularly important for mid-size companies that have to find ways to gain market share from larger entrenched competitors that have more resources, while fending off smaller rivals.

Make the Process More Accurate

Our research finds accuracy is the most important attribute of the budget for executives, particularly the CFO. Accuracy is critical to building trust in the numbers in the budget. (Sapp, 2009) We believe trust - by the organization as a whole - is a major requirement for a quality budgeting process. From a process perspective, an important key to achieving accuracy is widening participation in the process, increasing collaboration and dialog during the process. (Kaplan, 2008)

Use the Process to Promote Agility

A quality budget process should force managers to think contingently about the future so they are better prepared to respond quickly to the changes that always occur in business. Thinking contingently means not just considering what might happen. It also means having a clear understanding of the financial impact this will have on the company. (Sapp, 2009) Frequently, “unexpected” events are ones that should have been considered in the planning process, either because there was enough of a chance they could occur, or because their consequences (positive or negative) would be significant. It is not enough to consider the possibility; executives should know how specific foreseeable events would affect the company financially. A company also can enhance its agility by shortening the interval needed to prepare a detailed budget ...