Good Budget Planning And Control Essay Example

General Motors is a well-established automobile company that designs, markets, distributes vehicles and automobile parts, and sells financial services. It is a multinational corporation with many divisions worldwide enhancing its goal of reaching a wider range of clientele. There are definitive reasons why General Motors should prepare a budget at the beginning of every accounting period. The objective of all enterprises is to maximizeprofits, and this is achievable by controlling expenses. A budget monitors progress towards the set targets, and costs do not exceed the allocations. The company should also prepare a budget to guide the decision-making revolving around operations within the enterprise, giving clear outline is vital for success. (Shim and Siegel 2009)The outcomes of a good budget are that if well adhered to the company makes savings and then use them to fund future company activities.
The budget monitors the progress of the company projects in relation to use of allocated funds. It thus guides the company towards attaining set goals and maximizes profits. There are adverse impacts onan inadequate budget. A budget that is incomprehensive and contains poor prediction is a significant contributor to the downfall of a company. Flawed budgets misguide decision-makingprocess, so that making of wrong priorities occurs. Underestimated costs can lead to ballooning of the expenses beyond the estimated amount. Budget preparation is the defined process of making a quantified financial plan on the expenditure and expected income within an accounting period. There are many methods used to prepare a budget depending on the objectives of the company. The prepared budget throughout the accounting period to ensure the following of set plans and that the set goals remain viable.
A high-level budget plan is a summary of costs incurred in undertaking the core projects within the business organization. The budgeting on labor is one of the major expenses that the organization has to make within the accounting period. A company has to plan on remitted wages expected to pay to employees. Inclusion of cost of materials in the high-level budget is an important consideration. A business entity identifies the raw materials required in the production process. (Wiseman, 2010) Estimation of the total cost incurred from the amount of raw materials they plan to utilize based on the amount of product they forecast to make. The amount of raw materials intended for purchase does not solely depend on a forecasted of the salesmade within the accounting period. The company may wish to produce in excess of budgeted sales for opening stock of the excess products in the next accounting period. (Minea & Villieu, 2010)
The high-level budgeting in the company would take place in four critical phases. The process should begin with the preparation of the budget by skilled professionals. Knowledge of the business dealings is essential. The persons involved in budget preparation should have carefully phrased thoughts on the business transactions made by the company. They should account for what is on the ground and how the company`s product is received in the market. (Shim & Siegel, 2009) If the company has set new initiatives to roll out in the accounting period, they are considered in budget preparation. The leaders guide the different departments within the business entity on what to expect so as to align their budgeted resources with the company`s goals. The management then compiles the budgets by adjusting expenses accordingly. The second phase is approving of the budget by the board of directors. The budget is subjected to extensive debate to ensure the attainment of budgetary priorities. The executing phase involves the executive withholding funds to prevent wasteful spending. Departments can request funds when there is a need. The last stage involves evaluating the budget to check whether the fund use was effective. This is mainly by reviewing revenue generated.
The company should use strategic methods of budget management over time in the preparation of the ever-changingbudgets. Continually forecasting the budget should be the focus of the budgetary team. Information on what amount spent on the different projects provides an oversight on budgetary alignmentwith the set company objectives. The knowledge helps to make readjustments to the budget to keep it on track. (Wiseman, 2010)It is also important to make adjustments to take into account unplanned works that arise in the course of executing the projects. If the company does not do budgetary review, it has to solve massive percentage overruns in the projects. Keeping track of resource usage is another method of managing the budget over time. Cost control professionals should review the number of contractors working on the project to prevent overspending. The findings are used to feed future resource requirement and identify any potential overspends.
If the company is a facing financial difficulty such as the amount of spending rising significantly beyond the budgeted amount, they have to go back to the drawing board. This problem could arise from different causes such as not having a definitive budget on all the costs incurred in the execution of the projects. Unplanned work that arises during work process that was not in the budget may arise. The first step towards solving the budgetary crisis of overspending is identifying the causeof the unexpected expenses. In an effort to reduce the overspending, the following changes are necessary. (Minea & Villieu 2010)The managers should change the method of execution of the projects to a more cost friendly method. The managers can also align the schedule to ensure that the completion of projects as soon as possible. The acceleration of the projects towards completion to reduce the cost incurred on labor.

References

McCabe, M. J. (0). Academic Journal Pricing and Market Power: A Portfolio Approach.
Minea, A., & Villieu, P. (2010). Endogenous growth, government debt and budgetary regimes: A Corrigendum. Journal of Macroeconomics. doi:10.1016/j.jmacro.2009.11.003
Shim, J. K., & Siegel, J. G. (2009). Budgeting basics and beyond. Hoboken, NJ: John Wiley & Sons.
Wiseman, B. (2010). Budgeting. New York, NY: Weigl Publishers.