Worplestrop Case Study - Essay Example

?Worplestrop Case Study Table of Contents Introduction 3 Assessment of the various product cost and budgetary control methodologies and systems 3 Information Outputs to support Management decision making at operational level 5 Information Outputs to support Management decision making at tactical level 6 Information Outputs to support Management decision making at strategic level 7 Samples of the routine and “on-demand” reports 8 References 11 Introduction The prime goal of every business entity is to maximize its earnings and minimize its expenses. Businesses utilize budgetary control measures to accomplish this goal. By means of budgetary control methods, organizations attempt to forecast their operational activities as well as their outputs in an efficient manner to attain the maximum profits at the least cost. Akin to all other business entities, the Worplestrop Partnership wants to develop an efficient costing and information systems for the management of their organization. This would necessitate the development of budgets, accomplishing responsibilities to achieve the goals, incessant evaluation of real performance with expected standard performance, taking counteractive actions if required in addition to revising the budgets. Assessment of the various product cost and budgetary control methodologies and systems The most commonly employed cost budgeting techniques and tools comprise of ‘strategic budgeting’ as well as ‘contingency and allowance budgeting’ (Owens, 2007). In the former technique, the management of the organization estimates the cost that might be incurred in their operational activities, however it is very difficult to accurately estimate the costs involved. The later cost budgeting technique ascertains that a suitable amount of finances is developed to provide accommodation for upcoming hazards or unforeseen expense rises. For the successful implementation of contingency and allowance method of budgeting, Worplestrop Partnership would have to establish their expenditure build-up procedure comprising of base and contingency expense estimations in addition to allowances and finance reserves. This approach involves the grass roots as it builds up and communicates a plan for accomplishing superior estimates with all the workforces. Figure: Expense Build-up Components (Owens, 2007). In addition to this, there are around five different methods of budgetary control, namely, summary budget, fixed budget, financial budget, flexible budget and zero-based budgeting. The assessment of these methodologies reveals that zero-based budgeting would be appropriate for Worplestrop Partnership, because it would enable the organization to methodically assess the various operational activities undertaken by it. This would ensure that the management is able to distribute its resources as per the precedence of its activities. The implementation of this technique would ascertain that Worplestrop takes up activities are vital for the business and that those are carried out in the utmost manner. This is because; this method would connect the budgets with the overall goal of the organization (Shah, 2009). The management of an organization and the decision making processes involved in it can be categorized into three groups, namely, operational, tactical and operational. All the three categories comprise of planning as well as control measures. Nevertheless, the focus of strategic level is more on planning, while at the operational level it is more accentuated towards control. Information Outputs to support Management decision making at operational level The ground level managers or supervisors are directly in charge for those involved in production or manufacturing. They are associated principally with the administration of non-management human resources and the management of routine operational activities. The major responsibility of such managers is to assess performance of the business unit against the standard that has been specified. The manager ought to be familiar with precisely how much was achieved by the business, what were the expenses, and whether it was as per the estimations. Operational managers accentuate on efficiency, ensuring that business operations are done well. As they are at the bottom of the management level, these managers are accountable for implementing the tactical decisions of middle level of management. Thus, they have to make day to day plans, and the time frames of their decisions are very small. The decisions taken by them engross a large extent of certainty, hence the information required to make them is extremely conventional. This information is gathered on a routine basis. Illustrations of operational decisions include: a) reordering stocks when it falls below a specified level b) providing discount to a client when a definite volume of order is placed c) disposing manufactured goods when they do not meet specified standard requirements (Needles et al, 2010). Information Outputs to support Management decision making at tactical level Any organizations consist of various departments that are headed by departmental managers. These managers are in charge for implementation of the plans of the higher management. They are also involved in a number of planning activities; however the plans are generally for short-term unlike the strategic plans, and hence tactical in nature. The time horizon of such plans is at the maximum within few months to two years. The focal point of tactical decisions is nor what would be accomplished but rather how would it be accomplished. Tactical decisions are relatively less tricky than the operational decisions and generally necessitate a much higher altitude of proficiency as well as experience. These decisions ought to be in line with the goals and policies that have been established at the higher management level. The management decisions at the tactical level act as the guiding principles and ensure that the decisions at the operational levels can be better planned and ordered. Tactical decisions occupy comparatively more amount of uncertainty as against the operational decisions. Some illustrations of tactical decisions consist of: a) deciding the minimum level of stock to be stored and plans regarding the reorder of stock b) establishing the level of prices as well as the discount configuration c) establishing quality standards for production and developing a quality control method (Needles et al, 2010). Information Outputs to support Management decision making at strategic level The highest level of management of an organization, which comprises of the board of directors, managing directors and chairpersons, has widespread accountabilities as well as liabilities. They establish the organizational goals and long term strategies for the business on the whole, and are in charge for the successful implementation of those objectives and strategies. Thus, the major responsibility of the top management is planning as well as organizing. They build business plans for the future and are also involved in the distribution of resources for the upcoming plans. They are hence supposed to plan way ahead of time. For the development of such plans, one is required to have a number of information. These include the performance details of the organization in the past; its strengths as well as weaknesses, the prospect or the scenario for the upcoming days, availability of finances and emergence of fresh markets among others. The highest levels of management of an organization are involved in making the strategic decisions for the business. Such decision making processes engross a large extent of uncertainty and necessitate the utmost level of proficiency of all kinds of decision. Some illustrations of strategic decisions are as follows: a) the development of financial goals, such as the measurement of requisite profit levels b) establishing the organization’s guiding principle in terms of quality standards c) decision related to merger or acquisition of another organization or setting up a new manufacturing arrangement. Conclusively, it can be stated that the strategic decisions are targeted towards the objective and scope of the company on the whole, while tactical decisions are accentuated on how a certain business segment of the company will contend to succeed. Furthermore, the operational decisions of a company deals with how the constituent segments of the company deliver the aforementioned two levels of decisions (Scottish Qualifications Authority, 2009). Samples of the routine and “on-demand” reports Management reports are supposed to lessen the extent of uncertainty related with the issues encountered while decision making and to influence the management’s decision making in a positive manner. For solving the quandaries that are expected by the organization, programmed reports are formulated. Routine or scheduled reports have to be presented at a pre-specified time interval, for instance, daily dales listing, annual accounting reports etc. On the other hand, the on-demand reports are prompted by incidents and are not presented on the basis of time horizon. An illustration of on-demand report is the stock reorder report which is generated for the supplier when the stock level falls under a pre-determined level. Another example could be the providing of a supplier’s account history in reply to his query to the accounts payable department. Though these reports are generated as a result of response to a particular event, they are actually the product of an expected need. These reports, both routine and on-demand have to be relevant, summarized, accurate, complete, oriented towards exclusion, concise and timely. The components of the report should endorse the management’s decision and should be summarized as per the level of management involved in it. The level of summarization intensifies as the information moves from lower level of management to the higher level. These reports are generally offered as briefly as possible. For maintaining the conciseness of the management reports, coding schemes are utilized to illustrate intricate data categorizations (Rainer & Turban, 2008). The examples of programmed reports include financial budgets, forecasted cash flows, production forecast, sales forecast schedules, and inventory reports, in addition to reports on quality control, equipment usage, and labor allocation among others (Hall, 2012). The following are samples of scheduled report on daily sales and on-demand report on the performance of employees: References Hall, J. A., 2012. Accounting Information Systems. USA: Cengage Learning. Owens, J., 2007. Project Cost Control Tools & Techniques. [Online] Available at: http://www.jasonowens.com/wp-content/uploads/2009/12/ProjectCostControlTools_and_Techniques.pdf [Accessed on May 9, 2012]. Needles, B. E., et al. 2010. Financial and Managerial Accounting. USA: Cengage Learning. Rainer, R. K. & Turban, E., 2008. Introduction to Information Systems: Supporting and Transforming Business. USA: John Wiley & Sons. Shah, M., 2009, Management Accounting. India: Ane Books Private Ltd. Scottish Qualifications Authority, 2009. Management: Strategic Change. [pdf] Available at: http://www.sqa.org.uk/files_ccc/CB4559_Stategic_change.pdf [Accessed on May 9, 2012]. Read More