Budget Analysis of Riordan Manufacturing - Case Study Example

Budget Analysis of Riordan Manufacturing Background of Riordan Manufacturing: This “is a global plastics manufacturer employing 550 people with projected annual earnings of $46 million. The company is wholly owned by Riordan Industries, a Fortune 1000 enterprise with revenues in excess of $1 billion.” (Riordan manufacturing, 2006, para.1). As far as accounting aspect of Riordan is concerned, although the records are computer generated, the “seamless compatibility” integration between records maintained at units in Michigan, Georgia and the Head Office at San Jose have not been achieved. (Finance & accounting, 2006). Thus, the very purpose of this budget exercise would be in terms of a more generous allocation of budgetary funds towards software and hardware development and maintenance that could possibly ensure a higher degree of integration among the accounting systems at different locations for higher degree of integrity and efficiency. That being said, it is necessary to now delve into the fact that this has created a heavier workload on employees, especially considering the need to transform accounting and financial data into files and then reconvert the same to proper accounting code to make it adaptable for advanced computer procedures. Thus, a lot of labor intensive processes are involved that cause delays and snags, especially with regard to external monthly audit which entails both time-consuming and money spending procedures. Under the circumstance, the top management of Riordan, including its Finance Director, feels that it has become necessary to invest in software solutions that could provide the needed turnabout in its accounting and financial data maintenance. Rationale for the Revised Budget: Justification for the revision in budget estimates and allocations has been in consonance with the efforts of the Finance Director of Riordan to gain a larger degree of transparency and co-ordination between the units at different locations - acquired units at Michigan, Georgia and its head office at San Jose. Moreover, the conversion of labor intensive recording to a computer generated one would involve investments, and this is the prime motivation for increasing the software, hardware and outsourced information support service by 4% this year. It is believed that this increase in budget allocations would further the cause of seamless technology and information system integration and provide speed, accuracy and cost savings in recording and transmitting critical financial data. “The data presented to this point indicates positive economic conditions for Riordan Manufacturing and opportunities to leverage relatively low interest rates into new investments to enter new markets and increase productivity.” (Economic forecast for Riordan manufacturing, 2005, p. 9). It is now necessary to consider the Information Technology (IT) budget from three perspectives: 1. from the point of view of compensation to workforce 2. from the point of view of other expenses 3. Overall impact of this Modified budget as compared to the earlier one Compensation to workforce: It is seen that total compensation bill for the pre-modified period - October to September is figured at $ 1,567,750. However, with modifications, this figure comes down to $ 1536, 400, a reduction of 2%. This reduction has been gainfully used through reducing budget estimates for other expenses. Other expenses (including software, hardware and outsourced IT expenses): It is seen that total other expenses bill for the pre-modified period - October to September is figured at $ 333,550. However, with modifications, this figure comes down to $ 332,981, a reduction of nearly 1 %, despite the fact that the budget estimates for software, hardware and outsourcing has been increased by 4% for better resource utilization and speedy and smooth data flow and transmission. Thus, it is envisaged that the increased budget allocation for software, hardware and outsourcing would increase efficiencies and, to a large extent, exterminate the challenges and deficiencies in the present IT system of Riordan. The directors of the company are of the considered opinion that they need to “be focused in achieving and maintaining reasonable profitability to assure that the financial and human capital is available for sustained growth.” (Riordan manufacturing, 2006, Mission, para.4). The overall impact of this Modified budget as compared to the earlier one: It is now necessary to consider the overall and also month-wise impacts of the budgets vis-à-vis the earlier ones. Taking the overall picture for 12 months period from October to September, while the budget allocation was $1901,300 for the earlier type, it is seen that as a result of the modified budget, it has come down to $1869,381. This has resulted in a total reduction of $ 31, 919 or a substantive reduction of nearly 2% of the total outlay. This is despite the fact that software, hardware and outsourcing expenses have increased by 4%. It is now necessary to consider the month-wise impacts for the period October to September. Month Differences Month-wise allocation $ Revised Month-wise allocation $ October - 1.77% 131,379 129,058 November - 1.67% 127,679 125,538 December -1.93% 179,379 175,902 January -0.84% 277,679 275,342 February -1.74% 132,579 130,264 March -1.87% 177,679 174,342 April -1.83% 129,379 127,008 May -1.74% 129,679 127,422 June -1.88% 180,579 177,184 July -1.83% 128,429 126,077 August -1.76% 129,179 126,902 September -1.87% 177,679 174,342 Total 1901,300 1869,381 From the above, it is evident that there have been substantive improvements in budget estimates, in that the costs have reduced budget wise. It is also necessary that the actual costs of Riordan need to reduce in line with these budget figures. According to current surveys, "In the midst of economic volatility, hardware budget allocation remains the top priority in most countries, but software budgets are a real bright spot and continue to demonstrate a positive outlook, although more cautious when compared with last years survey." (Yeo, 2009, para.3). In the case of Riordan Manufacturing, it could be said that the present recessionary trends may have impact on their business, but not to the extent it has affected other sectors. This is because Riordan has major supplies to aircraft manufacturing industries and also Department of Defense, (DoD) and other government establishments, and have contracts with a lot of other public sector establishments in the offing. Further, falling oil prices would reduce transportation and movement costs, which could add to savings in movement of goods and supplies. One of the current projects that Riordan has presently undertaken is that of joint venture in China. “If China removes its practice of pegging its currency to the dollar, then sales by the China joint venture may decline a little but not significantly.” (Economic forecast for Riordan manufacturing, 2005, p.9). Conclusions: One of the major factors that may be of current concern is the mounting wage bill, the primary reason for which this budget has been drafted. It is imperative that Riordan is able to control wage bills and operating costs in line with the budget proposed and implemented in order that adequate profitability figures are maintained, but also in terms of the fact that stakeholders are rewarded with higher returns on investments. Again, the employees are also needed to be provided motivation and rewards for their continued and unstinted efforts to raise the performance levels of the company and ensure that Riordan’s products and services remain competitive and the best buy for clients, customers and business units all over the globe. Once the present IT issues have being sorted out, it is widely believed by the Board of Directors and management of this company that things have begun to look brighter for Riordan during the coming years. However, it is necessary that the budget estimates and projections are given the importance that is due under current scenario of Riordan Manufacturing. Reference List Economic forecast for Riordan manufacturing: Summary. (2005). Retrieved October 10, 2009, from https://ecampus.phoenix.edu/secure/aapd/cist/vop/Business/Riordan/Finance/EcoForecast.pdf Finance & accounting: Challenge. (2006). Retrieved October 10, 2009, from https://ecampus.phoenix.edu/secure/aapd/cist/vop/Business/Riordan/Finance/RioFandA001.htm Riordan manufacturing: Mission: Our future. (2006). Riordan manufacturing. Retrieved October 10, 2009, from https://ecampus.phoenix.edu/secure/aapd/cist/vop/Business/Riordan/RioMfgHome002.htm Riordan manufacturing. (2006). Riordan manufacturing. Retrieved October 10, 2009, from https://ecampus.phoenix.edu/secure/aapd/cist/vop/Business/Riordan/RioMfgHome002.htm Yeo, V. (2009). 2010: Software spend up, IT budgets down. ZDNet Asia: Where Technology Means Business. Retrieved October 10, 2009, from http://www.zdnetasia.com/news/business/0,39044229,62057568,00.htm Read More