Financial Management and Human Resource Planning and Budgeting - Research Paper Example

? An Introduction to Issues of Financial Management and Human Resource Planning and Budgeting LJC White Company is a wholesale distributor dealing with the supply of fruits and vegetables. This company supplies all forms of fruits and vegetables traditionally packed for small retailers in various parts of the state. Rated as an average family business, it has been in operation for over 80 years run by the family members. The family business has a board of directors’ consisting of approximately all family members. The chairman of the company is the father and the finance director is one of the sons while the other son is the sales director to complete the board the daughter is the purchasing director of this company. This report will highlight the payback period, employee turnover projection after the implementation of the machinery, the total cost of the an individual in relation to the human resource function and lastly an evaluation of the firms benefits after the implementation of the strategic decision of allowing Co-share to take on the supply and packaging function of the company (Noe, 2006, 144). The aim of this report is to analyze the financial situation of the LJC Company for the aim of Calculating the pay back period of the organizations cash invested in the project. This report will look into the preparation of estimates of the needs of the future staff requirements both in the warehouse and the park house in the next five years. The reporter will further look into the human resource needs that will be necessary for the expansion of the firm and the ethical working activities that need to be adopted (The essentials of finance and budgeting, 2005, 25). In addition, the report will shed light on the expenses to be listed in the human resource budget, necessary expenses in human resources functions to be incurred and lastly the report will shed light on the benefits the company will achieve in the long run. Table of contents Declaration of Originality This project is all my own work and has not been copied in part or in whole from any other source except where duly acknowledged. As such, all use of previously published work (from books, journals, magazines, internet, etc) has been acknowledged within the main report to an item in the References or Bibliography lists. I also agree that an electronic copy of this project may be stored and used for the purposes of plagiarism prevention and detection. Copyright Acknowledgement I acknowledge that the copyright of this project and report belongs to Emirates Aviation College. Signed: Date: Acknowledgement This project is a success because of the support received from people who are special to me. I would like to acknowledge the support of my family including my brother and sister, my colleagues from this department and my project supervisor Introduction The company board of directors recently discussed of that the company dealings should be taken on by the medium sized Co- share company. Co-share is to take charge of all their fruit and vegetable packing and supply. Co-share is a small to medium sized supermarket with approximately 165 stores in Midlands and other areas (Mondy, Robert, and Mary, 2003, 140). Unlike LJC white Co-share is more established with strong business ethics and reasonable trade practices. The terms of trade that LJC demand indicate that Co-share Company should utilize all their reasonable trade products and the human resource should utilize their best practices in running the company, for example, the use of staff development and the policies that include the none discrimination laws and regulations. The Co-share company has a policy of auditing their suppliers to ensure that all the required practices are adhered to, and they participate in the lucrative activities including the investors in people (Mathis and John, 2003, 200). Background of report The move to engage in business with Co-share would require LCJ the family business to add more assets in order to facilitate the expansion. It is clear that the company needs to invest in new plant and machinery. It will be an effortless exercise for the company because the site they utilize currently boasts enough space and buildings which will be sufficient for the expansion. This is because the building and the ground is utilized currently; this is enough for the integration (Reznakova, M., and Romana N., 2006, 34). The company is experiencing staff shortage at the moment because the purchasing director is about to go to her maternity leave. Office records indicate that her comeback after maternity is unpredictable. The business will face expansion hence a shortage of workers is not an option at the moment. The sales director is to take on the work of the purchasing director, but since the expansion is necessary although an ambiguous venture (Peterson and Wendy, 2004, 234). The firm is forced to recruit more staff to assist in the company since the company will integrate with Co-share it is essential for the company to create a more formal human resource department that will plan and practice effective ways of recruiting employees. The report highlights the payback period, employee turnover projection after the implementation of the machinery, the total cost of the an individual in relation to the human resource function and lastly an evaluation of the firms benefits after the implementation of the strategic decision of allowing Co-share to take on the supply and packaging function of the company (Noe, 2006, 144). Objective of the report The aim of this report is to analyze the financial situation of the LJC Company for the aim of Calculating the pay back period of the organizations cash invested in the project. This report will look into the preparation of estimates of the needs of the future staff requirements both in the warehouse and the park house in the next five years. The reporter will further look into the human resource needs that will be necessary for the expansion of the firm and the ethical working activities that need to be adopted (The essentials of finance and budgeting, 2005, 25). In addition, the report will shed light on the expenses to be listed in the human resource budget, necessary expenses in human resources functions to be incurred and lastly the report will shed light on the benefits the company will achieve in the long run. Body Methodology There were two types of the methodology applied in this study including primary and secondary report methods. In secondary report method, the reporter used the company’s intranet, internet references and books. While, with primary report method, this study used interviews; this requires questionnaires that were to get quality information for quicker analysis (Balakrishnan, and Srividhya, 2007, 97). In addition, the use of survey method was essential so as to get information relating to financial management and Human Resource planning and budgeting. This report highlights the methodology used to collect data it also explains why the reporter used the method. This is a crucial area of report because the quality of data depends on the method of collecting data. This will also determine the accuracy of the report; hence methodology used, will be in depth, in this report. The reporter will use the data collected from the company files and reports to analyze if the objective of the study was. This will make the reporter draw conclusion from the analysis; hence, identify the achievement and the failures of the report (Walker, 1980, 35). In conclusion, this report will use a methodology that will enable the objective of the study to be achieved. Literature Review Financial Management is the function in the firm responsible for the controlling, directing, organizing and planning all the financial activities in the company (Koontz, 1980, 188). These functions include procurement, human resource and other useful function of the firm that utilizes the funds of the company. These are the basic operations of the firm such as adhering to management principles in relation to the financial resources available in the company (Jacobs, 1993, 111). Financial management is the backbone of a business authors have written about financial with different definitions, but the scope remains the same. It is a function that is responsible for decision making of the firms key investments (Hellriege, 1982, 212). The investments of a firm range from capital budgeting or fixed assets to current assets and decisions are according to the finances available in the firm. Human resource planning and budgeting relate to financial management because the decision making on any form of investment lies with the finance department (Freedman, 2007, 230). Human resource planning and budgeting involves the process of identifying the required labor force in the firm, and budgeting on how to recruit, train and create a safe work environment. Discussion Payback period After the integration of the company with Co-Share Company, there will be an expected return. The company will deposit an initial investment of new machinery which will cost ?950,000 and a cash inflow of approximately ?65,000 monthly. The target rate of return will be 15% per annum. The pay back period of this company will be using the payback formulae because there will be an equal return of 65000 per month which is approximately 780, 000 pounds annually. The payback period is the duration, which the initial, capital invested is to be regained by the company from the cash inflows created by the investment yearly. It is a concept that majority financial offices use to appraise their investments (Gatewood, 1987, 133). The formulae for calculating payback include the use of the initial investment amount, the cash inflow per period written in the following example. Formula Payback Period = Initial Investment/ cash inflow per period From the above information, the even Cash Flows received annually is 780 000 pounds, the initial investment is ?950,000. Solution Payback Period = Initial Investment / Annual Cash Flow = 950,000 / 780,000 = 1.22 years Decision Rule This project is viable because the payback period is less than two years and the annual returns are high. Employees The company will require more workers to complete the task efficiently while minimizing wastage of materials in the company. Information provided indicates the amount of orders processed by each employee in both the pack house and the warehouse. There is an indication that the orders produces increased from the year 2007 through the year 2011. It is evident that, in the year 2007, the company managed to produce 185000 orders in both the ware house and the pack house compared to the large amount produced in the year 2011 which was 630,000. The installation of the new machinery from the investment and expansion will result into an increase in productivity in the company. This is because the work will be lighter with the presence of the machinery. Estimates indicate that the new machines installed the activity level in the consecutive years will rise as depicted in to the following table Year Output 2012 756,000 2013 892,000 2014 1,044,000 2015 1,211,000 2016 1,392,000 This is an indication the number of orders in the production process will increase leading to higher profits. Additional systems, which will increase, productivity include the introduction of machines that will assist in ticketing in the Pack house, in the year 2012, December. The machine is to save the company costs of approximately 12% which will be to pay the workers in 2013. In addition, the company will introduce of computerized checking machines or systems in the warehouse department, in mid 2015 which will also save 15% of the costs to be incurred concerning staff. Further savings ion staff will be an advantage because the employee turnover will be high. Pack house Year Number to be recruited (no wastage) 2012 2013 2014 2015 2016 Number to be recruited (allowing for wastage) 100 70 65 58 55 Number to be recruited (no wastage) 67 60 57 48 40 Number to be recruited (allowing for wastage) 80 67 49 35 30 Warehouse Year Number to be recruited (no wastage) 2012 2013 2014 2015 2016 Number to be recruited (allowing for wastage) 72 65 60 55 50 Number to be recruited (no wastage) 67 60 50 40 30 Number to be recruited (allowing for wastage) 60 57 55 49 20 3) Human resource issues The human resource function is a branch or a department in the company which deals with the employee’s management. The human resource function has numerous issues that need to be considered as part of the human resource operation activities. Examples of human resource issues likely to arise during the integration of the two firms are confidentiality, equal opportunities, equity and fairness self development, integrity, counseling, development for others, advice and information. Confidentiality is a vital ethical working practice in the firm it involves keeping employees information private. The human resource department in this firm will observe the need to guarantee there is proper confidentiality regarding all the information entrusted to them by the employees and employer. This is includes all the information concerning the past, current and prospective data of the workers in the firm. The human resource department has a responsibility to ensure the discretion and privacy of any delicate information relating to all employees. The department will guard the information, which they store, and access. This department is to handle all the confidential information delicately to avoid commotion in the work place. Equal Opportunity to all employees is an additional issue the human resource department should adhere to this ethical consideration. This will assist the company in developing sound policies and practices that are in alignment to the law. The key aim of promoting equal opportunity is to ensure workers have non discriminatory treatment when handling their fellow workers. Equity and Fairness is a critical issue in the human resource department, without fairness the employees will become aggressive creating restlessness in the work environment. The human resource department responsibility is to establish and maintain fairness. In addition, it should create reasonable, realistic and equitable standards to be utilized when dealing with employees. This policy is vital in the firm because it will give guidelines on the relationship that exists among employees and employers. Self-Development is an ethical consideration that ensures there is the development in the career of individuals in the firm. The human resource department is responsible for this growth the department should allow employees to attend seminars, and pursue their education while working (Association, 2009, 103). This move will motivate workers because they will feel appreciated, this will help to increase productivity in the workplace. Issues in the human resource department are diverse it is vital for the manager in charge of human resource to understand the nature of the firm and the workers therein. This will nature development for both employees and the firm. Development for others is when the human resource department supports workers through encouragements so that they achieve their full potential. When an individual achieves their potential it is evident that they will meet their responsibilities both at work and in their personal agendas. Integrity is a code of conduct essential in the human resource department; this issue arises when employees violate the regulations of the firm. The creation of the human resource department will ensure that this code is adhered to strictly. The HR department will solve any violations fairly without any discrimination. This department will be essential because most of the senior employees in the firm are family members without this department there could be cases of unfairness. Another issue in the human resource department is the legality issue. The HR should at all times operate within the regulations of the company. Solving issues concerning the employee’s performance and appraisal should be done in a systematic manner and according to the regulations governing the firm. Lastly, it is essential for the human resource department to ensure that the employees conduct their activities in a specialized and ethical manner. This requires accurate recruitment procedures that will enable the firm acquire a competence workforce who will adhere to the regulations. This will reduce cases of sexual harassment in the company, employee sexual relations and other vices not required in the office (Bratton, 2000, 209). 4) Human resource budget Human resource department is a functional office with requirements. It is vital for the company to allocate sufficient fund ensuring activities of this function a successfully carried out. It is evident that the items in the human resource department budget, in various companies, vary. This is because companies have different policies, budgeting process, accounting and financial system and the nature of operations in the firm. The main items to be found in the budget of the human resource department of a company include the staffing fees, contractor’s fees, salary, development and training of employees, initiation or induction, orientation, workplace facilities, staff remuneration, workplace security, and staff facilities. These items indicated in the budget highlight the fact that the human resource department is a vital function in the organization. These operations ensure that the company has sufficient employees, a comfortable work environment and peaceful coexistence of employees. The running of the human resource department is difficult without the funds. The company should set aside sufficient amount of funds to cater for expenses that arise in this department because it carries out core operations. Additional items to be indicated in the budget concentrate of the employee’s safety at the work place and the most influential factor which is job security. These items include workers reimbursement, staff communication, Human resource management costs, salary contingency, labor relations, legal expenses Human resource travel and accommodation. All the listed items are essential in the budget of the human resource department; this is obvious because all employees must be remunerated at the end of every month (Armstrong, 1999, 45). The company has to develop the employees through training and seminars, create a safe work environment, and communicate with other departments. Items such as legal fees are essential elements in the budget because the company may have court cases, which may require legal, representation and signing of agreements such as work contracts needs a lawyer to validate and he has to be paid. The company should allocate a reasonable budget to this department because some expenses are non recurring hence it is wise to deal with them yearly. Some items in the budget such as work place safety and staff facilities appear rarely because these expenses are part of the initial investment. The occurrences of these expenses indicate that there is an expansion in the firm or the equipment need replacement. The finance department should approve the necessary expenses in relation to the funds available in the firm. 5) Estimate the cost (per employee) of Human resource functions Induction is a vital process in the organization; it is a function that determines the performance of the new employee. In this organization induction, process has out through training and guidance given by an individual assigned to a new employee. It is evident that the induction process benefits both the company and the employee because it effectively makes the employee and employer aware of their rights conditions and terms work in the company. (Armstrong, 1999, 155). Companies that have the operation of machinery should take induction seriously since it is safety and healthy measure of the new employee, achieved through training of how to operate machinery to avoid danger. Induction is vital because the new employee will feel like part of the team rather than a useless person because of lack of knowledge in the new work place. This process allows the company to raise productivity because the new employee immediately starts work and induction ensures that the employee is comfortable both in the short term and long term. Other function costs include the information technology expenses, accommodation costs, supplies expenses, outsourcing expenses, training and development costs and recruitment expenses. When estimating the cost per employee it is vital to utilize the recent financial statements, the expenses of each function relating to the full time employees in the firm (Caruth, 1988, 234). It is vital to include the above expenses and the employer expenses, for example, recruitment and pension. When estimating the employee cost per function the denominator is based on the full time employees only, including the permanent staff in the firm. In this estimate, employees who have been in the organization over a year will be permanent employees. This estimate will exclude the casual staff, those who are employees on an irregular basis, contractors and interns. Estimate of employee cost per function The estimates will be found by calculating the total cost of the whole human resource function as a percentage of the running costs of the company. The running cost of the firm is 950000 pound and the cost of the human resource function is 200000 ponds (estimate) The cost of the companies HR function as a percentage of the companies cost = running cost of the company/ cost of the human resource function. Estimate of employee cost per function = 950,000/200,000= 4.75 %. To calculate the estimate of the cost of the human resource function per employee the cost of the human resource fuction-200000 will be divided by the number of workers which is approximately 1000. The cost per employee is 200,000/ 1000= 200 pounds. 6) How long term benefits can cancel/reduce initial costs The long term benefit will certainly cancel the initial investment cost because after the payback period, which is 1.22 years, the firm will start earning massive profits that will increase with time because the firm plans to continue implementing machinery that will reduce the labor cost in the firm. The company will be earning a profit of approximately 800,000 ponds per year after the implementation of the machinery in the effort to integrate with Co-Share Company. Conclusion According to the discussion and analysis of LJC firm there is a clear indication that the board of directors made the right decision to allow that take on by Co-share Company. 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