Business Management Systems in Orange Company - Case Study Example

Business Management System Table of Contents Business Management System Table of Contents 2 Communication, Organization structure & Management Information System 3 2. Costing Approaches 5 3. Financial Planning 6 5. Private or Public: The company, Orange 8 6. Scenario Analysis: The company, UpMarket 9 Reference 10 Appendix 11 1. Communication, Organization structure & Management Information System A car producer company can have a number of processes. Starting from the designing of car till the disbursement of the same, there are a lot of activities involved in the same. The whole organization structure would be of matrix style where there will be cross functional activities between product and functional departments. Some of the process departments involved in the whole task would be Product Design, Raw materials procurement, Manufacturing unit, Sales and Marketing, Service Department, Financial and Human Resource departments. Any Product designing and manufacturing unit needs a well enabled Research and development division to innovate new ideas, enhanced products. Job functions will vary from research to production, from marketing to finance and personnel management. As there will be a lot of cross functional activities, unambiguous communication is very much needed in between these division and functional roles. Conflicts are very much probable in a scenario of cross functional activities. Disagreement can happen in a situation where the functional goals would overlap each other. Performance and productivity can go on toss in a disapproving situation. There can be many reasons for conflicts but opaque communication is the foremost one. For an example in a cross functional scenario employees may have to report o two bosses; one from the product department and other from the functional department. Power struggle, resource scarcity and ambiguity regarding the authority can very well be the reasons of an undesirable situation. In such a scenario communication is of utmost importance. Clear communication and discussion can remove the disagreements and misunderstandings between employees or departments. In any business customers are of utmost magnitude. Communication is very much needed for effective servicing and enhanced product line up. Information system can take different way of communication. A designing and manufacturing house must have the knowledge of the market and customer demands. Many organizations can have their own market research team; some outsource this activity to others. Whatever be the scenario, depending upon the market research report the designing division prepares an outline of the product, i.e. the car. The designing division tries to make the design as per the market demand; but for this they are mostly dependent on their research and development team. A new innovation takes place in that division. For a new product after the designing is done, it passes on the specification to the product manufacturing unit. Before that the budget needs to be defined and that is done by the finance department. The procure department gets the raw materials from different sources and passes those on to the manufacturing and operation units. The car gets its physical shape over there and after that it is ready for disbursement to the customers. Sales teams are responsible for the sales of the products. In between the marketing team start doing marketing for the new coming product and in terms help the sales department to sell those cars. After sales service are provided by the service department. Calculations of profit and loss as well as auditing are done in finance department and the human resource management is responsible for personnel recruitment and management. Almost every communication takes place via proper documentation; both in hard and soft copies. Meetings are held for an open communication between departments. 2. Costing Approaches Marginal costing is a costing system which differentiates between conventional fixed costs and variable costs. In this procedure variable cost are charged on per unit basis; fixed cost is written off against the combined contribution. Fixed costs and variable costs are shown disjointedly for the short term managerial decision making. Marginal costing procedure is widespread and sophisticated process of monitoring various costs allocated for each and every resource driver. Absorption costing is a costing procedure where all the manufacturing expenses are engrossed by the number of units produced. The cost for each finished product includes fixed as well as variable costs for direct materials and direct labor. It seems to be the full costing procedure while compared with the previous Marginal costing method. Absorption costing is very much different from Marginal costing in a way that in the later one the fixed cost fro manufacturing overhead is not allocated to the manufactured products. The companies can use both of these costing systems; although the large companies mainly prefer the marginal costing procedure. The marginal costing is very much useful for the management in decision making; while absorption costing procedure is needed for the financial reporting to the external bodies as well as to produce the income tax report. Whichever costing technique, one adopts for his or her business; the reliability of the same is very much preferred. The reliability and accuracy is needed for many reasons like for external and internal auditing system as well as it is even important from the tactical point of view. The factors which could affect these accounting processes are the identification of resource drivers, cost allocation for each of those drivers, identification of activity pools and costing based on activities. Improper assortment of costing figures or the procedures can make the costing erroneous, which is not at all desirable. So while costing these factors must be taken into account, cautiously. 3. Financial Planning Like every business enterprise an engineering business also has to have a proper financial process in place. Among many of the responsibilities of this financial team, the foremost task is to proper financial planning for the organization. Main elements can include budgeting and forecasting, costing an accounting, preparation of balance sheet and income statement, auditing and financial analysis. A good planning must also include contingency plan for odd situations. The underlying premise to create a well devised financial plan is to ascertain goals; which is done by strategic planning. Full disclosure of facts is very much expected from all the departments for the perfect financial planning as well as well maintained execution of the same. It starts with proper budgeting for the company. Forecasting is an important part in the whole procedure. It can include department wise or activity wise budget forecasting. This is the first step of a proper financial planning. Data and information from all the departments are gathered for the same. A contingency plan is included in the same and an account is supposed to also be created as contingency account or reserve account. Sometime breakeven calculations are also done to have a better projection of production and operation. After the end of the financial year for the respective company it is time for preparing, costing, balance sheet, income statement and financial analysis of the same. These all are done from the point of financial appraisal. The analysis must be done cautiously. How things have been better this year and where situations and procedures have gone wrong; where the budgets have been exceeded; what the current state of the business enterprise is; all of these questions are important for a better financial planning next year. With all of these processes and functions the aim is the attainment of pre determined financial goal; and hence the overall goal of the organization. An interim budget forecasting as well as interim balance sheet and income statement can be helpful to get closer to the goal within the budgeted amount (Evans, n.d.). 4. Risks involved in Budgeting The company may have to face challenges while meeting the short term budget requirements. To explain this from the point of view of an engineering firm, it is better to take that as an example. A car manufacturing unit may have created a budget for its processes and departments. The problem arises when the budget has no mention of short time lines within the same. In such a case we assume the whole budget needs to be evenly spread over the budgeted period; but that is not the case. There are a lot of activities involved at the beginning of a project and that almost takes the maximum part of the part. For example advertising, manufacturing etc processes have the most expenses happened at the first half of the budget period. The sales and service department have most of their expenses in the middle and last half of the budget period. So it is apparent that the costs are not incurred evenly through out the period. So the budget tends to exceed the budget in the half of the period. Erroneous data can badly affect the budget preparation process. An erroneous budget process can result in flawed managerial decisions the impact of which can be huge in situations. Proper financial model is another requirement for a superior budget. A budgeting process involves too many people in this. Human error can be a risk for the budgeting process. It is very difficult to keep a control over the budgets. Sometimes budget need to be flexible enough to take on opportunities, coming by. A budget, prepared vigilantly using the proper data and following appropriate modeling procedures, is an indispensable part of a financial planning. 5. Private or Public: The company, Orange A private company is a company which can not float its stocks on any stock exchange. There are a number of advantages as well as disadvantages fro this type of companies. One of the foremost advantages is that the legal status of a private limited company does not get affected by the retirement or death of any of its shareholders. Shareholders get the privilege to enjoy limited liability; which means they are responsible for the repayment of debt of the company as per their proportion of investment in the company itself. Disadvantages like high taxes, inability of trading shares can be detrimental for small and medium sized companies to be private limited. The shares of any private limited company are not open for public trading. So equity, needed for the business purpose, has to be funded by the shareholders or owners of that company. It seems that the funding possibilities are quite limited compared to the publicly traded companies. A private limited enterprise can be expensive to initiate as it has to pay taxes as well as legal fees drawn in the business. The initialization process is quite complex in case of this type of companies; as accountants as well as lawyers need to be always involved with the company from the inception period. In such a course the whole process can turn into a costly affair. Orange is a public limited company. The proceeds from the floatation was supposed to be used fro the repayment of debt. Even those proceeds can be used for the expansion or improvement of the assets in the company. The shares of this company were traded at 205 p. The number of shares, offered for sale, was 325,000,000. Total proceeds, calculated, from the floatation were 66625000000p. The reason behind the over subscription of the company shares can be because of the change in perspectives towards the respective industry or the companies, which have owned this Orange company. Sometimes asymmetry in information led the investors to trade on any particular company. This can happen in the case of this company. The company is facing losses and having a private limited company means the cost will be much more, the taxes and the legal fees need to be paid. So from this point of views, it seems that companies like Orange may prefer to be public limited company rather being the private limited one. 6. Scenario Analysis: The company, UpMarket The calculations are shown in appendix. There are three main departments as well as two supporting departments of this company, UpMarket. Every department has its cost assigned to certain activities and heads. The cost incurred by the supporting departments is divided within the three main divisions proportionate to their employee strengths as well as the space allotted to each of them. The total overhead cost, incurred, amounted to 320000£, which was around 0.03% of the total sales values. The whole costing process was based on activity based costing where all the expenses were divided based on each of the activities. Reference Evans, H. M. No date. Financial Planning and Forecasting. [Doc]. Available at:www.exinfm.com/training/course02.doc [Accessed on February 1, 2010]. Appendix Table 1 Table2 Table 3 Table 4 Table 5 Read More