Costing and Budgeting: HSBC Bank - Assignment Example

Costing and Budgeting al Affiliation HBC BANK Task HBC BANK COST MENT FOR THE YEAR AND 2013 Fixed overhead production cost 2012 2013 Trend USD(millions) USD(millions) USD(millions) Employee compensation and benefits 20,491 19,196 decrease General and admin expenses 19,983 17,065 decrease Total production cost 40,474 36,261 Indirect costs Depreciation and impairement of plant and equipment 1484 1364 decrease Armortization and impairement of 969 931 decrease Intangible assets Total cost 42,927 38,556 decrease Accounts analysis method Y=a+bx;where y=total cost a=fixed cost,b=variable cost per unit,x=activity level per unit, bx=total variable costs 2012=42927=a+2453 2013=38556=a+2295 Fixed cost=a=40474 fixed cost=a=36261 Summary The employee compensations and benefits decrease from the year 2012 to 2013 by $1295 million.this shows that the company has reduced its employees.the general and adminstration expenses decreased from the year 2102 to 2013 by$2918 million.is is an indicator that there was reduction of administration and supervision costs mainly because the company adopted a new technology system which was more effective.depreciation and armotization costs also decreased a clear indicator that the company had sold some of its holdings.In general the total cost in 2013 compared to 2012 decreased by 10.18% showing that the company was successful in reducing its cost of production. Task 2 HBC BANK PERFORMANCE MEASURE HBC BANK Balanced score card for the year ended 2013 Measure Weighting Long-term terget range Actual 2013 performance Assessment Outcome Return on equity(%) 15% 12-15 9.8 0% 0% Cost Efficiency Ratio(%) 15% 48-52 58.5 0% 0% Capital strength(%) 15% >10 13.6 100% 15% Progressive dividend payout(%) 15% 40-60 57.1 100% 15% Financial =60% =30% Strategy execution 20% Judgement n/a 80% 16% Compliance and reputation 10% Judgement Top 3 rating and improved n/a 50% 5% Brand equity 5% Us$value n/a 100% 5% people 5% Judgement n/a 80% 4% Non-financial =40% =30% Total performance outcome =100% =60% Analysis of the results on performance of( both qualitative and quantitave factors) Financial(60% weighting-30% achieved) The opportunity of 60% was split equally in 2013 between progressive dividend payout ratio,capital strength,return on equity and cost efficiency ratios.the consideration under longterm plan focused on the sustainability of shorterm progress and reflected on whether to recognize progress made towards achieving sated targets even though the goals had not been met in the current year.there was a strengthened capital position and 15% was made because of the improment in core tier 1 ratio.the prioject performance of maintaining a high dividend pay out ratio was as aresult of the strong capital thus it was awarded 15%.the group had not reachead its targeted return on capital of 12-15%the consideration made in giving it 15% was due to the redeployment of capital from underperforming portifolios to targeted areas of investment and the progressive improvement.the cost efficiency ratio of 15% received no award as it was above the group set target of 48-52%. The general observation is that the group was underperforming. Non –financial(40% weighting-30% achieved) The execution of the strategies laid down by the management like reduction in risks and restructuring the group businesses was achieved to a level of 5%.the compliance and reputation was 10 % and it put in minimising the lonterm legal compliance and finally the brand was based on an independent research which concluded that HSBC brand had improved and had retained its satatus as one of the world’s strongest banking brand having a second positon in The Brand finance Banking 500 2014 survey.in the people long-term strategy delivarance the bank there was progress in terms of talent development,succession planning and diversity,the general observance of qualitative performance is that the bank had performed well. REPORT ON THE IMPROVEMENT OF THE VARIOUS RESPONSIBILITY CENTERS After an analysis of the various departments within the HSBC Bank Baharini branch,the following departments to be underperforming.The dismal financial performance can be attributed to them.The following are some recommendations to improve the various responsibility centers. Sales and marketing The sales and marketing center was found to contribute to the decline in revenues.this is because the sales team was not motivated at all.the research made found out that they never felt part of the company and their budget was very minimal.the managemrnt should therefore work to boost their motivation by giving them incentives ,taking them to trainings and workshops like the Global marketing team confrence.They sould also add more money to their budget inorder for them to carry out their marketing campaings effectively.finally the satff should be included in setting the sales objectives each year. Human resource department The bank has minimal staff turnover but the staff complained of having to work for long hours.therefore the manager of this department should consider adding leave days to the employees and especially the new mothers.there was also an observation that there were mor men working in the company than women.Gender balance is a legal requirment and therfore the human resource department should recruit more women.women should also be promoted to head departments like sales and marketing or development and research Finance departmentThe finance department section mostly th e section on loans discovered that; most loans were not paid on time.Startegies like giving discounts to people who pay their loans on time should be considered. Loan defaulters should be highly penalised.therefore reducing the load of bad and doubtful debts. The recommendations above will lead to the attainment of long term goals set by the excecutive. Task 3 The following areimprovements recommended to achieve the goals of HSBC bank in areas outlined below.they are aimed at reducing costs while enhancing quality and value.Banks fall under the services sector and therefore the key areas of focus will be improving customer satisfaction,lowering operation costs and improving customer service in the bank. a)offering service at highest standard at reasonable price To achieve this at the lowest cost possible the bank should hire efficient and competent staff.They should look at their qualifications,train and set out their job specifications.The staff should also be equiped with first class high technology equipments that should enable them give high quality service to the customers.The company should budget how much it should spend on employee training. b)maintaining company’s operations operations in a bank include mainly the tellers,and the daily functions of the company. To maintain this at a low cost the company should hire an operations manager .the technical department should maintain the systems in the bank and not the operations. c)Fulfilling customer satisfaction each customer dhould be asked to fill a feedback questioner when carrying out transactions at the bank.the management should also open up a 24 hour customer care support and finally loyal customers should be given incentives while there should be bonuses for new customers.customers should also rate the services they receive each end month Task four The nature and purpose of the budgeting processes The budgeting process in many businesses is carried out to ensure that the available funds are used within pre-set limits as intially planned.The main purpose is to justify use of funds so as to accurately estimate future spendings by describing how funds will be used.Actual spendings are then compared with budgeted spendings to determine the variances.A positive variance indicates over budgeting and a negative variance indicates underspending.there are various forms of budgeting approaches which include the zero-based budget and the cash –budgets.the follwing is an interview that I carried in HSBC bank to find the type of budgeting approach that they used and how they carried out their budgeting process. The interview was carried out on the Manager of HSBC Bank Baharaini Branch Question:How much do you set aside for investment? Answer:we consider the liquidity and disposable income needs for each year before considering the amount to set aside each year.I cannot comment on the exact figure for this year because so many factors are considered Question:what type of budgets do you use ? Answer:we mostly use the cash budgets given that we are in the service industry.most of our transactions include deposits and withdrawals.the cash budgets are also favourable as they ensure that we include the incoming cashflows and out going cash outflows. Question :How does the budgeting activity flow and what is the role of each participant in the budget preparation? Answer:The planning activity flows through a hierachy beginning with the high level budgets like the operating and capital budgets.The operating budgets are prepared by the operations manager and he gathers information from the human resource manager,the information technology manager,the loans sector manager .The senior manager authorizes spending for the a whole department like marketing and it is the work of the particular manger in thet department to allocate the amount to various functions like research,advertisment and events. Question :has budgeting been effective? Answer:Our profits speak for themselves, it is very effective. Task 5 a)Report to the management on the budgeting process The budgeting process used in the company is the cash budgeting but I would like the management to consider using the performance based budgeting method. What are the disadvantages of the cash budgeting method currently being used.Cash budgets are mainly based on estimates,they lack flexibility,can be easily manipulated and they do not take into account the non-financial factors.The performance based budgeting process usually shows how the money set aside is expected to turn into results.It represents each located area ,how the money will fund the daily activities and how this activities will turn into outputs.it defines a measurable result achieved. It is not easy to manipulate and includes the non-financial activities like customer satisfaction. Signed (me) Management response Thank you for your recommendation.We shall consider using the budgeting method that you have suggested. Signed (C.E.O) b)most of the banks in Baharaini Kingdom are using the cash budgeting method.this conclusion was after an analysis of the top three competitors of HSBC bank which are the Bank of Baroda,Mashreq Bank and Standard chartered bank.on their website the budgeting process is the same.tg the banhis conclusion was after gathering information through interviews of the managers running the banks c)the evidence of obtainin this information was from the questionners that I presented to the various managers and they all affirmed to use the cash budget method d)the most appropriate budgeting process for all companies in the banking industry is the performance-based budgets.other budgets that may be used by any company in any industry ;are the flexible budgets which usually take into account the adjustments which can be made,and the zero based budgets which requires that expenses be justified for each accounting period. Task 6 HSBC PLC.HOLDINGS PERFORMANCE-BASED BUDGET FOR THE YEAR ENDED 2013 Bank 2013 budget $ 128,670,000 2013 goal to increase customer satisfaction and reduce operational costs Performance budget Outcome goal 2012 2012 2013 actual planned planned customer satisfaction 80% 90% 100% reduction in operating incomes 5% 7% 10% Performance Goals Total cost USD (000) Reduce operating income on the 2012 baseline 52,400,00 Improve customer satisfaction on the 2012 baselin 76,270,000 Total cost $ 12867000 Bank budget by line objects USD (000) Full-time employee salaries $172,000 Training and development 192000 Installation of new systems 50,000 Communication, utilities and miscellaneous charges 65000 General and Administrative costs 12,388,000 Total cost 12867000 References Sherwood, F et al. 1954, ‘Administrative Uses of Performance Budgets,’ Association of the United States and Canada. Banks, R 1969, ‘Managing the smaller company,’ American Management Association, New York. Read More