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1) Does ZBB, Rolling Budget, Flexible budget n Activity Based Budget come under Beyond Budgeting concept or is it different from those ?
2) In the ques ‘Divisional Actions’ from kaplan kit…….. In Division B, can it be argued that as the invoice will only be received in the next financial year, the expense does not have to be recognized now………..the logic being that there is no way to ascertain what the amount would be ?
Thanks
ZBB, rolling, flexible and ABC are all different forms of budgeting. Beyond budgeting really says that you shouldn’t budget at all.
I don’t have access to the Kaplan book so can’t be sure of the point. However, in general, if a company or a division benefits from a service or purchase in a period, it should recognise the expense of that in the same period. This is the basis of accruals accounting. Exactly when the invoice arrives is arbitrary. If the invoice does not arrive until the next accounting period, then accrue for the expense. If the invoice does not arrive in time for the results to be presented, make an attempt at estimating it and accrue.
Dear Sir,
You have stated that Beyond Budgeting concept essentially states not to have Budgeting. However if one understands it correctly it states NOT TO HAVE Fixed budget drawn at particular point of time and then not factoring in subsequent changes happening.
As such Beyond Budgeting points out to have Flexible Budget and then scan all eventuality happening around and factor them in and then have Revised Revolving ( Rolling & Flexible) Budget , that’s called Beyond Budgeting concept.
Kindly correct me , If I am wrong.
Deepak
I think you are wrong, otherwise what’s the difference between flexed budgets, rolling budgets and beyond budgeting? It’s a more fundamental change than flexed or flexible budgeting and can mean liberating managers from anything do to with an original budget.
See:
though I’m not convinced it’s a helpful article.
Also see:
Gromit, could you give a framework/ question prompts….to generate ideas for “performance measurement” & “performance management”……..
I’m afraid I don’t think that’s possible as what you need to do depends very much on the scenario.. The whole business of performance management rests on:
1 What are the criteria for good performance? This can get you right back to the mission statement as that embodies the purpose of the organisation and performance can only be judged with reference to that.
2 Then decide aspects of performance to be measured.
3 Devise KPIs and set targets.
4 Measure performance.
5 Compare performance to targets and interpret carefully (eg take outside influences into account)
6 Decide how performance might be shifted nearer to the targets (or adjust targets in some cases).
Gromit,
Thanks for replying to my earlier ques….but i have a few more… 🙂Arent EVA and cash flows always the rule of thumb when measuring performance….? I mean its more linked to shareholder value than ROCE n ROI… right? for eg: in the dec 2012 LLA ques (ii)..evaluating performance measures of divisions.. i thought suggesting EVA would be the right thing…..
Also, is EVA less relevant for service industries??…if so,what would a gud alternative be?
In situations where, EVA is taken as a performance measure…..how can that be linked to manager remuneration ?….
Are hospitals always considered as NFPs?
EVA is very close to Residual Income and tells investors how much value has been created after paying for finance. If positive, value has been created. There is an element of rule of thumb because of all the adjustments made (eg capitalise training and research) but it is a trade marked approach.
The answer does make the point that RI (and some other measures) might be less applicable in service industries, and the same would go for EVA. The answer suggests taking revenue and revenue per employee cost as examples of alternatives.
EVA could be linked to managerial performance simply by setting an EVA target. It will focus the manager on maximising profits (after the EVA adjustments) and keeping an eye on the capital employes.
Hospitals might be private (eg in the USA). In which case they might be assessed on the basis of profit rather than patients seen or cured. In the absence of any other information, I would assume that they are not for profit.
ROI is said to be not good as it discourage investment…………coz when asset goes up roi goes down
But, RI and EVA discourages investment too…right?…….coz the capital employed will go up ….n the finance charge will increase….right?In Dec 2012 still water ques…..shouldnt opening capital employed valued by regulator be used for roce ….i.e 761 instead of 779?
All the measures might discourage investment in new assets, certainly until they earn lots more. All measures can give distortions – that’s why annuity depreciation might be used (a mathematical fiddle if you ask me.
ROCE usually uses the closing capital employed. EVA the opening capital employed.
i kno i shouldnt be postin this here…. but no one replied in the general forum.. 🙁
u know that the alternate pages in the booklet dont have margins…..so do we have to draw them?………or is it unnecessary?…
Sorry, I have no idea. The instructions say not to write in the margins, but I don’t know about non-margin pages.
Jackson9: welcome
Gromit: Dear Tutor, from what I understood, for beyond budgeting, we can say the following:
E.g. The beyond budgeting concept may be used by this Company, instead of the zero-based budgets. As the name itself implies, the beyond budgeting does not involve the use of budgets, thereby leading to less resources allocated to the budget exercise.
The main concepts for BB are the empowerment of the lower level managers and a greater flexibility of the senior management level…
Then apply to the scenario, and eventually, we can say that the traditional budgeting methods can still be used (like ABB, ZBB).
Am I correct?
Many thanks.
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