Davis Case Study

Davis Case StudyBy:Andy, Lea, Louis, CTPurpose of budgets within organizationsBudgeta financial plan using numerical data to predict the future of the businessShow financial targets (e.g. income, expenditure)Davis uses it to plan future use of its resources (short or long term)Relationship between objectives budgets and operational budgetsObjective budgetoverall financial plan based on aims and objectives of an organisation (e.g. cash flow, costs, profits, sales), long termE.g. Increase general facilities sales in Nordic by 6% by the end of the year.Operational budgetmonth-to-month financial planning (sales, activity levels, and expenditure) (e.g. staff costs), short termE.g. Both are financial plans predicting the future of the business.Factors that managers might have to take into consideration when preparing budgetsConsider/review different scenarios using sensitivity analysisExamples: -Economic outlook -Competition -Customers -Staff -SuppliersKnow impacts of different scenariosFor organization to change/alter budgeting strategy

Factors that managers might have to take into consideration when preparing budgetsAccommodate unexpected changes with flexible budgets or watch for variancePrepare possible changesAvoid problems affecting business Eg. Sales may be lower than predicted change budgeting perhaps reduce expenditureFactors that managers might have to take into consideration when preparing budgetsLimitations: - time consuming (to create) - Future is unpredictable (errors in budgeting) - ignores qualitative data (politics, environmental issues etc)How budgeting can contribute to a business achieving its aimsCoordinate different departments and align them towards shared objectivesDepartments work more efficientlyMotivate employees moreWork as communityHOWEVER, Different departments might not communicate as well due to employees sharing same objectives, and everyone already has a clear view on what to do.Davis uses Key Performance Indicators (KPI) e.g. measure management retention rateBudgeting show employees overall picture, motivate them, clear view of the objectiveContribute to achieve aims, increase productivityHOWEVER, during budget process:Disagreements, conflictsDecrease motivationErrors and inaccuracies due to impossibility to predict futureHow budgeting can contribute to a business achieving its aimsAt Davis, 750 people are involved with budgetingThe time spent on budgeting means that they are not available to carry out other responsibilities slowing down production and other departments work making it hard to achieve aims and objectives due to less timeBy having 750 people involved there is a higher possibility of creating a more reliable and accurate budget more people more ideas more scenarios clearer budgeting faster to achieve aims.

How budgeting can contribute to a business achieving its aimsIn conclusionBudgeting is very time consuming takes a lot of effort slow down the process of production a total of 750 people are involved in budgeting cause Davis to take longer to achieve aimsHOWEVER, having a clear budget can help strengthen the objectives and aims gives the employees a clear view motivate employees increase in production rate reaching aims fasterRecommendBudgeting is very important for Davis for the following reasons:Although time consuming can create overall picture of the direction can motivate employees in the long termAlthough the future is unpredictable with 750 in Davis involved in budgeting more opinions sensitivity analysis higher accuracy, more reliable