Presentations for
Finance for
Non-Financial Managers:
Seventh Edition
Prepared by
Pierre Bergeron
University of Ottawa
Copyright © 2014 Nelson Education Ltd.
7–1
CHAPTER 7
Planning, Budgeting, and Controlling
Copyright © 2014 Nelson Education Ltd.
7–2
Learning Objectives
1. Comment on the activities that link planning, budgeting, and controlling. 2. Describe the meaning of planning, its process, and how to measure organizational performance.
3. Explain why SWOT analysis and planning assumptions are important for setting goals and preparing plans, budgets, and projected financial statements.
4. Show how budgeting fits within the overall planning process, the different types of budgets, and how to make budgeting a meaningful exercise.
5. Explain the nature of a business plan and its benefits and contents. 6. Describe projected financial statements and how to measure growth and financial health.
7. Discuss the importance of controlling, the control system, and the different types of controls.
Copyright © 2014 Nelson Education Ltd.
7–3
Planning, Budgeting, Financial Projections and Controlling
Copyright © 2014 Nelson Education Ltd.
LO 1
7–4
The Planning Process
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LO 2
7–5
Why Planning is Important
LO 2
1. Creative, innovative, resourceful
2. Goal congruence
3. Sense of purpose and direction
4. Cope with change
5. Simplifies managerial control
Copyright © 2014 Nelson Education Ltd.
7–6
Hierarchy of Plans
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LO 2
7–7
Performance Indicators
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LO 2
7–8
LO 2
Budgeting by Results
The aim
To reach the highest level of performance with the least expenditure of resources.
How
Mechanism
the right things
By doing ________________
things right
By doing ________________
Planning
Budgeting
• priority setting
Proper use of resources
• objective setting
This means being …
effective
________________
economical
________________
efficient
________________
Copyright © 2014 Nelson Education Ltd.
7–9
Budgeting by Results
LO 2
1. ___________________________________
Demassing
2. ___________________________________
Planned downsizing
3. ___________________________________
Productivity indicators
4. ___________________________________
Reengineering (activity -based budgeting)
5. ___________________________________
Reward simplification
6. ___________________________________
Cut useless activities
7. ___________________________________
Reward quality
8. ___________________________________
Employee empowerment
9. ___________________________________
Balanced scorecard
10. ___________________________________
Reward good behaviour
11. ___________________________________
Cut salaries and benefits
12. ___________________________________
Arbitrary cuts
Copyright © 2014 Nelson Education Ltd.
7–10
SWOT Analysis and Planning Assumptions
Copyright © 2014 Nelson Education Ltd.
LO 3
7–11
Budgeting Within the Planning Process
Phase 1 Corporate planning
• Mission statement
• Key success factors
• Value goals
• Corporate priorities
• Strategic goals and plans
Phase 2 Management by objectives
• Roll-down process
• Objectives (ongoing activities)
• Objectives (projects)
LO 3
Phase 3 Budgeting by results
Phase 4 Operational planning
Phase 5 Controlling
Copyright © 2014 Nelson Education Ltd.
7–12
Budgeting and Financial Projections
Copyright © 2014 Nelson Education Ltd.
LO 3
7–13
LO 4
Types of Budgets
Operating
budgets
• Sales budgets
• Flexible budgets
• Overhead unit budgets
Complementary budgets • Product budgets
• Program budgets
• Item-of-expenditure budgets
• Cash budgets
Comprehensive budgets • Projected financial statements Capital budgets • New plants
• Expansion/modernization
Copyright © 2014 Nelson Education Ltd.
7–14
Rules for Sound Budgeting
LO 4
1. Pinpoint authority
2. Integrate all planning activities
3. Insist on sufficient and accurate