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Planning Control and Budgeting
Introduction to Finance (FIN2303)
Algonquin College
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Planning Control and Budgeting
The Planning, budgeting, controlling process
When you look at a company’s financial reports whether retrieved from the annual report or from past history of the company the results have been proved and or “lived out” – in other words the analysis of historical financial statements cannot be changed. Managers can of course study and learn from these historical financial statements to create projected financial statements. The key purpose of project financial statements is to plan for factors that will change the financial outcome at the end of the period.
Planning
Planning is the process of formulating goals and outlining action plans to realize the goals. Planning is important because it forces managers to be more creative; helps integrate short-term plans with long-term plans; provides a sense of purpose and direction; enables a business to cope with change; and simplifies managerial control.
Managers at all levels have different roles in the planning process. There are 3 basic types of plans:
- Strategic ○ carried out by Top-level managers and include plans that will take place over a 5year period or longer
Strategic plans help managers cope with a company’s external environment by seizing opportunities and identify threats.
- Tactical ○ carried out by mid-level managers and take place from a 1-5 year period
Tactical plans involve preparing goals and plans to carry out long term strategies. Tactical plans are prepared to show how managers intend to carry out the plans. Budgets are a tool used to measure the outcome of these plans.
- Operational ○ carried out by First-level managers and take place over a 12 month period or less
An operational plan involves developing a detailed short-range plan and budget. The short term budgets are used by the controller to prepare consolidated budgets and projected financial statements.
Controlling
Controlling is establishing strategic and operational control points to ensure that objectives and plans are realized.
The various steps involved in the control system.
There are six steps in the control system.
- The control system must be designed to fit the culture of the organization and benefit managers and employees at all levels.
- Performance indicators must be established for measuring accomplishments; the key elements of costs and benefits are determined and the elements that need to be measured are selected.
- Performance standards are determined that pinpoint the standards applicable for a particular time period so results can be compared.
- Performance is measured at planned intervals.
- Variations between standards and results are analyzed to determine the reasons for the variances.
- Corrective action is taken to solve the problems revealed by the variances.
Preventive controls and screening controls.
Preventive controls guide actions toward intended results, such as using a procedures manual.
Screening controls identify points in a process at which corrective action can be taken before a process is completed in order to avoid defects or waste.
SWOT analysis
SWOT analysis is the process of identifying a company’s strengths and weaknesses (internal analysis) and opportunities and threats (external environment). This analysis helps managers to formulate planning assumptions, which establish boundaries upon which a company’s plans and budgets are based.
Analyzing a company’s external environment and internal factors is accomplished by a process referred to as SWOT. This acronym stands for
STRENGTHS
● something a company does well or places them in an advantageous position over competitors
Planning Control and Budgeting
Course: Introduction to Finance (FIN2303)
University: Algonquin College
