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Performance Management
Lecture 1
An overview
Dr. Haider Shah
Dr. George H. Papadopoulos
Semester B
1
Reading sources
Management & Cost Accounting
Bhimani et al
Module Guide
2
Learning Objectives?
o
Have an overview of the module
o
Review basic concepts relating to
performance
o
Understand how budgeting is used
as an instrument of performance
management
3
Assessment


Coursework
Exam
40%
60%
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Performance Management
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Defining Performance
“Performance is the record of outcomes
achieved in carrying out a specified job aspect
during a specified period”
Kane (1996: 125)
outcomes
specified period
specified job aspect
(Management by Results, MBR)
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Results & Behaviour Framework
Positive
Behaviour
Negative
Results
Did not
Achieved
Achieve
Positive
Positive
Success
Failure
Negative
Negative
Success
Failure
(Brumbach, 1988: p 388)
Two dimensional typology of success and failure to view the notion
of performance. Performance can be a ‘positive success’ if both
results and behaviour were positive. It will be a ‘negative
failure’ if both behaviour and results are negative. Performance
can be a ‘negative success’ if results are positive but behaviour
was negative.
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Budgeting!
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Planning to Budgeting
What’s common in having a gadget,
throwing a party or buying a book?
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Strategic Planning and Budgeting
Strategy
Formulation
Goals
Plans
Budgets
Standards
Targets
Measure
Outcomes
Fitzgerald et al, 1991
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Definition
“A Budget is a quantitative statement, for a
defined period of time, prepared and
agreed in advance, showing planned
revenues, costs, assets, liabilities and
cash flows”. (CIMA)
“The budget for an organization is
essentially a model of the expected
physical, financial and (to a limited
extent) non-financial consequences of
all its activities for a certain period in
the future.”
(Wilson & Chua 1993)
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Planning and Control


planning
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Long term
Planning process
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Short term
Budgeting process
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Control
Identify Objectives
Search for alternative
Courses of action
Gather information about
alternatives
Select alternative courses
of action
Implement decision
 Compare actual and planned
outcome
 Respond to divergences
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Why do we need budgets?
They are generally essential for



CONTROL
CO-ORDINATION
COMMUNICATION
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Functions -1
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Quantification of plans
Ensuring plans are financed
Controlling resources and
performance
Otley (1996): p 290
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Functions - 2
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Forecasting
Planning
Communication
Co-ordination
Authorisation
Motivation
Evaluation
Few People can carry a male elephant
EQL (UMA)
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Budget Terminology
Planning
Establishment of objectives, and the
formulation, evaluation and
selection of the policies, strategies,
tactics and action required to
achieve them.
CIMA Official terminology
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The Budget period


A segment of time for which
budget is prepared and used
Can be sub-divided into 12 or 13
control periods.
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Budget manual
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Instruction manual governing the
creation of the budgets within an
enterprise.
Contents:
 Objectives of process explained
 Organisational structures
 Principal budgets
 Administrative details
 Procedural issues
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Budget committee
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Functions of:
 Co-ordination
 Issuing of timetables
 Allocation of responsibilities
 Provision of information
 Communication of final budgets
 Continuous assessment
Assisted by a budget officer; reps
from all parts of business
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The budget – where do we start?

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The principal budget factor – that
which limits the activities of the
organisation.
Potential ones are:-
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The budget process
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The process will differ from one
organisation to another
Preparation may take weeks or
months
Budget committee may meet
several times
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Steps in preparation
1.
2.
3.
4.
5.
6.
Identify limiting budget factor
Preparation on sales budget
Preparation of finished goods
budget
Preparation of production budget
Preparation of budgets for
production processes
Prepare raw materials inventory
budget
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Steps in preparation
7.
8.
9.
10.
11.
Prepare
budget
Prepare
Prepare
Prepare
Prepare
raw materials purchases
overhead cost budgets
overhead absorption rates
Cash budget
Master budget
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Private study

What are different types of
budgeting methods? In what way
Zero base budgeting and Rolling
budgets improve upon traditional
method of incremental budgeting?
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