Tag: Budget

  • Human Resource Management Problems in Budget Hotel

    Human Resource Management Problems in Budget Hotel

    Analysis of Human Resource Management Problems in Budget Hotel. With the rapid development of the national economy, people’s quality of life has improved significantly, and people’s material and spiritual needs have increased significantly. Consumer choices have forced hotel management efficiency and quality to further improve, especially in cost-effective budget hotels.

    Here are the articles to explain, Analysis of Human Resource Management Problems in Budget Economy Hotel

    Compared with high-end star hotels, the advantages of budget hotels exist mainly manifested in low prices, a good environment, and professional service. They stand favored and loved by the people, and their development prospects are particularly broad. However, there are still many problems that cannot ignore in the development process of budget hotels. Such as imperfect management mechanisms and a lack of respect and care for employees.

    This seriously restricts the problems and improvement of human resource management efficiency and quality of budget hotels. Which is not conducive to obtaining good human resource management results, affecting customers to obtain a good experience. This leads to the deterioration of the reputation of budget hotels.

    Therefore, budget hotels must strengthen the comprehensive management of human resources, detect and properly deal with problems in human resource management promptly, promote the steady and effective advancement of human resource management, and promote budget hotels to conform to the development trend of the times and provide our customers with efficient and high-quality service.

    Keywords:

    • Budget hotel;
    • human resource management problems;
    • problem;
    • optimization strategy;
    • incentive mechanism

    With the rapid development of the market economy and the maturation of science and technology, budget hotels have shown new characteristics in the process of operation and development. The increasingly fierce market competition and the era of continuous progress have put forward greater challenges and more requirements for the human resource management of budget hotels.

    Strengthening human resource management is an important prerequisite to stimulating employees’ service initiative and enhancing their sense of responsibility. It is also an effective measure to improve service efficiency and promote customers to obtain a good experience.

    Therefore, in the future development of budget hotels, they should pay attention to and strengthen human resource management, always maintain a sense of development that keeps pace with the times, actively update human resource management concepts and explore new management models in line with the development of the times. Adapt to changes in the external environment quickly and promptly, and promote the further improvement of the effectiveness of their human resource management.

    Overview of budget hotels

    The connotation of a budget hotel

    As early as the 1950s, budget hotels appeared in the United States, and many countries and regions called them limited-service hotels. Which are hotel management forms between star hotels and ordinary guest houses and hotels. Its most prominent feature is that it is affordable and cost-effective. It provides guests with relatively complete facilities and services at low prices. Its service model is “b&b” (bed +breakfast). At the end of the 20th century, budget hotels began to appear in our country.

    With affordable room rates and relatively perfect service measures, the market quickly expanded. And it stood trusted and favored by many business people and ordinary tourists. Up to now, a large number of budget hotels such as Jinjiang Inn, 7 Days, Hanting Express, and Rujia Express have appeared in our country. The service targets of this type of hotel are generally working-class, business people, ordinary self-financed tourists, and student groups emphasizing the comfort of guest rooms and the standardization of services, highlighting the characteristics of cleanliness, hygiene, comfort, and convenience.

    Its consumption level is about in the low-to-mid range. It usually only provides accommodation services to customers and breakfast is provided directly by suppliers. There is no separate catering department, and it will not provide customers with meals, bars, shops, entertainment, and other services. Compared with high-end star hotels, the most prominent advantage of budget hotels is “economy”. But the affordable price does not mean that their service quality is poor.

    Human resource management of budget hotel

    Human resource management mainly refers to the comprehensive integration and optimization of the internal human resource structure through a series of scientific and reasonable methods and measures, relying on the recruitment, training, application, evaluation, and motivation of employees, to fully stimulate the enthusiasm of employees for work, promote their potential to stand deeply explored and fully realized, enhance competitive advantages for enterprise operation and development, maximize enterprise value, and promote enterprises to obtain good and generous benefits.

    In a nutshell, the content of human resource management is more complex, mainly involving employee recruitment and selection, employee training, employee performance management, employee safety, and health management, and many other contents. The human resource management of budget hotels mainly refers to the scientific and rational deployment of human resources based on fully considering the nature of budget hotel operations, business characteristics, service models, and other related factors, combined with rigorous, scientific, standardized, and feasible management strategies, through staff training, performance appraisal.

    And other methods, comprehensively stimulate the enthusiasm of employees. And promote them to play an active role in the operation and development of budget hotels. So that service efficiency and quality stand comprehensively improved, and our customers stand brought a good service experience. To improve customer satisfaction while promoting the smooth realization of hotel business goals.

    The main problems in human resource management of budget hotel

    The management mechanism is imperfect and lacks respect and care for employees

    At present, many budget hotels have not yet built a mature and perfect human resource management system, lack unified planning and scientific arrangements for internal personnel, and lack respect and care for employees, making it difficult for employees to have a strong sense of trust and belonging to the hotel enterprise, which directly affects the work attitude and work efficiency of employees, resulting in unsatisfactory hotel management results.

    For example, a fast and economical hotel with operations all over the country has a flat management structure, including three levels the store manager, duty manager, and staff. The latter two undertake more work content. However, the imperfect human resources management mechanism and the lack of enthusiasm of employees make the hotel service efficiency deteriorate, making it difficult for customers to get a good experience, which is not conducive to the steady and sustainable development of the hotel.

    The division of labor between managers and employees is clear, and the authority is too great. The management model of unified orders and absolute obedience to leaders exists adopted. And there is a lack of respect and care for employees.

    Management philosophy lags and lacks attention to human resources

    Many economical hotel management concepts are lagging. And the value and significance of human resource management stand not correctly recognized. And there are even situations where human resource management exists underestimated.

    Failure to support the development of human resource management from the aspects of capital, manpower, system, etc. has caused the functions and advantages of human resource management to be unable to be fully utilized and has also caused a series of problems such as insufficient enthusiasm for work and unreasonable job arrangements. Which have effectively affected the customer experience and the improvement of hotel performance.

    Lack of incentives and serious loss of personnel

    In the operation and development of budget hotels, incentive mechanisms stand generally implemented by foremen, supervisors, etc. But due to various factors, the management of many hotels has full control over work procedures and service quality. Making it difficult for ordinary employees to get the respect and care of leaders.

    At present, individual budget hotels have not formulated incentive mechanisms. And do not pay attention to rewards and punishments for internal employees. Many employees have formed a negative mentality of slowing down, resulting in the loss of hotel personnel. The problem is more prominent.

    Low staff literacy, lack of professional training, and talent reserve

    In recent years, a large number of budget hotels have expanded rapidly in China. However, these hotels generally only conduct simple onboarding training for employees. In addition, many employees and even managers and supervisors have a low degree of education. And there are generally problems such as weak professional knowledge and poor service concepts. Which have greatly affected the hotel management efficiency and the improvement of service quality.

    Many domestic budget hotels lack training awareness and talent reserve awareness and have not formulated mature and reasonable career development plans for different employees, making it difficult for employees to see their development prospects, resulting in many employees leaving their jobs and the loss of hotel employees is serious.

    The performance evaluation system is not sound and lacks effective supervision

    Many budget hotels in China attach more importance to performance management and have created performance evaluation systems one after another. However, some objective problems have effectively affected the improvement of the performance evaluation system. For example, some budget hotels have formulated a top-down evaluation system.

    The hotel headquarters is responsible for setting standards, and local branches are responsible for implementation. But the implementation mechanism is relatively rigid, lacks flexibility, and does not consider the attitudes and suggestions of employees.

    In addition, the supervision mechanisms of these hotels are imperfect. And there has been a separation between short-term performance evaluation and the company’s long-term development strategy. Many branches overemphasize interests and evaluation results in the performance appraisal process, fail to correctly recognize the nature of the appraisal, and ignore the connotation of corporate cultural management, making it difficult to guarantee objectivity and fairness in the performance appraisal results.

    Poor risk resistance

    At the beginning of 2020, the new crown epidemic suddenly broke out, causing many industries and many companies to force to shut down, especially the service industry represented by hotels. To compress expenditures and reduce operating costs, many hotels reduced wages and benefits during the epidemic prevention and control period, and many employees and even senior management resigned, causing the hotels after the resumption of work to fall into the dilemma of staff shortage, which is not conducive to the smooth completion of hotel work, but also effectively affects the customer experience, which is very detrimental to the development of the hotel.

    Optimization strategy of human resource management in budget hotels

    Optimize the human resource management system and give full play to the functions of human resource management

    In the process of carrying out human resource management work, budget hotels should actively optimize the human resource management system and formulate a rigorous and mature human resource management system. Through various methods such as rotation and training, the potential. And the value of existing human resources stands deeply tapped, and the advantages of employees promoted to fully utilized.

    It is also possible to flexibly arrange positions based on clarifying the strengths of different employees, to maximize the effectiveness of human resource management functions. City convenience hotels have done a good job in this regard, not only adjusting the human resource management system with the times but also implementing a rotation system to actively tap and use the advantages of employees, promote them to exert their abilities and charm in suitable positions and promote the continuous improvement of hotel performance.

    Adhere to a customer-centric and innovative human resource management model

    The development of budget hotels is fundamentally based on adhering to the customer-centered service concept, which also directly determines that hotels should innovate their human resource management models based on adhering to the customer-oriented. First of all, budget hotels should correctly realize that what employees want is not just a job, but a career that can realize personal value.

    Therefore, it is necessary to provide employees with suitable salaries and good occupational safety and security. At the same time, hotels need to innovate the operational content of human resource management and emphasize the planning and construction of strategic projects, such as formulating mature and reasonable human resource policies, improving staff training mechanisms, and providing human resource support for business development.

    Secondly, budget hotels should be good at developing human resources in learning and management innovation. If you want to improve the value of human capital, you should actively build a learning organization, create a good learning atmosphere, encourage and guide internal employees to improve and break through themselves, expand their knowledge horizons, and improve their business capabilities, to better serve customers and bring customers a good experience.

    Improve the salary structure and implement incentive salary design

    At present, many budget hotels implement a job salary system, that is, the salary level of the same level positions is the same, which will suppress the enthusiasm of outstanding employees to a certain extent, and it is difficult to retain outstanding talents. Therefore, budget hotels must adjust the salary structure and implement incentive salary design. First, implement a broadband salary system. Workers’ unions in the same level of positions receive different basic wages due to different levels of education.

    Generally speaking, the basic wages of workers with a bachelor’s degree are slightly higher. Then those of workers with a college degree or below. At the same time, the salary content enriches, and the enthusiasm of employees mobilizes through various forms. Such as setting performance compensation and issuing benefits, and forming a flexible and motivating salary system. At present, Hanting Express Hotel has vigorously implemented a broadband salary system and achieved good results. Which not only reflects the hotel’s emphasis on high-capable and highly educated talents. But also helps the hotel retain high-level talents.

    Secondly, build a salary structure system based on performance as the main basis. And divide the monthly salary of hotel insiders into two parts: one is the basic salary, and the other is the performance salary. Adjust the ratio of the two rationally and properly grasp the relationship between performance and salary. To stimulate the enthusiasm of employees while achieving effective control of core positions and important management personnel.

    Improve the salary structure.

    The human resources management department should improve the current salary structure according to the importance of the position. While keeping the total income of employees unchanged, the current monthly salary should divide into two parts: “Basic salary” and “performance salary”. The “basic salary” is the employee’s basic monthly salary, and the “performance salary” is the employee’s performance salary. Divide the wages of employees in important positions or decision-making management into a certain proportion. Generally about 20%, and then honor them after the performance evaluation is competent.

    This can not only mobilize the enthusiasm of employees for work, but also implement the necessary control over employees in important positions or decision-making management, promote budget hotels to actively change their operating mechanisms and ideas with the development of the times, give full play to the role of human resource management innovation, and use various reasonable and effective human resource management measures to attract and retain more talents.

    Strengthen the training of employees and build an excellent service team

    The steady and sustainable development of budget hotels is highly dependent on a management team and staff. With outstanding professional capabilities and high comprehensive literacy. Therefore, professional training for managers and ordinary employees should be strengthened to promote them to master more knowledge and skills and provide customers with more professional and better service.

    First of all, budget hotels should increase the introduction of new people, expand the scope of recruitment for the society, universities, etc., raise the recruitment threshold, strengthen strict control of candidates, and select people with solid professional foundations and high comprehensive literacy to work in budget hotels, and eliminate any form of “relationship candidates”. Ensure the quality of talents from the source, and provide a reliable talent guarantee for the steady development of various businesses and tasks in the follow-up budget hotels.

    Secondly, budget hotels should strengthen the professional training of internal staff, promote internal management personnel to update management concepts and change management methods promptly through training and learning, lead internal staff to strengthen the learning of the latest professional knowledge and skills, and promote the staff’s professional skills and service level to be greatly improved, to obtain good service results, improve customer satisfaction, and enhance customers’ sense of trust and belonging to the hotel.

    Improve the performance appraisal system and strengthen incentives for employees at all levels

    A perfect and rigorous performance appraisal system not only helps to stimulate the enthusiasm and initiative of the hotel staff. But also promotes the timely and high-quality completion of various tasks issued by the hotel. So that customers can get a good experience. Their stay in the hotel enhances their trust and belonging to the hotel. The performance appraisal system can be constructed and improved in the following ways.

    First, there is a clear division of salary levels. The senior management of budget hotels should scientifically and rationally divide positions and ranks based on comprehensive consideration of internal job deployment, development of strategic goals, and other factors, and use this as a benchmark to formulate rigorous and reasonable salary standards for each position, to form a salary system that is compatible with the development of budget hotels and combines “basic salary” and “performance salary” to encourage and motivate employees to continuously improve their business standards and enhance service awareness to obtain higher salaries, and then provide our customers with professional and high-quality services. Secondly, adjust the performance appraisal cycle rationally.

    For example

    Rujia Hotel evaluates the general manager once a year. And the general manager who performs well can often receive generous year-end performance bonuses. However, the evaluation cycle is too long. And it is difficult to find the problems and shortcomings of the general manager in his daily work in time. Which has effectively affected the improvement of hotel operation and management efficiency. To effectively solve this problem, Rujia Hotel began to implement the “4+1” model. That is a quarterly assessment plus a year-end assessment.

    At the same time, Rujia Hotel’s incentive plan has been adjusted to draw a certain percentage of the original year-end performance bonus and distribute it as a quarterly bonus. This measure is conducive to mobilizing the enthusiasm of the general manager and discovering work shortcomings promptly. And immediately taking effective measures to correct them. To promote the efficient and high-quality management of the hotel’s internal management work. To create huge profits for hotel companies.

    Implement the ”shared employees” model to give full play to the value of employees

    The outbreak of the new crown epidemic has highlighted the loopholes and problems in human resource management in many industries. And it has also made hotels deeply aware of the importance of stockpiling talents. In the operation and development of the hotel. The value of its employees can be fully realized through the following methods.

    First of all, tap professional talents and reserve talent strength. During the outbreak and prevention and control of the epidemic, the hotel business has declined sharply. When streamlining the workforce, attention should be paid to retaining senior managers. And outstanding employees and striving to achieve maximum value with the least labor costs.

    Secondly, the “shared employee” model is implemented. This means that employees will cooperate in short-term manpower output in a shared model. So that human resources can flow and the efficiency of social resource allocation can be improved.

    Conclusion

    After entering the 21st century, with the development of the times and the progress of society. The hotel industry has grown day by day, and competition in the industry has intensified, especially when people’s consumption concepts have undergone significant changes, consumption levels have increased significantly, and higher requirements for service quality are put forward. Today, our country’s budget hotels are facing important tests and challenges in the process of operation and development.

    To achieve better development, budget hotels need to further enhance the awareness and problems of human resource management, continuously improve and optimize the human resource management mechanism, carry out regular training and effectively motivate employees at all levels, promote the in-depth exploration and full play of the personal potential and advantages of employees, and provide strong human resource support for the steady development of budget hotels, and promote the smooth achievement of the strategic operating goals of hotel companies.

    Analysis of Human Resource Management Problems in Budget Hotel Image
    Analysis of Human Resource Management Problems in Budget Hotel; Photo by Christian Lambert on Unsplash.
  • The scope of the financial budget key

    The scope of the financial budget key

    This Essay article Discussion of The scope of the financial budget key. It stands also called the general budget, which is the last link of the comprehensive budget system. And reflects the results of the daily business budget and the special budget in a comprehensive manner. Also, It includes only cash budgets and projected statements. You may also like to know the Analysis of Project Based Learning Benefits.

    Here are the articles to explain, The scope of the financial budget key!

    The preparation method and application of the financial budget key;

    Fixed budget and flexible budget:

    The fixed budget is based on the normal and objective level of a certain business volume as the sole basis to prepare the budget method. It is highly likely to be inconsistent with reality and is only applicable to enterprises or non-profit organizations with relatively stable business volumes.

    The flexible budget is a budget method that can adapt to various situations based on the cost habit and the dependence on business volume, cost, and profit. Mainly used to prepare flexible cost (expense) budgets and flexible profit budgets. The main methods of compiling cost budgets include the formula method, tabulation method, and also graphic method. For the preparation of flexible profit budgets, the factor method is used for enterprises operating in a single variety or for multi-variety operating enterprises that use the division method to deal with fixed costs, and the percentage method is used for enterprises operating in multiple varieties.

    Incremental budget and zero-based budget:

    An incremental budget is a method of appropriately adjusting the original cost items according to the actual situation of the budget based on the cost and expense level of the base period. While simple and easy to implement, it may keep unreasonable spending items in the budget.

    Zero-based budgeting, regardless of the base period, takes zero as the starting point for all budgetary expenditures, considers the content of each cost and whether the expenditure standards are reasonable one by one, weighs the priorities, and guarantees unavoidable and non-delayable projects, based on a comprehensive balance Methods of preparing a budget. Also, It is more reasonable and can reduce costs. But the workload is large and the focus is not easy to highlight. It is suitable for the preparation of cost budgets for service departments that are more difficult to identify.

    Regular and rolling budgets:

    Regular budgets stand prepared with a constant period as the budget period. Although it is convenient to compare between actual and budget, and analysis and evaluation. Also, the budget stands generally prepared in the first two or three months of the year. It is not clear about the situation of the plan period, and it is easy for managers to only consider the completion of the current plan during the implementation, and lack long-term plans.

    Rolling budget, which separates the budget period from the fiscal year, analyzes the difference between the implementation of the current budget and the actual situation, revises it in time, and continuously extends and supplements the budget. It is a continuous and also stable “special regular” budget method. In specific operations. It can roll on a monthly, quarterly or mixed basis. The mixed rolling has the characteristics of having a greater grasp of short-term forecasts. And a small grasp of long-term forecasts according to people’s understanding of the future. Which can not only achieve long-term plans and short-term arrangements. The distance is slightly closer, and the budget workload can reduce.

    Financial Budgeting Basis

    The business budget and special decision-making budget are the data sources of the financial budget. And they form a complete system and also restrict each other. The specific preparation should start from the data flow relationship between budgets. And also the data relationship within each budget.

    The sales budget

    The data relationships in the sales budget are:

    1. Sales revenue of a certain product = sales quantity of this product × unit price;
    2. Total sales revenue of the enterprise = sum of sales revenue of each product;
    3. Sales cash income = (total sales revenue – current credit sales) + recovery Accounts receivable in the previous period;
    4. Sales tax expenditure = total sales revenue of the enterprise × relevant tax rate.

    The production budget is a budget prepared separately by product name and quantity. During the budget period, in addition to having enough products for sale. Furthermore, The inventory level at the beginning and end of the period should also consider.

    1. Estimated production volume of a certain product = Estimated sales volume + ending product inventory – beginning product inventory;
    2. Ending inventory of the previous period = inventory at the beginning of the current period.

    The direct material budget

    The data relationships in the direct material budget are:

    1. The amount of a certain material consumed by a product = the production volume of the product × the material consumption quota of the product;
    2. The consumption of a certain material = the sum of the material consumed by each product;
    3. The purchase amount of a certain material = Consumption of the material + material inventory at the end of the period – material inventory at the beginning of the period;
    4. Ending inventory of the previous period = inventory at the beginning of the current period;
    5. The purchase cost of a certain material = purchase amount of this material × unit price;
    6. Also, The total purchase cost of materials = the sum of purchase costs of each material;
    7. Cash expenditures for direct materials = (total material purchase cost – material purchase amount on credit) + repayment of previous material purchases on credit.

    The direct labor budget

    The data relationship in the direct labor budget is as follows:

    1. The total man-hours consumed by a certain workshop to produce a certain product = the output of the product produced by the workshop × the labor unit consumption quota of the product in the workshop;
    2. The total man-hours consumed by a certain product = the product in each workshop The sum of the total working hours consumed;
    3. Also, The salary budget of a product = the total working hours consumed by the product × the wage rate per working hour;
    4. Other direct labor expenses = salary budget amount × accrual percentage.

    The product production cost budget is a synthesis of the three budgets of materials, labor, and expenses. And the total production cost and unit production cost of each product during the budget period can be obtained.

    The specific preparation of the financial budget

    The relevant data of daily business budget and special decision-making budget flow into the cash budget, and form a certain data relationship:

    1. Cash balance at the beginning of the period + operating cash income – operating cash expenditure – capital cash expenditure = cash balance;
    2. Also, Cash Surplus + fundraising – use of funds = cash balance at the end of the period;
    3. Noncash balance in the previous period = cash balance at the beginning of the current period. The principles for preparing forecast statements are the same as those for accounting.
    The scope of the financial budget key Image
    The scope of the financial budget key; Photo by Sharon McCutcheon on Unsplash.
  • Financial Budgeting and Forecasting Difference Process

    Financial Budgeting and Forecasting Difference Process

    Financial Budgeting and Forecasting with their Meaning, Distinction, Difference, and also Process; Planning is the most important factor in business success. A good plan not only helps companies focus on the specific steps needed to successfully implement their ideas but also helps managers achieve both short-term and long-term goals. Financial forecasts and financial budgets are two of the most important planning tools in modern organizations. Used properly, financial forecasting and budgeting ensure that an organization always has enough cash on hand for the things that are most important to its short and long-term success.

    Here is the article to explain, the Distinction or Difference between Financial Budgeting and Forecasting with their Meaning and also Process

    Understand the difference between financial forecasting and financial budgeting; Unfortunately, the two terms are often confused or even used interchangeably. This hesitation is a mistake. While forecasting and budgeting are essential to an organization’s planning process, they are significantly different. This article summarizes the distinction between the two processes. A budget calculates how much money your company will make and how much it will spend over a certain period of time. Simply put, a budget lists fixed and variable costs and how the money coming into the business distribute.

    Forecasts use historical and recent transaction data; as well as industry and market information, to determine how budgets for expected costs will distribute over a given period of time. Forecasting increases the confidence of the management team in making important business decisions. Budgeting and financial forecasting have unique goals, but they work well together. While budget details await future results, forecasting focuses on probable future events to inform whether the company will achieve the goals set in the budget. To use the common analogy that a budget is a shared map, forecasting and budgeting is something like Waze or any map app on your phone. Budgeting is the map, and forecasting provides the tools to help you adjust how you reach your goals.

    What does it mean to have financial budgeting?

    Budgeting is the process of making a plan for how you will spend your business money for a certain period of time (months, quarters, years, etc.). The budget estimates your company’s income and expenses for this period. Budgets periodically reassess and adjust – in most cases quarterly. The budget is a quantitative expectation of what the company wants to achieve. Its characteristics are:

    • A budget is a detailed representation of the future results, financial position, and cash flow that management wants to achieve over a certain period of time.
    • The budget can only update once a year depending on how often management wants to review the information.
    • Budgets compare with actual results to find deviations from expected results.
    • Management takes corrective action to bring actual results within budget.
    • Comparison of budget versus actual may result in changes in compensation based on results paid to employees.

    What are the five types of budgets?

    There are five types of budgets that companies usually create to run a business.

    • Creating a static budget created by the department and accounting for fixed costs is often the first step in the budgeting process. A static budget remains unchanged, even if parts of the company, such as sales, change.
    • The articles of association cover all company departments. This budget prepare every fiscal year. The general budget provides revenues, expenses, operating expenses, sales, investments, and other items used in financial statements.
    • A financial plan is a company’s strategy for managing its assets, cash flow, income, and expenses. For example, when a company plans to go public or undertake mergers and acquisitions, it creates a financial budget to determine or represent its value.
    • The operating budget estimates revenues and expenses from ongoing operations, including cost of goods sold and sold, general and administrative expenses.
    • Finally, a cash flow budget makes assumptions about the inflows and outflows of funds over a period of time.

    Why is the budget important? Budgets can be short-term or long-term. They keep the company on track by setting cost parameters and comparing expected results with actual. By providing goals, they provide a company’s goals to pursue and a framework for responsible implementation.

    What does it mean to have a financial forecast?

    Financial forecasting is different from budgeting. It reviews budget targets and, along with market and industry analysis, provides preliminary information to predict whether the expected targets will achieve. These forecasts help finance professionals and line managers see if the company will meet budget expectations – and give them the information they need to make adjustments if they’re not on track. Prognosis is an estimate of what will actually achieve. Its characteristics are:

    • Estimates usually limit to important items of income and expenses. As a rule, there is no forecast of financial condition, although cash flows can predicte.
    • Forecasts update regularly, perhaps monthly or quarterly.
    • Forecasts can use for short-term operational considerations such as staff adjustments, inventory levels, and production schedules.
    • No analysis of variance compares estimates with actual results.
    • Changes in forecasts do not affect yield-based compensation paid to employees.

    Why are forecasts important? Financial forecasts ensure that business units have the resources needed to meet the company’s needs – almost all organizations produce quarterly financial forecasts. However, a new customer loss or an external event such as a pandemic can significantly affect the accuracy of quarterly forecasts. Mobile companies incorporate mobile forecasting to create ongoing process planning rather than quarterly events. These companies can then better respond to the fast-growing market while avoiding the surprises of their regular quarterly forecasts.

    How to know? Which comes first, the budget or the forecast?

    Budgets and forecasts have to work together – you set goals; others provide an idea of whether they can and will achieve. Forecasting can use to help budget or understand how money should allocate to specific areas of the company. But without a budget, forecasts have no real purpose.

    Comparison of budgets and forecasts;

    The main difference between a budget and a forecast is that a budget establishes a plan for what the company is trying to achieve, whereas an estimate sets out expectations of actual results, usually in a much more generalized format. In other words, a budget is a plan for where the company wants to go, whereas a forecast is an indication of where it really is. In fact, the most useful of these tools are forecasts because they are a short-term representation of the real world that is happening in the business.

    The information in the forecast can use for immediate action. On the other hand, a budget may contain goals that are completely unattainable or whose market conditions have changed so much that it is not advisable to fulfill them. If the budget is to use, it must update at least once a year so that it is in line with the current market realities. The last point is especially important in a rapidly changing market where the assumptions used to create a budget can become out of date in a matter of months. In short, businesses always need forecasts to show them their current direction, while budgeting is not always necessary.

    The main distinction or difference between the two financial processes is budgeting and forecasting;

    Now that we have a better understanding of the two processes, we can more easily summarize the differences. There are five main differences or distinctions between the two:

    Definition;

    Financial forecasts are forecasts for trends and financial results based on historical data. A financial budget, on the other hand, is a statement of the estimated income and expenses during the budget period.

    Purpose or Destination;

    Financial forecasts quantify future business activities, revealing where the organization is going for a given period of time. A financial budget, on the other hand, measures a tactical plan that represents what the organization’s management wants to achieve during the budget period.

    Duration or Timing;

    Forecasts are usually made for the long term. While you may occasionally find short-term projections that may cover a quarter, most projections last several years. In comparison, budgets cover a shorter period of time. A typical budget covers a fiscal year.

    Flexibility;

    Financial forecasts are very flexible. They regularly adapt to changing assumptions and changes in the operating environment. On the other hand, budgets are more static. Once created, the budget only adjusts if the initial assumptions have changed.

    Application;

    Forecasts are a strategic tool that companies use to plan their growth over several years. While the budget is a tactical tool used to manage operations during the reporting period. It should also note that while budgets can use to analyze differences between actual and expected results, forecasts are only estimates; do not provide a counter with which to compare.

    Final thoughts on financial forecasting vs financial budgeting;

    Businesses need to start taking financial forecasting and budgeting seriously. However, if you use the two terms synonymously or even confuse them; there is a risk that one will not use but the other. This is a dangerous precedent. Also, You cannot have one without the other; You cannot create an effective budget without good estimates, and vice versa, You need both.

    What is the budgeting and forecasting process?

    There are four types of budget processes – incremental, activity-based, value proposition, and zero.

    1. Step-by-step budgeting is the most common method. Subtract numbers from the previous period and add or subtract percentages to prepare a budget for the current period, according to the Institute of Corporate Finance. The incremental budget procedure base on the idea that a new budget can develope by making slight changes to the current budget. For example, today’s budget can be used as a basis for adding or subtracting additional assumptions to the base amount to determine a new budget amount. It’s good practice if your company’s key cost drivers don’t change every year; but, it doesn’t take into account whether some departments really need more or less money to meet current-period goals.
    2. Activity-Based Budgeting (ABB) sets goals and determines what inputs and activities are needed to achieve those goals. ABB is a budgeting method in which a budget is created based on activity-related costs (ABC). It contains 3 types of information: activities to carries out for next year, number of activities and cost of activities. For example, a car wash plans to ship 12,000 washes over the next year, and the shipping costs are $5 per wash. The activity-based budget for this initiative is $60,000 (12,000 * 5).
    3. That’s exactly what Value Proposal Budgeting does. It checks whether everything in the budget brings added value to the company and whether each line creates added value for customers, employees, or other stakeholders.
    4. Zero-based budgeting lives up to its name – every department starts from scratch and must create a budget from scratch, ignoring any resources and costs it currently has. Managers must justify each position in the budget.
    Details;

    Any budgeting method has value depending on what the company wants to achieve and where it is on its growth path. Zero budgeting, for example, is a good tool for companies that need tight cost control. The value proposition of budgeting provides valuable practice for businesses that are just starting in funding.

    The forecast includes current and historical transaction data and market conditions to help determine whether budget targets will be met. Take, for example, a monthly sales forecast that includes information on inventory levels, changes in customer habits, and news on competitor activity along with data on actual sales over time. By combining this real-world sales data with sales forecasts and budget targets, companies can confidently make the necessary changes in their approach to sales, marketing, and more to ensure their goals are met.

    The best way to improve your budgeting and forecasting;

    Budgeting and forecasting allow companies to plan their fiscal year precisely. Here are 10 ways you can improve this process to create a strategic plan that meets your company’s financial goals.

    Maintain flexible budgeting and forecasting;

    Tough forecasts and budgets are not very useful. Things change throughout the years and you should be able to consider these changes and how they will affect your business. Continuing to make decisions based on the best assumptions made months in advance can lead to wrong and costly decisions. In addition, adherence to indicators based on outdated information by employees is counterproductive and frustrating. Embedding flexibility in your budgeting and forecasting allows for greater accuracy and better results in your business.

    Implementation of current forecasts and budgets;

    You can update current forecasts and budgets based on current results, not what managers think might have been done months ago. This process provides forecasts for the next quarter, not the whole year. Forecasts are broader every quarter as they are updated again. Mobile estimates allow you to better align your budget with your plans while increasing the accuracy of your estimates.

    Budget for your plan;

    Make a plan and incorporate it into your budget. Budgeting as part of your plan “requires spending decisions based on actual income, not opportunities that those expenses may (or may not) generate. Rather than spending it and dealing with it later, budgeting your plan forces you to look at the potential impact of all costs on your business. Using this method of budget management is especially useful when considering options that weren’t part of your original budget.

    Communicate early and often;

    Since forecasting and budgeting cover every aspect of the business; you want to maintain open communication with all departments throughout the process to minimize problems and ensure consistency between your company’s operational and organizational strategies.

    Involve your entire team;

    Budgeting and forecasting should be a team effort so that departments and units better understand their needs. Except for the people in your finance department; while the people at the pulse in various departments can give you the data you need to make accurate estimates and set realistic budgets. In addition, by using your entire team, you can have multiple perspectives on your company’s current and future position.

    Be clear about your goals;

    The purpose of forecasting is to predict the financial future of your company. Forecasting helps you make business decisions and understand their implications before you implement them. Unless you know your company’s overall goals, your ability to accurately predict your company’s financial future will fluctuate. Therefore, you need to know exactly what is driving your predictions. Otherwise, it’s just a random assumption not based on your company’s goals.

    Plans in different scenarios;

    You can’t plan everything out, but you do have an idea of some of the obstacles that could affect your initial financial forecasts and financial budgets. Review external markets and economic trends that could adversely affect your business. Current forecasts help you stay informed about negative or positive changes that could seriously impact your business. Moving forecasts also allow you to rotate as needed based on the data just submitted; so all decisions are based on what’s happening now rather than what happened last year.

    Track everything;

    When budgeting and forecasting for the coming financial year, everything has to take into account, regardless of whether it’s a possible purchase from a competitor or just office supplies. Don’t underestimate the importance of seemingly inconsequential details and their ability to jeopardize a company’s financial health. Once the budget is set, make projections that take into account the many potential scenarios that may arise. Keep an eye on market trends, customer behavior, and competition as business forecasts are finalized.

    Include profit and cash flow objectives;

    Author Jean Siciliano says, “Every budget should have a profit target and a cash flow objective; because, the two extreme measures are very different and require different attention to controlling them”. If you’re not tracking these two key metrics for your business; how useful and accurate will your budget be? To keep your business from missing out on your financial goals, set realistic goals for your cash flow and profit.

    Release Excel;

    Don’t rely on Excel or other spreadsheet programs to create your budgets and estimates. Planning software can make many processes easier and less time-consuming. Cloud systems are quickly becoming the standard for all areas of finance, not just accounting services. When used, this option allows for more flexibility as well as greater security and cost savings than the manual option. They allow you to create accurate estimates and budgets quickly and with minimal errors.

    Financial Budgeting and Forecasting Meaning Distinction Difference Process Image
    Financial Budgeting and Forecasting Difference Process; Image by Mustofa Agus Tri Utomo from Pixabay.

  • What is the top Objectives and Characteristics of Budget Control?

    Budget, Budgeting, and Budgetary Control: A budget is a blueprint of a plan expressed in quantitative terms. Budgeting is the technique for formulating budgets. Budgetary control, on the other hand, refers to the principles, procedures, and practices of achieving given objectives through budgets. So, what is the question we are going to discuss; What is the top Objectives and Characteristics of Budget Control?… Read in Hindi.

    Here are explained; Meaning, Definition, Nature, Objectives, and Characteristics of Budget Control.

    The word is given in Upper “Budget, Budgeting and Budgetary Control” Rowland and William have differentiated the three terms as: “Budgets are the individual objectives of a department, etc., whereas Budgeting may be said to be the act of building budgets. Budgetary control embraces all and in addition, includes the science of planning the budgets to effect an overall management tool for the business planning and control”.

    Meaning and Nature:

    Budgetary or Budget control is the process of determining various budgeted figures for the enterprises for the future period and then comparing the budgeted figures with the actual performance for calculating variances if any. First of all, budgets are prepared and then the actual results are recorded. The comparison of budgeted and actual figures will enable the management to find out discrepancies and take remedial measures at a proper time.

    The budgetary control is a continuous process which helps in planning and coordination. It provides a method of control too. A budget is a means and budgetary control is the end result.

    Definition:

    According to Brown and Howard,

    “Budgetary control is a system of controlling costs which includes the preparation of budgets. Coordinating the department and establishing responsibilities, comparing actual performance with the budgeted and acting upon results to achieve maximum profitability.” Wheldon characterizes budgetary control as ‘planning in advance of the various functions of a business so that the business as a whole is controlled’.

    J. Batty defines it as,

    “A system which uses budgets as a means of planning and controlling all aspects of producing and/or selling commodities and services.” Welch relates budgetary control with-day-to-day control process. According to him, ‘Budgetary control involves the use of budget and budgetary reports, throughout the period to coordinate, evaluate and control day-to-day operations in accordance with the goals specified by the budget’.

    From the above-given definitions it is clear that budgetary control involves the following:

    • The objects are set by preparing budgets.
    • The business is divided into various responsibility centers for preparing various budgets.
    • The actual figures are recorded.
    • The budgeted and actual figures are compared for studying the performance of different cost centers.
    • If actual performance is less than the budgeted norms, remedial action is taken immediately.

    Top three Objectives of Budget Control:

    The following points highlight the top three objectives of Budgetary control or Budget control. The objectives are:

    • Planning.
    • Co-Ordination, and.
    • Control.

    Now, explain;

    Planning:

    A budget is a plan of the policy to be pursued during the defined period of time to attain a given objective. The budgetary control will force management at all levels to plan in time all the activities to be done during future periods. A budget as a plan of action achieves the following purposes:

    • The action is guided by the well thought out plan because a budget is prepared after a careful study and research.
    • The budget serves as a mechanism through which management’s objectives and policies are affected.
    • It is a bridge through which communication is established between the top management and the operatives who are to implement the policies of the top management.
    • The most profitable course of action is selected from the various available alternatives.
    • A budget is a complete formulation of the policy of the undertaking to be pursued for the purpose of attaining a given objective.
    Co-Ordination:

    The budgetary control co-ordinates the various activities of the firm and secures co-operation of all concerned so that the common objective of the firm may be successfully achieved. It forces executives to think and think as a group. It coordinates the broader economic trends and the economic position of an undertaking. It is also helpful in coordinating the policies, plans, and actions. An organization without a budgetary control is like a ship sailing in a chartered sea. A budget gives direction to the business and imparts meaning and significance to its achievement by making the comparison of actual performance and budgeted performance.

    Control:

    Control consists of the action necessary to ensure that the performance of the organization conforms to the plans and objectives. Control of performance is possible with pre­determined standards which are laid down in a budget. Thus, budgetary control makes control possible by continuous comparison of actual performance with that of the budget so as to report the variations from the budget to the management of corrective action. Thus, the budgeting system integrates key managerial functions as it links top management’s planning function with the control function performed at all levels in the managerial hierarchy.

    But the efficiency of the budget as a planning and control device depends upon the activity in which it is being used. A more accurate budget can be developed for those activities where a direct relationship exists between inputs and outputs. The relationship between inputs and outputs becomes the basis for developing budgets and exercising control.

    The main objectives are stated below:

    • To determine business policies for the attainment of desired objectives during a particular period of time. It provides definite targets of performance and gives the guidance for the execution of activities and effort.
    • To ensures planning for future by setting up various budgets. The requirements and expected performance of the enterprise are anticipated.
    • To co-ordinate the activities of different departments.
    • To operate various cost centers and departments with efficiency and economy.
    • Elimination of wastes and increase in profitability.
    • To co-ordinate the activities and efforts of different departments in the enterprise so that the policies are successfully implemented.
    • To regulate the activities and efforts of people to ensure that the actual results conform to the planned results.
    • To operate various cost centers and departments with efficiency and economy.
    • To correct the deviations from the established standards, and to provide a basis for revision of policies.

    The Characteristics of Budget Control:

    The above definitions reveal the following characteristics of budgetary control:

    • Budgetary control presumes that management has made budgets for all departments/units of the enterprise and these budgets are summarised into a master budget.
    • Budgetary control needs the recording of the actual performance, its continuous comparison with the budgeted performance, and the analysis of variations in terms of causes and responsibility.
    • Budgetary control is a system suggesting suitable corrective action to prevent deviations in the future.

    The Characteristics of Good Budgeting:

    The following characteristics below are:

    • A good budgeting system should involve persons at different levels while preparing the budgets. The subordinates should not feel any imposition on them.
    • Budgetary control assumes the existence of forecasts and plans of the business enterprise.
    • There should be a proper fixation of authority and responsibility. The delegation of authority should be done in a proper way.
    • The targets of the budgets should be realistic, if the targets are difficult to be achieved then they will not enthuse the persons concerned.
    • A good system of accounting is also essential to make the budgeting successful.
    • The budgeting system should have whole-hearted support of the top management.
    • The employees should be imparted budgeting education. There should be meetings and discussions and the targets should be explained to the employees concerned.
    • A proper reporting system should be introduced, the actual results should be promptly reported so that performance appraisal is undertaken.
  • What is the Cash Budget? Meaning and Definition

    What is the Cash Budget? Meaning and Definition

    What Do You Mean Cash Budget? A cash budget is a budget or plan of expected cash receipts and disbursements during the period. The cash budget is a written estimate of a firm’s future cash position. It predicts for some future period the cash receipts from different sources, cash disbursements for different purposes and the resulting cash position generally on a monthly basis as the budget period develops. Cash budget consists of all expected inflows of cash including income and non-income sources such as receipts from the sale of stocks and bonds and receipts from the sale of fixed assets. It is, thus, a formal presentation of-expected circular flow of cash through the business. So, what is the question; What is the Cash Budget? Meaning and Definition.

    Here are explain What is the Cash Budget? with Meaning and Definition.

    What is the meaning of Cash Budget? A cash budget is an estimated projection of the company’s cash position in the future. The cash budget depicts the movement of cash whereas the projected income statement presents account for all sources of income to be tapped and for all classes of expenses to be incurred during a stated period and show how much profit, if any, is expected to be earned in a future period.

    Definition of Cash Budget:

    A formal presentation of-expected circular flow of cash through the business. Likewise, cash budget provides for all types of cash outgo including payments of expenses accrued in the prior periods, the forecast period, or the subsequent periods (pre-payments) or as payments not immediately related to expenses such as the purchase of fixed assets or dividend distribution to the stockholders. Disbursements in respect of the purchase of fixed assets or dividend distribution would not find the place in the income statement. Similarly, there are certain items that would appear in the income statement but are not included in the cash budget.

    A cash budget is defined as:

    “Cash budget shows in detail budgeted cash receipts and payments of both capital and revenue nature. In addition, a cash budget also determines the expected cash balance of the organization business at specific intervals.”

    The usual forecast period of a cash budget is one year broken down by monthly periods or weekly periods. This allows incorporation of seasonal variations in cash flow. When cash flows are relatively stable, the finance manager may prepare a budget for full one year period. When the outlook is very uncertain, he may have to be satisfied with a projection for only quarterly.

    What is the Cash Budget Meaning and Definition
    Wallet Cash; What is the Cash Budget? Meaning and Definition. Image credit from ilearnlot.com.