PowerPoint 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 Copyright © 2014 Nelson Education Ltd. 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 Copyright © 2014 Nelson Education Ltd. LO 2 7–7 Performance Indicators Copyright © 2014 Nelson Education Ltd. 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
