斯坦福英文會計學(xué)dissertation：遠(yuǎn)期規(guī)劃和財務(wù)管理的關(guān)系
09-22, 2014
作者試圖進(jìn)行一個研究之間存在的關(guān)系,提出規(guī)劃和財務(wù)管理的會計咨詢組織,這個組織如何有效地使用計劃在其財務(wù)管理功能。
光明的咨詢公司成立了約十年。創(chuàng)始人的目的是在倫敦東南部提供會計和稅務(wù)咨詢服務(wù)小企業(yè)。值得注意的是,這些服務(wù)是相當(dāng)昂貴的如果客戶尋求他們，都是一些大型會計公司，像普華永道和Deloite Touche。因此為了滿足需求的經(jīng)濟(jì)小但非常重要的組織,創(chuàng)始人不得不關(guān)注這個領(lǐng)域。
時間的流逝和變化的經(jīng)濟(jì)環(huán)境帶來了新的競爭對手的進(jìn)入，鑒于進(jìn)入這個領(lǐng)域的門檻并不足夠高從而降低了公司的盈利能力。此外,考慮到咨詢公司需要收購價格與客戶的合同，這是為了公司運作和維持穩(wěn)定。
根據(jù)這種加上當(dāng)前條件的不確定性,它變得明顯,公司將不得不期待并決定一些能夠讓他們在商業(yè)策略變化所帶來的不確定性,競爭對手的市場滲透和需要一些合同來進(jìn)行分析,談判價格用來了解公司的意圖期待和如何做出決定,這必將影響他們的財務(wù)管理。
The author is attempting to carry on a study on the relationship that exist between forward planning and financial management in an accounting consultancy organisation and how this organisation can effectively use forward planning in its financial management function.
Brighter Consultancy was established some ten years age. The objective of the founders was to provide accounting and tax advisory services to small businesses in the south east of London. It should be noted that these services are quite expensive if the client were to seek them from such large accounting firm like PWC and Deloite and Touché. Therefore in order to meet the needs of the small but very important group in the economy, the founders had to focus on this sector.
The passage of time and the changing economic conditions has brought with it the entry of new competitors given the fact that the barrier to entry is not strong enough thus leading to the sipping away of the company profitability. Furthermore, given that the consultancy would need to bid for prices of contract with client is another bearing on the operations and stability of the company.
In the light of this coupled with the current conditions of uncertainty, it has become clear that the company will have to look forward and decide on some strategies that can keep them in business.
The variations brought about by the uncertainties, the penetration of competitors in the market and the need to bid for contracts, and negotiate prices are all factors why it is the company’s intention to look forward and take decisions that will have an impact on their financial management.
To ease the pressure on their finances, one of the things in addition to planning forward was to extend into other areas of operations. As a result, the company negotiated and won a cleaning contract with the London underground. However, the effect of planning forward and its impact on the financial management still is an issue which will need a greater attention if the company must stay in business.
Organisations have failed and gone bankrupt as a result of their inability to look beyond their nose and take measure that will safeguard the life of the company. The importance of planning and forecasting cannot be overemphasised if any company (Brighter Consultancy) will want to remain profitable and outperform competitors.
On the other hand, this topic will give an insight into an area which is the heart of finance and which I have interest to develop. It will give me the ability to analyse the financial operations of a company in terms of its budget and variance and how they can be used in the planning process.
Find out the scope for corrective action when budgets not being met and what is done in practice
My report will be looking into the problem that may exist when organisations fail to recognise the correlation that exists between forward planning and financial management.
Forward planning is an art and science of looking further into the future of an organisation and see what steps can be taking now to benefits what is predicted or what measures can be taken now to overcome any dangers that are predicted (Fielding,2009). Maurice, (1975) add, forward planning is part of the planning process serving decision makers in their process of building the future of an entity.
Forward planning (strategic planning, corporate planning) is more of a creative process that assists an organisation look ahead. According to Ambrose, (1991), forward planning translate an entity’s vision into practical and financial terms, while Michael et al (2004), contend that forward planning requires the making of a choice among possible future event but decision made in the present.
Forward planning can be seen as a rational planning process in which there is a formal structure which is followed when planning the organisational activities in the future. It attempts to consider all relevant information and options (Bryson, 2004). It is iterative; there is a planning cycle in which the results of one cycle become an input into the next. The formal structure starts by setting out the vision of the entity, the mission statement, environmental analysis, corporate appraisal, analysing the internal environment, evaluating the options and choosing among them, putting the structure in place and implementing the plan (Dess et al 2007).
Forward planning helps to provide solutions to problems that an organisation faces as it will give a framework with which success can be measured (Steward, et al,. 2005).
With forward planning an organisation can identify those areas of its activities which require further attention and embark on developing them.
Through forward planning, an organisation’s management will determine what direction to move so that the mission can be achieved (Abell, 1980).
Forward planning helps to pinpoint areas of innovation and development and the resources required to develop them by acquiring new resources for that purpose (Banbury, C.M. and Mitchell, W. 1995).
Through forward planning the board can assess the strength and weaknesses of an organisation in an objective manner.
Through forward planning, the organisation can identify opportunities and threats that are likely to occur and take measures to seize the opportunity and counter the weaknesses (Garry, 2004)
The financial capability of an organisation can better be determined through the process of forward planning. This means that, where to look for funds to run potential viable project can properly be done through the forward planning process. On the other hand, in other to demonstrate to potential investors that the organisation is profitable, there is a need to engage in the process of forward planning.
Forward planning helps to create that sense of purpose, direction and achievement that is needed in the organisation (Arthur, 1973).
Forward planning is a framework for the logical progression from organisational objectives to strategy implementation, where the organisation’s long term objectives will be operationalised (Goold, 1998).
On the other hand, financial management is that part of the overall strategy responsible for decisions such as investment, financing and dividend (William, 2008). Financial management is responsible for the identification of the possible strategies capable of maximising an entity’s net present value, the allocation of scarce capital resource among competing opportunities and the implementation and monitoring of the chosen strategy so as to achieve stated objectives. (CIMA Official Terminology, 2005). In other words, financial management determines which investment the firm should undertake; how, when, where and how much finance should be raised; and how the organisations profits should be allocated.
While forward planning (strategic planning) outlines strategies which are the primary focus of the organisation’s resources to best achieve its mission, financial management is that aspect of forward planning which is responsible to determine how the mission can be achieve through acquisition, allocation and application of funds to internal and external projects such as acquiring new plant and machinery, undertaking new projects, research and development, take- over, mergers or undertake joint venture. Determining how funds will be raised either through equity or loans (Jae et al, 1998).
In the light of the above, it could be said that financial management is intertwine with forward planning. However, how well can an organisation match the two element is the bone of contention in this my report. Do firms realise the need to match both or do they allow anyone to overlap the other? Therefore how does financial management contribute toward the forward planning process? In the next sections I will look at the element of financial management that could be helpful in the forward planning process.
For a profit-making organisation, the main strategic objective or the primary financial objective is to maximise shareholders wealth or maximise the market value of the organisation (Goold, et al 1998).
This may be interpreted as achieving the maximum possible profit consistent with balancing the needs of various stakeholders who have different interests in the activities of the organisation.
It must be said that the interest of other stakeholders must not be neglected as an entity pursues its fundamental objective of maximising shareholders wealth since they can use their influence to reduce the entity’s competitive advantage and consequently reduce its market value.
Maximising shareholders wealth could be achieve through growth, acquisition or merger which management may include in their forward planning as the strategic objective of the organisation. The financial management function will be more concerned with the financial objectives which are more specific. In other to maximise shareholders wealth, the financial objective could be to increase the earnings per share by 10%, increase turnover by 15%, increase capital employed and dividend. It is the responsibility of the financial controller to ensure that there are appropriate measures in place that aid in the achievement of the objectives. He will need to manage and evaluate performance to see if the objectives are achieved.
Organisations establish targets in order to achieve their goals and objectives. These targets for a business organisation will typically be related to the achievement of shareholder value or financial measure such as return on investment and return on capital employed (Johnson, 1997).
These financial targets will usually be reflected in the budget and standard costs. These financial management targets should assist the forward planning process in aligning and realigning its objectives based on performance evaluation.
A management control system need to be in place to ensure that organisational goals are achieved and procedures adhered to, and that there is appropriate response to changes that may affect the organisation. According to Berry et al (2005), management control is the process by which managers assure that resources are obtained and used effectively and efficiently in the accomplishment of the organisation’s objectives.
The budget is a short term operating plan, linked to the corporate plan, and will be used for detailed control (Sue, 2005).
Emmanuel et al (1990) identified there purposes of budgets: as forecasting the future events, as motivational targets and as standards for performance evaluation. They further noted four assumptions made in the budget process:
budget preparation follow organisational pattern of authority and responsibility
The organisational structure determines how responsibility centre are treated.
budget preparation for production was based on standard costing
Budgets for profit centres required estimates of prices and quantities that depended on the market conditions.
In addition to the above assumption postulated by Emmanuel et al, there are other purposes of budgeting such as co-ordination which allow all diverse actions of an organisation to be tailored towards a common corporate goal. The budget may be used to evaluate the financial results of a part of the business (Macintosh, 1994). It may further be used to evaluate the actions of manager within the business. The budget may be used as a target for managers to aim for. Reward should be given for operating within or under budgeted levels of expenditure.
A frequently asked question in formulating the corporate plan is ‘where do we see ourselves in five years’ time?’ to answer this question a firm must consider:
> What it wants to achieve by agreeing its objectives
> How it intends to get there by formulating its strategy
> What resources will be required in terms of operating plans?
> How well it is doing in comparison to the plan by setting control mechanism
Variance analysis involves comparing actual performance against plan, investigating the cause of the variance and taking corrective action to ensure that targets are achieved (Terry, 2002). How well forward planning can be used to predict objectives can be tested through application of the variance analysis. In this way, investigation could reveal whether our forward planning process was effective and if not what need to be done in order to bring forward planning in line with financial management. However, it should be noted that flexible budgets provide a better basis for investigating variances than the original budget, because the volume of production may differ from that produced in our forward planning.
As budgets are predictions and plans for the future, events may make the outcome of particular action uncertain. A number of factors may account for the uncertainty surrounding budget setting and budgetary control process. This could be internal or external such as productivity and efficiency factors, sales may be lower in times of recession, inflation, lost customers government fiscal policy, natural disasters and changes in supplier costs and terms of supply.
There are many techniques which Brighter could use to deal with this uncertainty such as:
- Sensitivity analysis (what if analysis) – this is a technique that tests the effect of varying the projected value of important variables (Sue, 2005). When forecasting financial statement and cash flow, it is important to incorporate uncertainties in the estimates of costs and benefits are taken into account by test all significant variables. Significant variables which could be factored in the plan include: revenue volumes levels of productivity, material cost and labour cost.
- Scenario building – this is the process of identifying alternative futures and constructing a number of distinct possible futures permitting deductions to be made about future developments of markets and products.
- expected values can be used to incorporate uncertainties into the planning process. In this situation, financial forecast of the outcomes of a course of action is multiplied by the probability of achieving that outcome.
- certainty equivalent is another approach which planners can use to incorporate uncertainty that
Having decided on the research question, the next most important thing to do is how the research will be conducted (methodology) as it dependent on the question to be answered.
A research methodology can be defined as a set of beliefs, values and techniques which are shared by the scientific community, and which act as a guide or map, dictating the types of problems scientist should address and the types of explanations that are acceptable to them (kuhn, 1970)
The proposed research will mainly involve quantitative methods. However, qualitative data will also be included; especially in relations with the planning process used by consultancies such brighter and how they help their clients to improve their planning process as well. To analyse the relationship between forward planning and financial management, I intend to focus on studying the final accounts of some client of the company.
Numerical data cannot be analysed from the same perspectives as descriptive data. Therefore, different approaches have been established based on my research questions.
Whereas quantitative data deals with numbers and mathematical tools to analyse results, qualitative data is analysed based on knowledge and intellectual ability of the person to interpret the data. A comparison between the two is shown in the table below。
One of the advantages of working on consultancy is the importance of having to deal with many clients and negotiating the contract price for client services. This is especially important as it will enable me to see how the price negotiation is factored into the forward planning process.
This is the data that will form the basis of my report which is collected by researcher himself.
In addition to the data collected from the literature review,
I will make a random sample of the company’s clients and select some for detail examination of the how the company assist them in planning.
I intend to exam the company’s planning process, do they involve all in the planning process or planning is done at the top and sent down for implementation.
Analyse some annual account to determine how uncertainties were factored during the planning process
Analyse accounts to determine whether the financial objectives were achieved if not what was the cause for the difference
Study the company client base, do they stay or to other large consultancy company and what might be the cause of them leaving
I intend to review the company’s budgeting process and will be looking at the following issues:
How the budget is drawn or the budgeting process of the company
The reporting system and how the budgeting fit into the reporting cycle
Do the company keep strict records of clients’ account
How do they cost jobs
Do they use activity based costing or the rule of thumb
Are variance analysis always done and at what periods and what action is usually taken when variances are unfavourable
Look at the possibility of developing another reporting system and the scope of the system to meet the overall objectives of the company and how financial management will aid the overall strategic objectives。
I also intend to conduct an interview with some of the consultants and auditors and clients. It will be individual interview (talking to managers) in which I will produce a checklist of what I will discuss with the focus group and make a date to meet each of them. The interview guide will focus on the following topics:
At this stage of the project, I am aware of the possible difficulties involved in arranging meetings with senior staff who have very busy schedules; nonetheless it is necessary to meet some staff for an interview.
According to Smith (1991) validity is the degree to which the researcher has measured what he has set out to measure. The validity of my work is based on the verification of what is done in practice and how it is done. That will be the basis of my conclusion. On the other hand if others repeat what i have done they should get the same results. This would them confirm the reliability of my research. Therefore, ‘a scale or test is reliable to the extent that repeat measurements made by it under constant conditions will give the same result (Moser & Kalton, 1989)
I will use secondary data, which can be found at different levels:
- Academic literature such as journals and text books has useful data about the subject; however, the focus is not the same like mine.
- Publications from the company house annual account
The validity of information may vary from source to source. However the reliability and validity of my secondary data will be based on already published accounts which are assumed to be correct at the time of publication.
According to Burns (1994) a research is a systematic investigation to find answers to a problem, .while Bulmer (1977) states ‘nevertheless sociological research, is primarily committed to establishing systematic, reliable and valid knowledge about the social world. It is clear that a research is a process for collecting, analysing and interpreting information to answer questions. Therefore, a good research must be controlled, rigorous, systematic, valid and verifiable, empirical and critical.
On the other hand, i should be able to compare what other companies are practicing in terms of matching both factors in my research topic so that a conclusion can be drawn in general whether that is what is applicable in the consultancy sector.
My conducting my work, I should be able to keep confidential information given to me by members of staff that i will interview and I will need to make sure no official materials are released to the public as that will be seen as breach of confidentiality and ethical code.
There is enormous difficulty in getting information from responsible officers due to lack of time in their part, confidentiality and unwillingness to cooperate. That notwithstanding I intend to conduct my research in a systematic manner and make recommendations that will suite the problems identified.
A time frame for the whole dissertation is given below so as to give an idea of the amount of work required to undertake this investigation.
Time Spent
On what?
Week 1-2
Literature Review
Week 3
Design Methodology
Week 4
Design the tool used for data collection
Week 5-6
Data Collection
Week 7
Analyze data
Week 8
Findings and Interpretation
Week 9
Probable design of business model
Week 10
For Brighter Company to ensure that objectives are met, there are various budget that may be employed to assist in the process.
Incremental budget: Incremental budgets start with previous period’s budget or actual results and add or subtract an incremental amount to cover for inflation and other know changes. Such a budget is suitable for stable businesses where coast are not expected to change significantly.
Rolling budgets: a budget kept continuously up to date by adding another accounting period when the earliest period has expired with aim of keeping tighter control. This type of budget is suitable if accurate forecast cannot be made or for any areas of business that needs tight control.
Feed-forward control: defined as the forecasting of differences between actual and planned outcomes and the implementation of actions before the events, to avoid such differences. Whereas feedback is based on a comparison of historical actual results with the budget for the period to date. Feed forward looks ahead and compares the objectives for the period and the actual results. In the forward planning process, feed forward will be an important element in the link between strategic planning and financial management。
光明的咨詢公司成立了約十年。創(chuàng)始人的目的是在倫敦東南部提供會計和稅務(wù)咨詢服務(wù)小企業(yè)。值得注意的是,這些服務(wù)是相當(dāng)昂貴的如果客戶尋求他們，都是一些大型會計公司，像普華永道和Deloite Touche。因此為了滿足需求的經(jīng)濟(jì)小但非常重要的組織,創(chuàng)始人不得不關(guān)注這個領(lǐng)域。
時間的流逝和變化的經(jīng)濟(jì)環(huán)境帶來了新的競爭對手的進(jìn)入，鑒于進(jìn)入這個領(lǐng)域的門檻并不足夠高從而降低了公司的盈利能力。此外,考慮到咨詢公司需要收購價格與客戶的合同，這是為了公司運作和維持穩(wěn)定。
根據(jù)這種加上當(dāng)前條件的不確定性,它變得明顯,公司將不得不期待并決定一些能夠讓他們在商業(yè)策略變化所帶來的不確定性,競爭對手的市場滲透和需要一些合同來進(jìn)行分析,談判價格用來了解公司的意圖期待和如何做出決定,這必將影響他們的財務(wù)管理。
The author is attempting to carry on a study on the relationship that exist between forward planning and financial management in an accounting consultancy organisation and how this organisation can effectively use forward planning in its financial management function.
Brighter Consultancy was established some ten years age. The objective of the founders was to provide accounting and tax advisory services to small businesses in the south east of London. It should be noted that these services are quite expensive if the client were to seek them from such large accounting firm like PWC and Deloite and Touché. Therefore in order to meet the needs of the small but very important group in the economy, the founders had to focus on this sector.
The passage of time and the changing economic conditions has brought with it the entry of new competitors given the fact that the barrier to entry is not strong enough thus leading to the sipping away of the company profitability. Furthermore, given that the consultancy would need to bid for prices of contract with client is another bearing on the operations and stability of the company.
In the light of this coupled with the current conditions of uncertainty, it has become clear that the company will have to look forward and decide on some strategies that can keep them in business.
The variations brought about by the uncertainties, the penetration of competitors in the market and the need to bid for contracts, and negotiate prices are all factors why it is the company’s intention to look forward and take decisions that will have an impact on their financial management.
To ease the pressure on their finances, one of the things in addition to planning forward was to extend into other areas of operations. As a result, the company negotiated and won a cleaning contract with the London underground. However, the effect of planning forward and its impact on the financial management still is an issue which will need a greater attention if the company must stay in business.
Organisations have failed and gone bankrupt as a result of their inability to look beyond their nose and take measure that will safeguard the life of the company. The importance of planning and forecasting cannot be overemphasised if any company (Brighter Consultancy) will want to remain profitable and outperform competitors.
On the other hand, this topic will give an insight into an area which is the heart of finance and which I have interest to develop. It will give me the ability to analyse the financial operations of a company in terms of its budget and variance and how they can be used in the planning process.
Find out the scope for corrective action when budgets not being met and what is done in practice
My report will be looking into the problem that may exist when organisations fail to recognise the correlation that exists between forward planning and financial management.
Forward planning is an art and science of looking further into the future of an organisation and see what steps can be taking now to benefits what is predicted or what measures can be taken now to overcome any dangers that are predicted (Fielding,2009). Maurice, (1975) add, forward planning is part of the planning process serving decision makers in their process of building the future of an entity.
Forward planning (strategic planning, corporate planning) is more of a creative process that assists an organisation look ahead. According to Ambrose, (1991), forward planning translate an entity’s vision into practical and financial terms, while Michael et al (2004), contend that forward planning requires the making of a choice among possible future event but decision made in the present.
Forward planning can be seen as a rational planning process in which there is a formal structure which is followed when planning the organisational activities in the future. It attempts to consider all relevant information and options (Bryson, 2004). It is iterative; there is a planning cycle in which the results of one cycle become an input into the next. The formal structure starts by setting out the vision of the entity, the mission statement, environmental analysis, corporate appraisal, analysing the internal environment, evaluating the options and choosing among them, putting the structure in place and implementing the plan (Dess et al 2007).
Forward planning helps to provide solutions to problems that an organisation faces as it will give a framework with which success can be measured (Steward, et al,. 2005).
With forward planning an organisation can identify those areas of its activities which require further attention and embark on developing them.
Through forward planning, an organisation’s management will determine what direction to move so that the mission can be achieved (Abell, 1980).
Forward planning helps to pinpoint areas of innovation and development and the resources required to develop them by acquiring new resources for that purpose (Banbury, C.M. and Mitchell, W. 1995).
Through forward planning the board can assess the strength and weaknesses of an organisation in an objective manner.
Through forward planning, the organisation can identify opportunities and threats that are likely to occur and take measures to seize the opportunity and counter the weaknesses (Garry, 2004)
The financial capability of an organisation can better be determined through the process of forward planning. This means that, where to look for funds to run potential viable project can properly be done through the forward planning process. On the other hand, in other to demonstrate to potential investors that the organisation is profitable, there is a need to engage in the process of forward planning.
Forward planning helps to create that sense of purpose, direction and achievement that is needed in the organisation (Arthur, 1973).
Forward planning is a framework for the logical progression from organisational objectives to strategy implementation, where the organisation’s long term objectives will be operationalised (Goold, 1998).
On the other hand, financial management is that part of the overall strategy responsible for decisions such as investment, financing and dividend (William, 2008). Financial management is responsible for the identification of the possible strategies capable of maximising an entity’s net present value, the allocation of scarce capital resource among competing opportunities and the implementation and monitoring of the chosen strategy so as to achieve stated objectives. (CIMA Official Terminology, 2005). In other words, financial management determines which investment the firm should undertake; how, when, where and how much finance should be raised; and how the organisations profits should be allocated.
While forward planning (strategic planning) outlines strategies which are the primary focus of the organisation’s resources to best achieve its mission, financial management is that aspect of forward planning which is responsible to determine how the mission can be achieve through acquisition, allocation and application of funds to internal and external projects such as acquiring new plant and machinery, undertaking new projects, research and development, take- over, mergers or undertake joint venture. Determining how funds will be raised either through equity or loans (Jae et al, 1998).
In the light of the above, it could be said that financial management is intertwine with forward planning. However, how well can an organisation match the two element is the bone of contention in this my report. Do firms realise the need to match both or do they allow anyone to overlap the other? Therefore how does financial management contribute toward the forward planning process? In the next sections I will look at the element of financial management that could be helpful in the forward planning process.
For a profit-making organisation, the main strategic objective or the primary financial objective is to maximise shareholders wealth or maximise the market value of the organisation (Goold, et al 1998).
This may be interpreted as achieving the maximum possible profit consistent with balancing the needs of various stakeholders who have different interests in the activities of the organisation.
It must be said that the interest of other stakeholders must not be neglected as an entity pursues its fundamental objective of maximising shareholders wealth since they can use their influence to reduce the entity’s competitive advantage and consequently reduce its market value.
Maximising shareholders wealth could be achieve through growth, acquisition or merger which management may include in their forward planning as the strategic objective of the organisation. The financial management function will be more concerned with the financial objectives which are more specific. In other to maximise shareholders wealth, the financial objective could be to increase the earnings per share by 10%, increase turnover by 15%, increase capital employed and dividend. It is the responsibility of the financial controller to ensure that there are appropriate measures in place that aid in the achievement of the objectives. He will need to manage and evaluate performance to see if the objectives are achieved.
Organisations establish targets in order to achieve their goals and objectives. These targets for a business organisation will typically be related to the achievement of shareholder value or financial measure such as return on investment and return on capital employed (Johnson, 1997).
These financial targets will usually be reflected in the budget and standard costs. These financial management targets should assist the forward planning process in aligning and realigning its objectives based on performance evaluation.
A management control system need to be in place to ensure that organisational goals are achieved and procedures adhered to, and that there is appropriate response to changes that may affect the organisation. According to Berry et al (2005), management control is the process by which managers assure that resources are obtained and used effectively and efficiently in the accomplishment of the organisation’s objectives.
The budget is a short term operating plan, linked to the corporate plan, and will be used for detailed control (Sue, 2005).
Emmanuel et al (1990) identified there purposes of budgets: as forecasting the future events, as motivational targets and as standards for performance evaluation. They further noted four assumptions made in the budget process:
budget preparation follow organisational pattern of authority and responsibility
The organisational structure determines how responsibility centre are treated.
budget preparation for production was based on standard costing
Budgets for profit centres required estimates of prices and quantities that depended on the market conditions.
In addition to the above assumption postulated by Emmanuel et al, there are other purposes of budgeting such as co-ordination which allow all diverse actions of an organisation to be tailored towards a common corporate goal. The budget may be used to evaluate the financial results of a part of the business (Macintosh, 1994). It may further be used to evaluate the actions of manager within the business. The budget may be used as a target for managers to aim for. Reward should be given for operating within or under budgeted levels of expenditure.
A frequently asked question in formulating the corporate plan is ‘where do we see ourselves in five years’ time?’ to answer this question a firm must consider:
> What it wants to achieve by agreeing its objectives
> How it intends to get there by formulating its strategy
> What resources will be required in terms of operating plans?
> How well it is doing in comparison to the plan by setting control mechanism
Variance analysis involves comparing actual performance against plan, investigating the cause of the variance and taking corrective action to ensure that targets are achieved (Terry, 2002). How well forward planning can be used to predict objectives can be tested through application of the variance analysis. In this way, investigation could reveal whether our forward planning process was effective and if not what need to be done in order to bring forward planning in line with financial management. However, it should be noted that flexible budgets provide a better basis for investigating variances than the original budget, because the volume of production may differ from that produced in our forward planning.
As budgets are predictions and plans for the future, events may make the outcome of particular action uncertain. A number of factors may account for the uncertainty surrounding budget setting and budgetary control process. This could be internal or external such as productivity and efficiency factors, sales may be lower in times of recession, inflation, lost customers government fiscal policy, natural disasters and changes in supplier costs and terms of supply.
There are many techniques which Brighter could use to deal with this uncertainty such as:
- Sensitivity analysis (what if analysis) – this is a technique that tests the effect of varying the projected value of important variables (Sue, 2005). When forecasting financial statement and cash flow, it is important to incorporate uncertainties in the estimates of costs and benefits are taken into account by test all significant variables. Significant variables which could be factored in the plan include: revenue volumes levels of productivity, material cost and labour cost.
- Scenario building – this is the process of identifying alternative futures and constructing a number of distinct possible futures permitting deductions to be made about future developments of markets and products.
- expected values can be used to incorporate uncertainties into the planning process. In this situation, financial forecast of the outcomes of a course of action is multiplied by the probability of achieving that outcome.
- certainty equivalent is another approach which planners can use to incorporate uncertainty that
Having decided on the research question, the next most important thing to do is how the research will be conducted (methodology) as it dependent on the question to be answered.
A research methodology can be defined as a set of beliefs, values and techniques which are shared by the scientific community, and which act as a guide or map, dictating the types of problems scientist should address and the types of explanations that are acceptable to them (kuhn, 1970)
The proposed research will mainly involve quantitative methods. However, qualitative data will also be included; especially in relations with the planning process used by consultancies such brighter and how they help their clients to improve their planning process as well. To analyse the relationship between forward planning and financial management, I intend to focus on studying the final accounts of some client of the company.
Numerical data cannot be analysed from the same perspectives as descriptive data. Therefore, different approaches have been established based on my research questions.
Whereas quantitative data deals with numbers and mathematical tools to analyse results, qualitative data is analysed based on knowledge and intellectual ability of the person to interpret the data. A comparison between the two is shown in the table below。
One of the advantages of working on consultancy is the importance of having to deal with many clients and negotiating the contract price for client services. This is especially important as it will enable me to see how the price negotiation is factored into the forward planning process.
This is the data that will form the basis of my report which is collected by researcher himself.
In addition to the data collected from the literature review,
I will make a random sample of the company’s clients and select some for detail examination of the how the company assist them in planning.
I intend to exam the company’s planning process, do they involve all in the planning process or planning is done at the top and sent down for implementation.
Analyse some annual account to determine how uncertainties were factored during the planning process
Analyse accounts to determine whether the financial objectives were achieved if not what was the cause for the difference
Study the company client base, do they stay or to other large consultancy company and what might be the cause of them leaving
I intend to review the company’s budgeting process and will be looking at the following issues:
How the budget is drawn or the budgeting process of the company
The reporting system and how the budgeting fit into the reporting cycle
Do the company keep strict records of clients’ account
How do they cost jobs
Do they use activity based costing or the rule of thumb
Are variance analysis always done and at what periods and what action is usually taken when variances are unfavourable
Look at the possibility of developing another reporting system and the scope of the system to meet the overall objectives of the company and how financial management will aid the overall strategic objectives。
I also intend to conduct an interview with some of the consultants and auditors and clients. It will be individual interview (talking to managers) in which I will produce a checklist of what I will discuss with the focus group and make a date to meet each of them. The interview guide will focus on the following topics:
At this stage of the project, I am aware of the possible difficulties involved in arranging meetings with senior staff who have very busy schedules; nonetheless it is necessary to meet some staff for an interview.
According to Smith (1991) validity is the degree to which the researcher has measured what he has set out to measure. The validity of my work is based on the verification of what is done in practice and how it is done. That will be the basis of my conclusion. On the other hand if others repeat what i have done they should get the same results. This would them confirm the reliability of my research. Therefore, ‘a scale or test is reliable to the extent that repeat measurements made by it under constant conditions will give the same result (Moser & Kalton, 1989)
I will use secondary data, which can be found at different levels:
- Academic literature such as journals and text books has useful data about the subject; however, the focus is not the same like mine.
- Publications from the company house annual account
The validity of information may vary from source to source. However the reliability and validity of my secondary data will be based on already published accounts which are assumed to be correct at the time of publication.
According to Burns (1994) a research is a systematic investigation to find answers to a problem, .while Bulmer (1977) states ‘nevertheless sociological research, is primarily committed to establishing systematic, reliable and valid knowledge about the social world. It is clear that a research is a process for collecting, analysing and interpreting information to answer questions. Therefore, a good research must be controlled, rigorous, systematic, valid and verifiable, empirical and critical.
On the other hand, i should be able to compare what other companies are practicing in terms of matching both factors in my research topic so that a conclusion can be drawn in general whether that is what is applicable in the consultancy sector.
My conducting my work, I should be able to keep confidential information given to me by members of staff that i will interview and I will need to make sure no official materials are released to the public as that will be seen as breach of confidentiality and ethical code.
There is enormous difficulty in getting information from responsible officers due to lack of time in their part, confidentiality and unwillingness to cooperate. That notwithstanding I intend to conduct my research in a systematic manner and make recommendations that will suite the problems identified.
A time frame for the whole dissertation is given below so as to give an idea of the amount of work required to undertake this investigation.
Time Spent
On what?
Week 1-2
Literature Review
Week 3
Design Methodology
Week 4
Design the tool used for data collection
Week 5-6
Data Collection
Week 7
Analyze data
Week 8
Findings and Interpretation
Week 9
Probable design of business model
Week 10
For Brighter Company to ensure that objectives are met, there are various budget that may be employed to assist in the process.
Incremental budget: Incremental budgets start with previous period’s budget or actual results and add or subtract an incremental amount to cover for inflation and other know changes. Such a budget is suitable for stable businesses where coast are not expected to change significantly.
Rolling budgets: a budget kept continuously up to date by adding another accounting period when the earliest period has expired with aim of keeping tighter control. This type of budget is suitable if accurate forecast cannot be made or for any areas of business that needs tight control.
Feed-forward control: defined as the forecasting of differences between actual and planned outcomes and the implementation of actions before the events, to avoid such differences. Whereas feedback is based on a comparison of historical actual results with the budget for the period to date. Feed forward looks ahead and compares the objectives for the period and the actual results. In the forward planning process, feed forward will be an important element in the link between strategic planning and financial management。
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