All business managers understand the fact that they need to carry out routine investigations to find out the efficiency of the business activities. Such leaders also know and understand that they might need to make necessary changes as required by the firm in the process of conducting their evaluations. Sometimes, managers are forced to make changes such as production, buying, making, or even supplying the materials used in and out of the firm to improve efficiency and profitability in the markets. Therefore, looking at factors such as the budget process, make or by decisions, and non financial measures can help the organization to make the necessary adjustment in improving efficiency and profits in the firm.
The initial process of any budgeting procedure includes making the operating budget in advance. The operating budget functions in helping the financial managers and the leaders in the organization to estimate or forecast factors such as future costs, forecasted income and cash flows, and known expenses to be incurred in the firm. The initial process also considers factors such as production costs, sales, labor, marketing, overhead, and general administrative expenses that the organizational leaders will incur during the daily business operations. It is also important that the leaders consider budget variance analysis to differentiate between actual and standard budgets in the organization. Moreover, they should consider the initial costs for stating and running the business.
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Some of the budgeting variance that the managers need to consider include direct and standard variance. Direct material variance in the organization is seen to adversely increase. The variance also occurs due to standard quantities as estimated by the managers compared to the actual amounts of materials used for production and other activities. For example, the leaders estimated that they were supposed to use 20,000 materials but they had to increase the amount to 31,000. The increase in the quantity of resources used indicates that the managers had to utilize more actual material than the budgeted resources. Moreover, such variance also indicates a drastic change in the amount of money to be used in meeting the quantity of materials purchased in the firm. Some of the factors that lead to sudden changes in variance in an organization occur due to underestimation or sudden increases in the amount of products demanded by the clients.
Many company leaders understand the financial implications of sudden changes in their lines of production. As such, the first change that the leaders should make is being able to set funds a side to deal with any sudden changes in their budgets. They also need to ensure that they come up with a near actual figure estimation to ensure that they do not incur large variance in their estimated budgets. On the same note, the managers also need to be involved in all their budgeting operations to ensure that they effectively forecast the quantity of materials, resources, and the amounts of funds they set aside for their budgeting factors.
Some of the ethical considerations that revolve on the changes to be made in the budgeting variance include the need to ensure that finances are allocated adequately for production, resources, and other organizational activities. The managers also need to ensure that the money put aside for any changes in variances are utilized accordingly. Moreover, when setting finances aside to help deal with any unforeseen changes in the amount of materials and labor costs in the firm, it is important for the managers not to interfere with employee payments. Instead, they should monitor organizational cash flow and use the profits to deal with any changes in the supply of resources in the firm. The managers can also decide to buy some of the materials they used and also make others within their business. For example, they can look into their product portfolio and see the type of materials that their production mangers can create to ease the sudden changes in budgeting. The ability to make some of the materials will make it possible for the managers to increase their supply chain and be able to increase the amount of materials and resources they use in the organization. It will also increase efficiency in the firm by increasing rates of production and supply of finished goods.
Some of the non financial performance measures that the leaders in the firm need to consider include employee knowledge and skills, functionability of the machines, working conditions, relationships with personnel, and the type of supervision used in the company. Moreover, the managers need to consider whether the employees posses the necessary skills to work in different sectors in the firm. They also need to evaluate whether they have effective working conditions that make it possible for their human resources to achieve peak performances. Moreover, the machines also need to be working optimally to increase efficiency in all department of the company. The ethical consideration of these non financial measures is that they will desire that the employees receive effective working packages.
The above discussion identifies some of the factors that managers in an organization need to consider to ensure efficiency. Some of these factors include the decision to make or buy some materials, and setting aside funds to take care of any changes that might take place in the budgeted amount of materials. They also need to consider non financial factors such as skills, supervision, and relationship in the organization.
