Managers in a firm create the pathway for employees and others within a firm to achieve the company’s goal and dreams. Managers need to make the plan of attack (or action) which others can follow. The managers within a firm also need to relay this plan of attack to others within a firm, there is no use deciding on a course of action unless others within the firm understand and can carry out the actions. When I read this concept I automatically think back to when I was playing sports under the direction of a coach. When I was playing representative Basketball in high school, my coach would come to training each week with new plays to run in order for us to score. My coach would carry out demonstrations or draw the plays on a whiteboard in order to communicate the plan, similarly to how Martin describes managers helping others to contribute to their plans. Each player on my team had a role to play to contribute to scoring a basket. Martins writing does make me wonder about managers in my current workplace. Is strange that my mind automatically went to my past basketball coach rather than the manager at my current workplace? I believe it takes a certain person or personality to be a manager and there is plenty of people in the real world who are in management positions who are not effective managers as Martin describes.
Without taking the first step, no one will ever achieve anything. It takes one step in the right direction to begin any journey to desired destination. I could not connect with this concept any more if I tried. I tell myself this every day. When my house needs cleaning, I tell myself just start with one small thing such as dusting and before I know it the whole house is clean. It is often the first step which is the hardest step. Beginning a task is always the hardest part, but when you look back to where you started it is amazing to see how far you have come. I did not want to write these KCQs tonight. When I got home from work, I procrastinated and fiddled around for an hour before I finally sat down to start. Although now that I have taken the first step and written my first paragraph the task already seems easier.
Budgets are a method of ensuring the short-term delivery of a managers plans and can help managers predict or foresee the future of their firm. Budgets keep people in all sections of a firm accountable for their actions and can be used easily to measure the success or failure of management. I use budgeting each day. I have an allowance for mortgage repayments, groceries, recreation, fuel etc from my weekly wage. I also use budgeting as a tool to be able to plan when I will be able to purchase something in the future. For example, I often calculate how much I would need to save each week and for how many weeks I will need to save in order to have a certain amount accumulated to book a holiday. Martin is asking if budgeting can help or hinder a firm and I cannot see why it would do anything other than help. How could budgeting hinder a firm? Unless the budget is too tight or too lax.
Budgets can also be effective in assigning certain responsibilities within a firm to certain individuals or departments. I struggle to find an example of this in my world. Possibly could this mean that if I budgeted $200 into my partners weekly wage for groceries that he would be responsible for the weekly shop? Wouldn’t it be nice if it was that easy to have my partner do the groceries?
Managers need to delegate tasks in all sizes of firms in order for the firm to operate effectively. Particularly within larger firm managers need to delegate responsibility and decision making to others because they can only be in so many places at once and complete as much work as their time permits. At this stage I am unsure of how delegating can be made easier using budgeting. However, in my workplace I hear employees talking about “micromanagement” a lot. The manager at my workplace appears to always be flat out busy while other staff members are twiddling their thumbs and asking for work to do. And I often hear whispers that the manager checks the work of other so closely that the manager may as well do it themselves. I think this is an example of where delegation could be effective and would help our business excel.
Budgets can also assist with keeping people motivated. I am not sure of an example of how this would happen within a firm. However, I do understand that I am motivated to complete my degree so I can work a higher paying job and intern our household budget will not so tight.
When Martin was telling the story of the baggage claim target, I was racking my brain trying to come up with a reason why the first bag was rushed through to the carousel. I had nothing, not a single idea which make me frustrated and I wonder if maybe I am not thinking with my accounting or business hat on? Could Martin find the answer to that wonder because of experience or just because he is better than most people when it comes to accounting and business? Will I ever be able to think like Martin? This story also makes me wonder how often or how many times does a manager usually have to adjust a budget or target before getting it correct? It is usually for a manager to make 2 or 3 adjustments to a budget before getting it right?
Participative budgeting involves lower level managers and staff to assist in budgeting because they are in the heart of the business and understanding the operations within a business often better than a high level manager who may be sitting in an office far away from the center of the business who is out of touch with the realities the business faces. I work at Ray White Singleton. Ray White Group is one of the largest real estate brands in Australia and has hundreds of offices across the country. We hate Ray White Corporate. I know that sounds awful, but it is warranted. Almost every decision that Corporate makes seems to be trying to hinder our small country town business. Corporate makes decisions for city offices. For example, something as simple as uniforms is a problem. Corporate have recently released a new range of uniforms that look high end and overly professional. Women are expected to wear heels, men are expected to where tight-fitting dress pants which would work fine in the city where most properties are apartments. However, in the country we can sell irrigation or cattle farms and it is difficult to do a walk over of 100 acres plus property in high heels. Ray White Corporate do not understand this because they are in air-conditioned offices rather than on the ground. If we were offered participation in this decision, would we not be making complaints like we currently are? Could participation have avoided many of the “fires” corporate have to put out?
When I read the quote from Henry Ford it makes me think he must have been an excellent manager and “budgeter”. I recently read that when Henry Ford change to the production line he was losing staff quicker than he could hire them because many employees found it boring to complete the same one task over and over again and went to work for competitors. Henry Fords response to this was to double, yes double, his employees’ wages. This meant that he retained his staff. When I first read about this, I couldn’t believe it, however I suppose that Henry Ford calculated that the cost of hiring and training employees over and over again was higher than that of the doubled wages. I believe this is a perfect example of effective budgeting and his words “keeping together is progress” may even be about that decision.
A cash budget outlines the cash inflows and outflows of a firm and only records transactions when cash is received not when products are handed over to customers or retailers. The net cashflow is the figure on a cash budget that is calculated by deducting the cash outflows from the inflows. Does this mean the firms profit or loss?
Head room is like wiggle room, it means allowing space for our budget to be a little bit “off”. Having head room in a budget ensures we account for any inaccuracies or unexpectant issues in our budget. This is a necessity because no one can predict the future exactly and a budget is rarely going to be exact. The question is, is there a guide on how much head room you should allow in a budget? Maybe a percentage allowed?
A firm’s cash budget and budgeted income statement may tell us two different stories because the firm may pay for expenses at different times to when the expense happens and similarly a firm may receive cash at a different time to when a sale is made. I recall Martin discussing a similar concept to this in a previous Chapter where he used the example of utility bills. A firm uses electricity each day but will not be charged for electricity until the end of the quarter. Therefore, the expense is recorded at a different time (end of quarter) to when the expenses is incurred (throughout the entire quarter). I hope that this is a correct interpretation of this concept because other than this I do not have any other ideas of what this concept could look like in real terms.
Surprises occur in business because business require people to operate and people are free willed and can sometimes make unpredict choices. I wonder if accounting can really help businesses navigate, overcome or enhance these surprises, depending on whether they are good or bad? I can think of plenty of bad surprises in business, but struggle to think of many good surprises? Maybe that is because we always hope for the best outcome, so we find shortfalls more common?
Once a firm’s business realities have been consolidated into a budget it is easier to evaluate the risks a business is exposed to and the outcomes of changes in business. This is because we can adjust the numbers to reflect the “what ifs”. What if our sales dropped by 10%? What if the price of raw material increased by $8? By inputting varying numbers into our budget or spreadsheet we can see the volatility of sections of our business as well as the largest risks.
If a manager does not keep employees accountable for their performance, staff can begin to believe that the firm “owes them” something. Rather than the idea that they are there to contribute to achieve the goals of the firm. I think I can see this in my workplace. When I worked for Flight Centre a few years ago, I was held accountable to my KPIs and sales targets. We also had the idea of “cost of seat”. My cost of seat was $8,000.00 per month which meant it cost Flight Centre that amount to have me employed there (cost of seat consisted of my wage, store overheads etc). Each month I knew I needed to make $8,000.00 to break even for Flight Centre. I think this kept me humble and focused. I felt like I owed Flight Centre rather than they owed me. Whereas, now I do not have any performance reviews or targets or KPIs. And I must admit, I often find myself with a bad attitude where I slack off and think “well they don’t pay me enough anyway so I can take back some time”. That must sound awful to read, I know. Unrelated, I think a huge key takeaway from this course for me has been that I am learning to challenge my own ideologies and change my mindset about my situation. Maybe I am changing as a person? Even if that is the one I have achieved from this course then it will still be 12 weeks well spent.
Make it Account 