Discussion of Suitability of the ABB to the Firm
No matter the business size, a budget is the chief component of a business success. In essence, a budget is considered more than the list of expenses and income. It is usually the road map to conducting a business since without the budget; it could be a bit hectic to examine how efficient the business could meet its goals. Either activity based budgeting or traditional budgeting might be right for the business. With these considerations, this report presents analysis of the suitability of the ABB to a private company. The report starts with description of the firm, followed by description of what ABB is all about. It is then followed by analysis of what ways the ABB is considered different from the traditional budgeting then analysis of whether ABB is suitable to the firm and concludes with recommendations as to whether the ABB should be implemented within the organization.
a. Description of the Client
The client is a very innovative working in a manufacturing firm. In essence, the client is working as the chief finance officer of a manufacturing firm in Australia. The client works includes preparing the financial statements. Basically, the client is responsible in managing finances within the firm, including managing financial risks, assisting in financial planning, and in financial reporting as well as in record-keeping. Furthermore, the client is responsible for supervision of finance unit and act as chief financial spokesperson within the firm. He also assists the COO on all the tactical and strategic matters related to budgeting, forecasting needs, and cost-benefit analysis. Besides, the client is responsible for reporting and presenting timely and accurate historical financial data of an organization. All the organization’s stakeholders including creditors, shareholders, employees and analysts depend on the timeliness and accuracy of this financial information in making decision. The client also assists in budget preparation within the firm.
ABB is a process of controlling and planning expected activities of an entity in deriving cost-effective budget which meets the forecast workload (Wilhelmi & Kleiner 2011). In essence, ABB is the budgeting approach that gives the managers tools they require in making better decisions in operating their firm. This form of budgeting is said to spends huge amount of time on upgrading instead of filling the forms, which is usually the situation with the traditional system. The ABB is a budgeting model that attempts to disaggregate numerous indirect costs linked with basis activities that assists in creating products or delivering services (Kaplan & Anderson 2017). Rather than levying uniform overhead or taxes on every product, ABB tries to sensibly contribute particular indirect expenses to diverse services through cost drivers in order to precisely or correctly pin point the costs of these activities or services. To be more specific, Pietrzak (2013) argued that ABB is a budgeting technique based on activity framework, utilizing the cost driver information in budget settling as well as variance feedback processes. One of the most basis types of the ABB utilizes cost drivers which are identified via ABC to assist in deriving the budgets. In this case, the ABB focuses on the activities instead of functions. Besides, the ABB follow three main stages; that is, identification of the main activities and the cost drivers. It also entails estimating units of the cost drivers for required activities and finally, computation of cost driver rates (Fadzil & Rababah 2012). In other words, ABB is considered as management accounting aspect that fails to account to the previous period’s budget in arriving at the present period’s budget. Instead, entire activities incurring cost are intensely examined and explored and from the result of the analysis, resources are then allocated to the activities (Kaplan & Anderson 2017).
In what Means does ABB Differs from the Traditional Budgeting
According to Brimson, Antos and Mendlowitz, E. (2012), ABB is the systems that researches, analyses and records activities which results in cost for the business. It is more than the merely adjusting past budgeting values to the account for business development or inflation. This form of budgeting permits for more control over budgeting process within any business. In fact, expenses and revenue planning takes place at precise level which offers significant details about the projections (Wilhelmi & Kleiner 2011). Additionally, the ABB give room for the management to gain improved control over the budgeting practice and aligning the main budget with entire organization objectives. Basically, ABB is the extension of the ABC. This form of budgeting explains how employees allot most of their energies amongst various activities (Khozein, Dankoob & Barani (2011). Once full cost of every activity is computed, cost drivers are recognized which connect the provision activities to main happenings of an entity. Therefore, developing comprehensive ABB, a person is capable of producing strong connection in between expenses and job.
Once it is developed, the managers and executives could exercise control in numerous means: that is, assigning employees based upon the demonstrated needs, uncovering the hidden costs and wastes, contracting or expanding employees proportionately as need varies, assessing full efficiency of an entity, view which form of activities are least and most expensive, establishing the cost baseline which might be influenced via technology variation or process which decrease the effort need for activities, identifying the places to reduce expenditures as well as arguing from informed objective point of view in favour of an entity’s budget (Börjesson 2011). Further, ABB is considered as the planning system under which the costs are linked with various activities and the budgeted expenses are assembled on the basis of projected activity flat. This method certificates high level of improvement in the cost forecasting and emphasises on types and capacity of the events taking place within an organization. The mostly likely result of using ABB is the management planning in reducing activity levels needed in generating revenue, which also improves profitability of a specific firm. It also implies that the managers of a given firm are forced to have detailed understanding of an organization processes in case they wish to enhance cost structure of the firm. Another feature of ABB is its strong link in between the approach and goals of parent firm. This allow organization management to utilize this approach in determining how much costs is linked with every part of the business and then deciding whether the finances require being allocated away from or to each area. This would in turn leads in a shift in the funding in supporting part of the firm on which the management wishes to place greater emphasis like development of a new product in a new region.
ABB is diverse from traditional budgeting in several ways. For instance, ABB differs from traditional budgeting in that the ABB focuses on work volume and cost of the processes whilst the traditional budgeting focuses more on the workers and on the departmental costs. Additionally, ABB differs from the traditional budgeting in that the ABB measures the impacts and determine as well as identifies unused capacities while the traditional budgeting measures impacts but it does not determine and does not identify any unused capacities (Kumar & Mahto 2013). Additionally, the ABB differs from the traditional budgeting in that the ABB identify essential assets for prearranged manufacture and not necessary in setting out the expense limits while the traditional budgeting does not necessarily accomplish the key determination of the international budget, signifying the control and the analytical. Moreover, the ABB ensure management of a specific firm, with possibility of the transformation of organization thinking about fixed costs while traditional budgeting is based on iterative conciliation procedure in between the executives and senior administrators (Wilhelmi & Kleiner 2011). ABB also differs from the traditional budgeting systems in that the ABB focuses on utilized capability versus the unutilized capability while the traditional budgeting emphasises more on fixed costs versus the variable costs. Unlike the traditional budgeting systems, the ABB analyses the key opportunities as well as allocates the resources particularly for every activity.
Besides, Brimson, Antos and Mendlowitz (2012) argued that the main distinction between traditional budgeting and ABB is that the ABB is cause-drive whereas traditional budgeting is usually effect-driven. Here, ABB is more related with planning rather than budgeting while traditional budgeting is focused more on budgeting rather than planning. Additionally, ABB differs from the traditional budgeting in that it is costlier compared to the traditional budgeting. Besides, the ABB needs more time and information from the management to be developed in comparison to the traditional budgeting system (Wilhelmi & Kleiner 2011). Furthermore, the ABB require extra insights and assumptions from the management that leads to probably various opportunities for the budgeting inaccuracies unlike the traditional budgeting systems.
Further, ABB differs from the traditional budgeting in that traditional budgeting system incorporates past year expenses in the current budget proposal and the increments are the matter of debate unlike the ABB approach which is mainly based on assumption that each amount of expenses has to be justified (Brimson, Antos & Mendlowitz 2012). ABB also differs from the traditional budgeting in that traditional budgeting systems refers to a process of budgeting and planning in which the past year’s budget figures are taken as the base in preparing the budget whereas in ABB approach, every time a budget is prepared, activities are usually re-examined and therefore started from the scratch (Cooper & Slagmulder 2010). Additionally, traditional budgeting approach usually stresses on former expenses level while the ABB concentrates more on making some new economic proposals whenever a budget is being prepared (Kumar & Mahto 2013). ABB also differs from the traditional budgeting in that it follows the straight-forward technique whereas the traditional budgeting follows the routine technique.
The ABB is suitable for firm since it would help in bringing efficiency within the activities of the company. This is based on the fact that by following ABB, the budget would be prepared after justifying cost drivers. Therefore, ABB is activity oriented rather than function oriented. Furthermore, ABB would be suitable for the firm since it evaluates every cost driver and take into account of all steps involved in the activity. In this case, all the irrelevant activities within the firm would be eliminated and only necessary or important activities would be considered as part of the business activities (Pockevi?i?te 2013). Additionally, the ABB approach would be suitable to the firm since it would enhance competitive edge. This is due to the fact that ABB eliminates all unnecessary activities within the firm, which assists the firm in saving its costs (Bengü 2010). These saved costs leads to production of services and products at relatively lower costs compared to that of its rivals. This in turn assists the firm in gaining competitive edge within the market. The ABB would be suitable since it would enhance improved relationship between the form and its customers. This is based on the fact that the approach eliminated any unnecessary activities and serve clients with best quality of the services and products at best price (Kaplan & Anderson 2017). This in turn enforces employees of the firm to serve the client in best manner possible and ensuring consumer satisfaction, which on the other end improves relationship between the firm and clients.
Moreover, ABB is suitable to the firm since it helps or permits balancing operational requirements within the firm. This in turn allows better process, decision making and products, as well as better resource allocation in support of the priorities (Navistar & McKinney 2009). This is due to the fact that the approach attempts to evade computing financial impacts of the operationally infeasible procedures pointlessly. As it generate the budget from the resources and activities, the approach could help the firm highlight the key sources of inefficiencies, imbalances as well as other areas or points for improvement which would later permit the employees and the managers to correct such inefficiencies (Szatmary 2011).
The approach would also be suitable to the firm since it offer clearer view of how activities and resources are related, and therefore could assist the organization’s employees and managers communicate and understand the budget evidence in a more perceptible non-financial form to assist them comprehend better what would be done to mend the company performance and how to carry out their works (Cokins 2011). Through improvement of the flow of resources and activities, the approach would make it easier to assess the organization performance by being in a position to stipulate who is answerable for specific activities might overall in numerous departments. In fact, the ABB approach would allow the organization’s managers be a bit agile in contingency planning, performance evaluation and measurement as well as in decision making (Cokins 2009).
Besides, the ABB would be suitable to the firm since it enhances increased transparency and traceability within the firm which in turn allows balancing capacity (Kaplan & Anderson 2017). With the more refined operative approach, it could enable the wealthier set of the outfits for the balancing capacity. This makes it calmer to regulate the demands or the variations in total of the resource allotted and makes it calmer to alter resource an activity consumption rate due to the key analysis of the resource capacity conducted in this form of budgeting. Further, the approach is suitable since it enhances integration of the budgets with the other management undertakings (Moustafa 2015). This is due to the fact that ABB attempts to do way with the upright alignment. It rather undertakes a more straight alignment which is capable of cutting across the borders in the firm. This permits integrations of the budgets with some other creativities such as KPIs amongst others (Abusalama 2012).
Additionally, the ABB would be suitable to the firm since the approach aims at determining complete costs by observing causality connections in between the services or products and the resource consumptions of activities (Brimson, Antos & Mendlowitz 2012). Such would enhance solid financial planning as well as budgeting reporting within the firm. The approach is suitable to the firm since it provides managers with the technique of improving activities and its business processes. According to Shane (2015) ABB helps an organization in identifying needs or eliminating or keeping particular activities with the aim of adding value to products. Hence, the approach would be suitable to the company since it would assist this firm in eliminating those activities that do not add any value and keeping the one that are valuable to the firm operations. Furthermore, the ABB is suitable for the firm since it does not only afford the company the capacity to seen whether finances are being spent, but also provides the organization manager who has the oversight capacity in seeing at the glance some of the most expensive undertaking and where control is required (C?PU?NEANU et al. 2013). This would in turn help in promoting accountability within the organization and ensuring the organization has real and full control over capitals which take the practice of the decision-making consultant, skills and information. The ABB differs from traditional budgeting where the existing costs levels are usually adjusted for inflation and the key revenue variations in deriving annual budget unlike in traditional budgeting where the existing costs levels not at any point adjusted for the inflation.
Conclusion and Recommendations
In conclusion, no matter the business size, a budget is the chief component of a business success. Basically, it can be concluded that a budget is more than the list of expenses and income. It is usually the road map to conducting a business since without the budget; it could be a bit hectic to examine how efficient the business could meet its goals. Either activity based budgeting or traditional budgeting might be right for the business. In this report, ABB is found out as a process of controlling and planning expected activities of an entity in deriving cost-effective budget which meets the forecast workload. It is also considered as the budgeting approach that gives the managers tools they require in making better decisions on running their firm. Rather than levying uniform overhead or taxes on every product, ABB tries to prudently attribute particular indirect expenses to diverse services through cost drivers to precisely or correctly pin point the costs of these activities or services. Besides, the ABB is found to follow three main stages; that is, identification of the main activities and the cost drivers. It also enhance forecasting of the units of the cost drivers for obligatory activities and finally, computation of cost driver rates. This approach is said to give room for the management to gain improved regulation over budgeting practice and aligning the budgets with entire organization objectives.
Therefore, developing comprehensive ABB, a person is capable of creating strong connection in between expenses and job. It can also be concluded that ABB is suitable for the firm since it would help in bringing efficiency within the activities of the company. This is based on the fact that by following ABB, the budget would be prepared after justifying cost drivers. Furthermore, ABB is found to be suitable for the firm since it evaluates every cost driver and take into account of all steps involved in the activity. In this case, all the irrelevant activities within the firm would be eliminated and only necessary or important activities would be considered as part of the business activities. Additionally, it can be concluded that the ABB approach is suitable to the firm since it would enhance competitive edge. This is due to the fact that ABB eliminates all unnecessary activities within the firm, which assists the firm in saving its costs. The saved costs leads to production of services and products at relatively lower costs compared to that of its rivals. This in turn assists the firm in gaining competitive edge within the market. Therefore, it would be recommendable for the firm to implement ABB as their chief budgeting technique which would enhance balancing operational requirements within the firm. This would in turn allows better process, decision making and products, as well as better resource allocation in support of the priorities within the firm.
References
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