Activity-based Budgeting For Zambrero

Highlights of Zambrero

Budgeting is the strategic execution of a business plan. To realize the objectives in a strategic plan of the business, there is need of certain kind of budget that funds the business plan, sets procedures, and performance indicators, and then makes alterations with a motive to achieve the goals of the company (Kovaleva, Khvostenko and Glukhova, 2016). In other words, it is a procedure of defining how the money will be spent on different activities of the business. Budget works as a director to identify, how business desire to spend its money to attain the financial goals in short-term as well as long-term. When a budget is prepared, the business can observe where money can be invested and decide the available options are significant for them. This reflects that budgeting is one of the essential aspects of every business organization that helps in taking the financial decision to survive in the market. Since budgeting permits to make a spending plan for the funds, it confirms that businesses will always have sufficient money for the activities the need and the activities that are essential for them (Robinson, 2009). The purpose of the report is to discuss the changing methods and techniques of budgeting and way they contribute towards the productivity and growth of the business. The report will highlight the features of one of the known budgeting system that is Activity based budgeting and whether it is suitable for the changes taking place in Zambrero which is one of the known fast serving restaurants in Australia. Besides this, the report will discuss how activity based budgeting is different from traditional budgeting systems.

Zambrero is the quick service chain of restaurant in Australia specializes in serving Mexican Food. Sam Prince established the restaurant chain in 2008 in Canberra with the purpose to introduce a prosperous firm that also supports individuals in necessity. It established its very first business store in 2005 (Zambrero, 2018). Zambrero was known as one of the fastest developing franchises of Australia on the firmest list of franchises of BRW 2011, 2012 and 2013 and list of Fast 100 for 2014 and 2015. For 2018, it has planned to have around 189 restaurants globally. From tacos and burritos to quesadillas and nachos, their menu is prepared freshly with a major concentration on super, modern food ingredients, to carry fresh flavors to the Mexican favorites. All their offering is produced with fresh ingredients and customizable with dairy free and gluten, vegan-friendly and vegetarian options (Zambrero, 2018).

Mission of Zambrero

The first restaurant of the chain was operated in 2014 in Thailand, Bangkok, New Zealand, and Ireland. Zambrero attains its charitable goals through its initiative of Plate 4 Plate, with a task to fight against hunger in the whole world. For each bowl bought at Zambrero, a one-time meal is given to somebody in need in the emerging world (QSR Media, 2016). Likewise, for each product bought from a retail range of Zambrero, a meal is donated to the poor community of Australia. In collaboration with some organizations i.e. Foodbank and Rise against Hunger, they have contributed around 21 million meals until March 2018. They have a goal to contribute approx. 1 billion meals by 2025 (Franchise Business, 2018).

The mission of Zambrero is to help the world in fulfilling their hunger with the help of their initiative Plate 4 Plate along with collaborating companies such as Foodbank and Rise against Hunger. To do this successfully they are also trying to maintain the quality of their food in a most innovative way (Zambrero, 2018).  

Budgeting performs an essential part in the controlling and planning of business functions. The plan recognizes the actions and objectives required to attain them. Budgets are the measurable terms of these strategies, specified in either financial or physical terms or both (Popesko, Novák and Dvorský, 2017). When utilized for budget planning it becomes a technique for interpreting the strategies and goals of the business into operational terms. Budgets could be utilized in control. Control is the procedure of deciding criteria, getting response on definite performance, and taking action when definite performance departs considerably from the deliberate performance. Therefore, budgets could be utilized to associate definite outcomes with prearranged results, and they could direct processes back in sequence, if essential (Bryant, 2012). The purpose of the budget is presented below in the diagram:

Activity Based Budgeting is a technique of budgeting intended to offer superior transparency into the procedure of budget. In the general form, ABB is a technique of budgeting in which income is generated with the help of research and instructional activities are assigned straight to the responsible unit for the activity (Szatmary, 2011). ABB authorizes better local planning, responsibility and generates incentives for units to manage expenditures and resources. Activity based budgeting consents high level of refinement in the cost planning, and emphases devotion on the types and volume of activities happening in a business. A possible consequence of utilizing this system is management design to decrease the levels of activities to make revenue, which in turn increases profits. It means that executives are enforced to possess a thorough knowledge of the process of the company if they desire to improve the business cost structure (Blocher, 2006).

Activity Based Budgeting

The advantage of the activity based budgeting is that it creates strong relationships with the goals of the company. Preferably, management can make use of this system to observe how much cost is linked with every part of the company, and then decides whether funds need to be assigned to or not. This can result in a change in funding to provision divisions of the business on which management desires to position a higher emphasis, like on the expansion of new products or rollout in a different region (Maingi, 2013).

The disadvantage of ABB is the augmented workload required to track the activities, for which there might be no traditional systems of tracking. In addition, costs should be traced for the activities, for which there can also be no systems in place (Lalli, 2011). Therefore, organizing this type of system could be tough. An organization may recognize that this kind of budgeting can be easily rolled out on a trial basis, possibly by utilizing it for a sole subdivision or profit center and checking its influence on the process of budgeting.

Activity based budgeting is used by the business to increase the efficiency of the activities of the organization. Budgets are created after moderating the cost drivers. Therefore, ABB is grounded on activities and not on the functions. Some of the features of activity based budgeting are:

Business as a Single Unit

This method of budgeting supports in looking at the business as one entity and not in department form. The executives create the budget for the single unit of the business and not for any single division, which is done in other types of budgeting approaches (E-Finance Management, 2018).

Enhance Relationship

The system of Activity based budgeting support in enhancing the relationship of the business with its customers. The key purpose of this technique of budgeting is to exclude the irrelevant activities and offer consumers the best quality at a reasonable price. This makes compulsory for the company’s employees to greed customers and offers the best services and confirm customer satisfaction. This results in enhancing the relationship between customers and the organization (E-Finance Management, 2018).

Excluding the Bottlenecks

Budgets under ABB are framed after thorough analysis and research. This study eliminates all the irrelevant business activities. A detailed analysis helps the organization in removing all the type of bottlenecks related to the business functions, activities, and carry out all the procedures smoothly (Shim, Siegel and Shim, 2011).

Features of Activity Based Budgeting

Competitive Advantage

The method Activity based budgeting helps in removing all kind of irrelevant activities that eventually saves the cost of business. The saved cost is used in the services and goods production at a reasonable cost as compared to rivals. It also supports the business to attain a competitive advantage in the market (Shim, Siegel and Shim, 2011).

Evaluation

The technique of Activity based budgeting assesses every cost driver. It takes into account every step comprised of an activity. The unrelated activities are excluded and only the essential activities that help business in enhancing its productivity are included (Shim, Siegel and Shim, 2011).

Complex

Besides having different advantages Activity-based budgeting system has, a drawback i.e. it is a very complex technique. It involves analysis and research of numerous factors (Shim, Siegel and Shim, 2011). This method of budgeting comprised of assessing the demand and depending on that, it identify the number of resources required for performing various activities.

Cost Involved

Executing the activity based budgeting entails qualified workers. A worker, who is not qualified, cannot manage the exercise of budgeting properly. Therefore, business has to experience additional costs to train its workers (Shim, Siegel and Shim, 2011). Furthermore, the procedure requires the top executive’s involvement, so it represents to be very costly.

Requires Understanding

Activity-based budgeting needs a thorough understanding of the numerous practical extents of the company. If the executive organizing the budget were unable of understanding and assessing the business areas, it results in imprecise preparing of the budget (Shim, Siegel and Shim, 2011).

Resource Consumption

The budgeting procedure in this technique makes use of different resources of the business. It needs to involve top executives for directing frequent analyses. ABB is a time-consuming assignment. If these resources are used in other organizational activities in place of activity based budgeting, then they can offer better outcomes.

Traditional budgeting perhaps is the simplest method of budgeting. It takes the budget or consumption of the previous year and adjusts down or up from that budget to imitate altering assumptions for the next year plus some incremental cost depending on the assumptions of the price (Dugdale and Lyne, 2010). However, with this method, the maintenance executives frequently struggle to spend the complete budget of the year, so there is no leftover at the end of the year. On the other side, Activity based budgeting help the business to recognize the requirement of maintaining or removing some activities to increase the value of the service or product (Iyer, 2015). Organizations changed their traditional budgeting system and adopt activity based budgeting because they require more accurate as well as reliable budgeting system that could result in increased productivity and reduced cost of production. The activity based budgeting perform a comprehensive analysis and research of the data to eliminate the irrelevant activities involved in the business system (Pietrzak, 2013).

Traditional budgeting is the procedure of projecting the expenses and revenue of the business for the future year depending on the previous year budget (E-Finance Management, 2018). A budget is said to be a tool accounting that supports in predicting and analyzing the expenses and earnings of the business. By looking at the previous year budget, traditional budgeting system offers a template to validate the estimates. It concentrates on the departmental cost and workers (Dugdale and Lyne, 2010). Under activity, based budgeting budgets are planned with the help of activity based costing after looking at the cost of overhead. In general, it is the tool of management accounting, which does not take into account the budget of previous years to plan the budget of the current year. Rather than, the activities that raise the cost are thoroughly evaluated and investigated. The activity based budgeting concentrate on the procedure’s cost and volume of the work. Some more differences between traditional budgeting and activity based budgeting are presented in the table below:

Activity based budgeting signify a likely solution for the process of the budget by enhancing the actual employee participation. Besides this, it represents a concrete result for the short-run planning of planned goals, because they concentrate on the fundamental procedure of the work for the pleasure of the customers (Capusneanu, Boca and Barbu, 2013). Moreover, it unites the efforts made by numerous roles, as procedures re-engineering or procedures re-evaluation in a single effort aimed towards the planned goals scheduled by the firm for long-term or short-term.

Zambrero is the quick serve chain of restaurant specializes in Mexican food. It is regularly expanding its business at different locations and til now it has opened around 150 stores in Tamworth, NSW (Inside Retail, 2016). The restaurant offers tasty and healthy food to its customers and always offer something new. It is experiencing a huge growth in the market, therefore, planning to have more restaurants worldwide. However, for successful execution of its expansion plan, it needs to arrange funds and prepare budgets. Following the traditional budgeting will not offer precise and reliable information about the expenses and cost because the expansion of the business in other country or location require deep research and analysis. This could only be attained with the help of activity based budgeting that perform thorough analysis and research of different activities that are relevant for the functions of the business (Torabi, 2015). While expanding the business it requires different resources, ingredients, and infrastructure for which it is important to have a reliable budget. Moreover, activity based budgeting will exclude all the irrelevant activities that are not productive for the planning of the company, so it could be said that this budgeting system will best suit the functions of Zambrero.  

Activity based budgeting is grounded on two axes i.e. Activity based analysis and activity based costing. Activity based analysis consider the evaluation of all the function dependent detailed behavior and the activity based costing concentrates on arranging the set of regulations and process depending on the investigation, tracking and cost allocation on calculation objects (Torabi, 2015). The method ABC complies with the trajectory of the business course, ensuring only those procedures that create value and increase customer satisfaction. The activity analysis highlights the role, prominence, worth and competence of all the elements of the business process and the Activity-Based Budgeting need to be accepted in the business process. For the effective functioning and execution of the Activity-Based Budgeting, every budget related to the procedure definite by the entity will be centered on two key axes i.e. activity based analysis and activity based costing (Torabi, 2015). The elementary activity based budgeting concepts is comprised of hierarchy, the flexibility of the budgets, cost variability, and responsibilities accounting.

While implementing activity based budgeting into the business process, some of the stages that are involved must be considered by the business that is:

• Assessment of main budget factors (estimations in relation to the overall worth of the product quantities gained and the sales);
• Formation of the activities of the organization (amplification and implementation of the activity-based budget);
• Defining the essential resources (type and quantity) to achieve the activities of the organization;
• Recognition of the overall essential resources to content the demands;
• Defining the capacities at every level of the activities and at the resource level (Capusneanu, Boca and Barbu, 2013)   

Conclusion

From the above analysis, it could be said that activity based budgeting is one of the modern and perfect techniques for preparing the budgets for different activities of the business. It performs analysis and research about different activities involved in the business and identifies the precise and reliable information for preparing budgets for the upcoming year. It is compiled with different features such as evaluation, complex, eliminating bottlenecks, consider business as a single unit and not in the form of the department, helps in attaining competitive advantage, and improves the relationship between organizations and its customers, etc. Activity based budgeting is different traditional budgeting system in terms of planning and evaluating the information available to the business. Activity based budgeting perform proper research and analyze all the activities of the business and then prepares the budget such that all the irrelevant activities can be eliminated from the system. However, on the other side, traditional budgeting system just reviews the previous year budget, expenses, and plans the budgeting for next year. Moreover, as compared to traditional budgeting, activity based budgeting is more precise and reliable from the point of view of receiving proper information as well as management of different activities cost. Therefore, the above report has recommended Zambrero; one of the quick serving restaurants of Australia, to adopt activity based budgeting in place of traditional budgeting system to plan its expansion strategies or any changes taking place in its business. The business is planning to expand its number of restaurants around the world for that it requires proper planning and estimation of funds required to execute its plan, activity based budgeting will be the best option for the business such that all the activities can be properly analyzed and cost could be allocated to each of them.   

References

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