Effects of implementation of budget management

System implementation of budgeting allows to get rid of the surplus production supplies generated by errors of traditional schedule system almost completely

Why implementation is necessary

Need of problem solving, connected with acquisition of the new equipment or upgrade existing at leadership team of the enterprises does not raise doubts. Whereas recognition of payback of system implementation of management — process is enough not idle time owing to lack of a uniform formula of calculation of its efficiency. Top managers of the companies wish to see economic effect of implementation of this innovation and guarantee that it will result in necessary results.

Let's say that after budgeting system implementation within the next two years the company increased turnover by 100%, at the same time profitability of business grew by 5%. Whether it is possible to consider that it occurred thanks to budgeting system implementation? Or this result was affected by the new marketing director? Or favorable market situation? Or errors of competitors? Such "or" there will be tens. And the deposit of a system of budget management to the achieved success cannot be counted.

Nevertheless, making a start from the existing experience, we will try to select several different approaches to efficiency evaluation of operation of a new system.

As practice shows, management accounting in this or that type exists at any enterprise therefore, starting its systematization and a system design, it is important to remember that it should be adequate to scales and specifics of business. Costs for implementation and operation of any system should bring economic effect.

It is better to begin with the answer to a question: what information in what time and in what volume it is necessary to heads at each level of management? So from determination of the list of tasks of liquidation of losses from inefficient financial accounting. Proceeding from it, we will consider some of the main losses and we will give examples.

Losses in the field of management of warehouse stocks

The company is engaged in distribution. Sale managers are motivated for percent from sales. In the conditions of the high internal competition and also limited scope of a warehouse, sales managers reserve goods under any, even very improbable transaction. As a result the service of purchases is forced to buy in addition goods even in the presence of it on a skl. But then it is not always on sale. As it is about office equipment and computer component parts, it should be noted that the company sustains significant losses from moral depreciation of goods as a result of its stay in a warehouse because of false reservation.

This problem was revealed and counted in the course of the project on setting of budget management. As the complete solution the system of limitation of reserves and responsibility of managers for not sold reserves was customized. The intelligent system tied to turnovers of the specific manager, reliability of his reserves and penal financial sanctions. In a month after system implementation the need for warehouse stocks was reduced by $1.1 million. The need for credit resources was respectively reduced by the same amount. Percent on the credit in a year then made $159.5 thousand, or 14.5% of the amount of $1.1 million. Losses from moral depreciation in a false manner of the reserved goods were reduced by $231 thousand, or 2% of $1.1 million (the amount and turnover of a warehouse — exact assessment, percent of reduction of price — the rough expert evaluation counted as average on ten precedents). As a result, economy from system implementation only on these two factors made $390.5 thousand a year. The budget of the complex project on setting and automation of budget management made $82 thousand. A project payback period — 2.5 months.

Explicit and implicit benefits

These calculations concern the measured economic effect of liquidation of imperfection of the system existing at the enterprise. Also system implementation of budgeting allows to get rid of the surplus production supplies generated by errors of traditional schedule system almost completely. It gives the chance to precisely count the need for each resource for every period according to the available production schedule and the approved requests on the estimate. Use of budget planning practically excludes cases of the insufficient order of material resources with the corresponding losses owing to their subsequent purchase on urgent conditions on higher prices.

System implementation of budgeting gives an opportunity to move to qualitatively other level of the analysis of terms of deliveries offered by different partners. At system implementation of budget planning the possibility of reduction of all conditions to a comparable form from the point of view of structure of the price at a different settlement system appears. Besides, it is possible to carry out a price comparison and conditions of different suppliers taking into account the level of liquidity of calculations (when using non-monetary tools).

The system of budget planning allows to obtain information on a status of a specific material resource in any storage location according to all available external and internal documents on its movement. Thereby there is possible a technology of a perpetual inventory assuming conducting checks during the entire period on accidentally selected cuts. At detection of discrepancies office investigations are made and specific guilty persons come to light.