1. Why do organizations have budgets?
* Traditional budgets serve too many different purposes
* Forecasting and target setting
* Forecast should be realistic and target challenging
* They should not be the same numbers
* They hinder the decentralization of decisions and responsibility * In order to make financial control
* Provide a forecast of revenues and expenditures, that is, construct a model of how our business might perform financially if certain strategies, events and plans are carried out. * Enable the actual financial operation of the business to be measured against the forecast. * Strategy implementation
* Communication between different departments
* Budgeting is for performance evaluation
* Tax, transport pricing reasons,
* Give more responsibilities and motivations to managers
Two primary functions
* Financial planning
* Performance management
2. Why did Borealis decide to abandon budgets?
With parameters as
* Discontinuous change in the environment: have to adapt their budget to the market conditions * unpredictable competition, possible conflicts; they use benchmarking against the competitors to flex budgets * lower rank of managers have less freedom in making decisions * fickle customers
* to improve financial management and performance measurement * to decentralize authority and decisions
* to simplify and flex the budgeting process
* to reduce the resources used in the process
* Companies can barely plan ahead with confidence
3. Describe the new process that Borealis implemented to replace the budget. What are its strengths and weaknesses? Goal of the rolling financial forecasts: to achieve both a simple and clear picture of expected financial performance
* More accuracy * Better reliability * KPI: key performance indicators * Less data collection * Frequent updating *...