Budget Plans Controls

Critically Evaluate the Use Budgets in the Modern Business World

Research Title: Budget Plans. The Proprietors are always obliged to carefully plan and audit their find if they are to maintain their businesses regularly. For recognizing, measuring and calculating and reporting finance data, organisations rely upon accounting software. Moreover, there are others tools which incorporate planning, monetary proclamation, estimation and different apparatuses for the overseeing of finance data. Out of all the accounting tools used by organisations, businesses budgeting ones are the ones that are seen as the exceptional ones. What “Budget” entails is an incisive analysis of the organisation’s future spending strategy and plans.

Most organisations try to create their yearly budget plans on a yearly basis so that take into account every spending need in that office. A yearly budget plan entails that capitals assets that the organisation would try to acquire would not be easily done so because of the confines on the time. Small organisation differs from the big organisations in the sense that they are able to complete their budgets plans without having to consult experts in the field.

Knowing a budget means that you will not hastily spend money on operations that are relatively unimportant or of least priority, similarly having a budget ensures that the precious capital is properly used on only those economic resources that are worth your time and money. This naturally entails that the business organisations and owners may have to check for alternate sources of supply or vendors, and cutting down miscellaneous costs. Having a budget properly mapped out gives the company a sense of direction of how they are going. It will also mean that you are able to bring about a comparison with the budgeting that happened the previous year and where and how the discrepancies occurred and if there is a way to resolve them. In the case of a budget fluctuation that had occurred due to an unexpected incident, such as an increment in the sales income, then it is not necessarily a negative business circumstance, instead, it is an opportunity, for the organisation to create to recollect and build a monetary allowance sum for future deals and increments.

This is where the flexibility of the budgets comes into the limelight, as it is capable of being edited into a plan which prepares the organisation for any imminent development or extension. The money saved due to budgeting spending can be utilized in the way of injecting it into a store account which is used to finance the selection of new business opportunities. This type of planning ensures that when the scenario arises when you have to close a deal to ascertain a possible expansion in business operations, it can be done without having to scramble for finances. These extra capital saved can be utilized during times when there is a moderate progress for financing operational expenses. With the aid of an accounting or business program, organisation will be able to, more efficiently, create budget plans that allow them to plan their finances and monitor costs. Similarly, it is possible for them to create a better accounting plan or procedure that makes it possible for creating and overseeing spending plans, by virtue of data gathering. Therefore, software such as these is imperative for budgeting and data collection in a consistent and constant arrangement.

Budget Plans
Budget Plans

Critically Analyses the Figures Shown in the Cash Budget

After careful examination of the monetary proclamation of Ground Ltd, it is inferred that the records receivables are consistent at Euro 464,480; therefore, there is no visible variance or occasional ones in deals. There at least 6 turns of the record receivables during a year, or during regular intervals, they turn at least once. The Stock during this time is constant at about Euro 484, 480 and only turns over at regular intervals. On the other hand, the records payable have a tendency to turn over at least eight times a year, like clockwork. The time for records receivables is about 60 days and the equalization remarkable stays at Euro 484, 480, which gives the impression that Euro 464, 000 is the sum that is ought to be gathered on the receivables after 90 days. From such a point of view, a stock of Euro 1,000,000 at retail that turns on regular intervals and Euro 750,000 traverses the records receivable, and then it is imperative that about Euro 250,000 ought to be the amount that is sold on money premises alone.

Installments

It is estimated that the costs for money installments is 150,000 Euros for the coming 90 days. One can easily check this figure if they were to allude to the pay articulation costs. If there happens to be a measure of the money costs that is relatively unpleasant, so to speak, then it can be acquired by a deft utilization of working costs minus non-money costs, i.e., devaluation. In a scenario where there is no regular variable at work, then it is often the case, that he aggregate sum is divided by four, which will in turn keep an eye on the sum planned for the subsequent 90 days. Cash budget, will have an estimation of the anticipated sources as well as the purpose and use of the future cash costs. This purpose of the budget is to give a measurement of the cash needed to meet anticipated money necessities. If it is not possible, then it is up to the administration to find new sources of income and cash, and the inputs are only gathered from a small collection of different budgets. When the trade spending plans is spent upon, all that remains will be used for the financing the future budget, that in turn organizes ventures, debt, interest salary and expenses.

 There are two areas of the cash budget – the sources of cash and the uses of cash. The former consists of the starting money equalization, cash money receipts, debt claim collections, and offer of advantages. The former consists of arranged money uses, start spawn from material budget, direct work budget, overhead budgets and expense budgets that is part of the selling. It will also contain a multitude of details for settled resource purchase and profits to shareholders.

In the unlikely possibility that there exist certain bizarre and extensive trade equalization, they are adequately maintained in the financing budget plan that shows the any possible ventures for them to consider. Similarly, if there exists any negative parity inside the cash budget, then it is inside the financing budget, a clause that details how to manage these equalization by means of stipulating a certain time and measure for this obligation.

In the illustration given, we found that an expert spending plan of organization proceeds here with the planning of calendar of expected money accumulations. The business figures are acquired from the business budget of the organization. 70% of offers are relied upon to be gathered in the quarter in which deals are made and the rest are required to be gathered in the following period. Bad debts are insignificant. Also, an exorbitantly substantial profit installment in the second week of the budget plan, combined with a vast resource buy in the next week, puts the organization in a negative money position. Paying out such an extensive profit can be an issue for banks, who don’t prefer to issue credits with the goal that organizations can utilize the assets to pay their shareholders and along these lines debilitate their capacity to pay back the advances. In this manner, it might be more astute for the organization to consider a little profit installment and maintain a strategic distance from a negative money position.

Ways in Which Cash Budget Can Be Improved

Balancing cash will occur quite impressively inside a solitary accounting period that will entail the concealment of cash which is often quite fatal for many organisations. In order check the arising of such situations, then it is necessary for maintain a cash conjecture on a weekly basis. These transient plans are sensible for only a month, but then the ability to anticipate any occurrence of delays quickly vanish, and then the organisation is coerced to plan on a month to month basis. What happens during this tumultuous time is that the plan created is lost in significance after a month and to a great extent absolutely erroneous after two months.

In its least complex structure, income is the development of cash all through your business. It is regularly portrayed as the procedure in which your business utilizes money to create merchandise or administrations for deals to your clients, gathers the money from the deals, and after that finishes this cycle once more.

There are few ways to improve cash budget like making ordering your product for customer easy and by improving commitment and handling well the shipping process. Accelerating the trade change period out this region requires that you utilize the fastest method for conveying your items or administrations to your clients. Superfluous deferrals in the transportation and treatment of your items or administrations can include countless to your money transformation period, also the negative effect this can have on your client connections.

Another important way to improve cash budget is the completion of the invoice properly. Your absence of consideration in this stride can accidentally protract the money transformation period. Your receipt really starts the money gathering process for your finished deals. You’ve presumably made sense of at this point most clients don’t pay without first getting some type of receipt for the products or administrations you sold them. Receipts serve as a suggestion to your clients that your products or administrations have been conveyed. Receipts additionally serve as a suggestion to your clients that they have a commitment to pay you. Apart from this, you can give some credit considerations to your client. With existing clients or customers, it is best to envision bring up in their credit limit at whatever point conceivable. This can be done by taking a gander at the client’s present credit point of confinement and contrasting it and your normal levels of business with them. You can maintain a strategic distance from postponements in satisfying their request on the off chance that you can settle on your credit choice well in front of the client’s solicitation for an adjustment in their credit limit. Foreseeing existing clients’ credit needs can fundamentally diminish your money transformation period, and awe the clients in the meantime with your eagerness to expand their credit limit.

References

Steven, M 2003, ‘ Budget Economics: Principles in action’. p. 502. ISBN 0-13-063085-3.

Panagariya, A 2008 ,’The Emerging Giant’ p. 514. ISBN 978-0-19-531503-5

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Introduction Accounting

Introduction to branches of Accounting

Accounting is an important concept that its history can be traced back centuries ago. Many businesses, based on numerous transactions made in a day requires accountability and proper records keeping for such in information in order to enhance other activities within a business enterprise such as communication. With the absence of accounting for businesses, this would act as a stabling block for the attainment of organizational objectives such as profit maximization as management of resources requires proper innovative structures for accountability.

According to Dyson (2004) the accounting branches can be segregated into three key areas; financial, cost, tax and managerial accounting (Dyson, 2004, p.12). Accounting plays a significant role in different business enterprises especially on key areas such decision-making, giving information, protection of business from various transactions involved with other business environments and explaining the business position. Financial Accounting is the art of managing business financial recording that stipulates the business position and it progress in growth through the analysis of profits and losses. According to Babarinde (2003) financial accounting is a system that deals with explaining the situation and the state of affairs for businesses through preparation of financial statements such as the balance sheet and trade and profit loss account (Babarinde, 2003 p. 313). Financial accounting also plays a significant role in running a business enterprise as the system give the estimates of costs on products, functions, activities and the firm progress. Through financial management in a business entity can get quality information to plan through budgeting that gives estimates on expected expenditures.

Cost accounting is the system used in controlling activities of production that would regulate expenditures for the business in order to enhance profit maximization. According to Abeygunasekera and Fonseka (2013) every business has its control system that helps in cutting cost either through the production processes such as manufacturing, recruitment, training and development and delivery of services. Through such processes, cost accounting acts a system for the management to control such expenditures incurred through transactions with different business environments as well as in the processes of availing goods and services to consumers (Abeygunasekera and Fonseka, 2013).

Managerial accounting is the process that facilitates the management with information concerning the company’s progress that enhances the management in carrying out their day to day functions. The management in every business ought to have the facts in decision-making, planning, and in the development of policies and through managerial accounting such is facilitated. According to Mbroh (2013) he argued that in managerial accounting, frequent information is made obtainable to the management such as information on funds, profit and cost that gives a bulge of the business advancement and must be factual in support of truth and fairness (Mbroh, 2013).

Recommended accounting methodology for companies

It is necessary for the management of any business to how commitment in recording business transactions as this information can be retrieved for further use when such information is required. There are for instance methods of accounting that are commonly used across bossiness in the world of today. This includes the single entry and doubles entry methods that are used interchangeably in businesses. Use of double entry techniques has proved to have various advantages for many that use it. In the double entry, two columns are created for transaction entries in both what the company receives and also spends while running the business.

By following the right procedures in preparation of journals, trial balance, and final account, the use of the double entry techniques businesses benefits in different ways that is recommendable. Through such a system, the management is also to create the accounting book through a device known as the trial balance that give more accurate inform about the business transaction.

Introduction To Accounting
Introduction To Accounting

It is also easier to ascertain on the profits and losses incurred by a business if the transaction entries are properly entered in the trial balance device. According to Mbroh (2013) he also argued that a financial statement such as the balance sheet, the system gives accurate information concerning the position of the business enterprise (Mbroh, 2013). The management is also able to know if the firm has made any development such as profit maximization and growth. This as well regulates spaces for errors as the transaction entries in both the debit and the credit side should balance in the system. Through the double entry system, the management is also able to carry out a comparison study during a specific period such as between two consecutive years. It also becomes easier in making decisions for the business as the business position is made clear for instance in the trade and profit loss accounts.

References

Abeygunasekera, A.W.J.C and Fonseka, A. T (2013) Non-Compliance with Standard Practices by Small and Medium Scale Enterprises in Sri Lanka.

Babarinde A. (2003) Financial Accounting, Volume 1, Lagos: JBA Associates Ltd.

Dyson J. R (2004) Accounting For Non-Accounting Students, 6th Ed. Financial Times/ Pitman Publishing Imprint, England.

Mbroh, (2013) Control Systems Practiced By Small and Micro Enterprise Owners within the Cape Coast Metropolitan Area of Ghana in Asian Journal of Business and Management Sciences Vol. 1 No. 9 [28-47]

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Accounting Information System Risk

Accounting Information System Risk

The main aim of this article is to highlight the risks and security threats faced by a Hong Kong based online supermarket. It typically examines the status of current e-commerce businesses across Hong Kong, particularly the ones specializing in fresh produce. The careful analysis of facts and figures based on this information shows that there are several risks and security threats associated with online supermarkets. The risks can be broadly categorized into primary and secondary, and can be further sub-categorized. For the safe running of an extremely vulnerable (yet profitable) online business, it is quite important to chalk out the strategies and measures beforehand. The report concludes by enlisting the various risk management measures that can be applied efficiently to protect the business in times of a crisis.

Background

Online shopping has become a part and parcel of everyone’s life. It is a fact beyond denial that e-commerce has slowly but gradually posed itself as a market takeover business, ready to outpace U.S. brick-and-mortar in the upcoming decade. Numbers suggest that it will reach a total of around $370 billion by the year 2017. The extensive growth of e-commerce is irrespective of the geographical location in contrary to the popular belief that western countries are much more advanced in this business. E-commerce industries are budding in countries like China, Japan and India, and these companies are equally competing in the global market. For instance, Chinese e-commerce Company – Alibaba group has been giving a tough time to giants like Amazon and Walmart. Recent statistics has shown that the numbers are rising in countries like China and India, and they are even successful. On the other hand, over the past few years the numbers have steadily declined in the West due to the stringent government policies. The tax laws have become stricter, the revenues have gone down and there are numerous other reasons for this decline.

Hong Kong has seen a tremendous growth in the online business sector over the last decade. Here are a few facts about Hong Kong:

  • The overall penetration rate of mobile subscribers: 240.2%
  • The penetration rate of broadband connection: 83.3%
  • Penetration rate of PCs for various business sizes (ranging from small to big): 75.2%
  • Percentage of internet usage by business organizations (all inclusive): 74.8%
  • Total number of hotspots established by private sector and the Government: 31,879
  • Total ICT spending: 6,273 million

These stats clearly reveal that why Hong Kong has become an ideal place for a new online based business. There are other benefits as well. The initial capital and fund requirement is low. The friendly government policies like 0% corporate tax for outward-bound transactions, no sales tax make it even easier for the new companies. So Hong Kong is an ideal place for setting up an online business.

Despite several policies and benefits, there are potential risks even in Hong Kong. Every business has its unique set of risks. A physical warehouse situated in an earthquake-prone area, for instance, can go down at any point of time. An online store’s payment getaway can be brought down by an anonymous hacker. Likewise, online companies in Hong Kong also face a wide variety of risks.

On the other hand, security threats have become a major issue for online companies over the past few years. Cyber-attacks have led to the loss of revenues. Many people have had a psychological effect on their mind questioning the safety during a purchase. So starting a business may seem very exciting and well-decided initially but as the problems slowly develop, they begin to diminish all the excitement that once used to exist.

An online supermarket based in Hong Kong is prone to all kinds of risks. The involvement of perishable items, dependency on online consumers and several other essential factors play a huge role in determining the success of the business. There will be risks, but there is no denying the fact that effective strategies can be devised to minimize them to a certain extent (if not completely).

The next section presents an elaborate discussion on the various risks posed on an online supermarket specializing in fresh produce. The countermeasures have also been highlighted elaborately.

Discussion

This section talks about the potential threats faced by a typical online supermarket in Hong Kong and the measures to mitigate those threats.

As the risks are exclusive to a typical online supermarket, it is very important to focus on the particular dimensions that define the risks, value and financial forecast for it. The following are a few issues that require investigations, analysis and interpretation prior to their acceptance.

Social Risks

Social risks are an important constraint for every online-based business. One of the issues that will eventually crop up is Unsustainable Site Traffic. In the parallel online universe, site traffic and success are two sides of the same coin. Online Companies depend heavily on organic search capabilities in order to achieve sustained site traffic. It is a fact that online companies generally advertise through Google AdWords and other such mediums. Still, sustaining site traffic remains a sturdy and hard to deal with the challenge for any online company.

Nowadays, Corporate Social Responsibility (CSR) is an important aspect for every company. There are regulatory organizations constantly monitoring a company on social and environmental grounds. Any violation can lead to huge amounts of fine. And, there is always a risk for companies (specializing in fresh produce) because the main source of raw materials is very closely linked to environment and other related factors.

Financial Risks

One of the most important and dreadful financial threats a business may pose is the risk of losing the main income source. Such horrifying moments may appear in any business where the business model may crumble in an instant without any warning, leading to bankruptcy. Once the online business starts to roll smoothly, nobody cares about the worst. There is a certain possibility of becoming complacent thinking that good times will continue till eternity. But the scenario may change entirely within moments and without any prior notice.

For an online supermarket, the business is fragile during the initial stages. There is a lot of competition all around and there is not a consumer base yet. The stakes are high and a lot of money is involved. There is no fixed “return on investment”. In the case of other online companies, the market gradually becomes stable. But the scenario is not the same here. Even if the market becomes stable, the customers will always root for the cheapest and best products. There is always some company ready to shell out quality products at a lower rate to get a hold of the market. Again at times, the quality can degrade due to some unknown reasons. All this affects the revenue of the company.

Accounting Information System Risk
Accounting Information System Risk

It is a matter of fact that most online businesses do not audit their financial records. As a result, in order to verify financial disclosures, the sellers have no other choice but to rely on secondary checks by using combined site metrics and industry benchmarks. If one such aspect of the website’s financial information does not fit with the site metrics, it could indicate that the particular financial information is fraudulent or flawed. In that case, the business may run the risk of being labeled as fraud and non-genuine.

Marketing or Business Risks

Staying unaware of the present market demands and trends can prove hazardous for any online business. Innovation is the key to success in these kinds of companies. The current trends of the market keep changing every now and then without any prior notice. On closer examination, it has been seen that sometimes a business can lead astray and not serve the demands of the market properly. It, therefore, runs the risk of becoming vague and unpopular among the audiences or customers. Every time it’s not about innovating a new product, sometimes a different approach is needed. And not everybody can do that. And that’s why a majority of the online ventures fail today.

For instance, a majority of the online supermarket store sells discounted products to get a stronghold in the online market. This is a common approach used by almost all the sellers. After a certain point of time customers are not interested anymore. Why? Because they are bored to see the same adverts and the same type of deals every day. Some of the online companies take a major hit from this decline and are forced to shut down. And, this can happen to anyone.

Physical Risks

Starting a business is one thing, and managing it is totally different. The owner not only has to manage the funds and invest a lot, but a lot of physical exertion is required in order to ensure smooth flow of the business. Reliable survey reveals that 60% of the average businessman’s time is spent in working hard in order to make the company successful, and the rest of the time is spent on worrying about what is still left to be done. Although more often than not, the rewards of entrepreneurship outweigh the personal risks undertaken by businessmen, but it has also been observed that these risks prove to be lethal in more than a few cases.

Security Threats

Security threats are a major concern among the online retailers these days. The number of hackers has grown over the past few years, and the consequences are worse than ever. From sites getting affected by malware to the breaching of firewalls and what not – the safety of online companies are in jeopardy. Nobody knows when a DOS (Denial of Service) attack will cripple the entire system or when the entire database is wiped out. Things can go haywire in spite of stringent measures. And, this kind of online attacks is even carried out just for fun. A simple example will highlight the present condition of cyber security throughout the world.

A customer has a particular set of products in his cart waiting to checkout, scrutinizing the last minute changes. Once the payment is successful, the seller confirms that the products will be delivered within the next 24 hours. The hacker has already played his part in between. When the products are delivered the next day, the customer is shocked to find the irrelevant products. The hacker had changed the products in the cart. So the customer ordered something, and the online seller received something totally different. So, this customer will never visit the particular website again. And, the company gradually loses its customer base.

Control Measures

Continuous and critical analysis and examination of business have led to the discovery of one fact: Risks in business cannot be nullified, they can only be minimized. While describing the various ways by which one could minimize risks and protect one’s business from threats, proper identification of the threats and its consequences must be clearly illustrated. After that, a company might resolve to a simple good risk management practice that includes contingency and vigilance arrangements or it might adhere to protective security measures in order to reduce the risk to a greater extent.

The following are some of the tried and tested risk management strategies to ensure the smooth running of a business:

Risk Assessment

Assessing the risk is the foremost job that must be undertaken because that would determine the necessary control procedures or security measures required to be implemented. A thorough examination of the available options must be performed in order to avoid investment in ineffective, expensive and unnecessary equipment. Careful planning can prove to be really instrumental in keeping the costs down. For example, introducing new changes at the time of building or refurbishment work may turn out to be profitable.

Planning

Planning is a two-step process. The first one is forecasting because planning foresees the future. Forecasting is all about estimation techniques based on some predefined methods and proper analysis. Estimating the demand, revenues and the risks priorly can cut down the potential threats. Predicting the amount of particular item that a customer will buy the next month requires some amount of skill and a lot of analyses. A lot of wastage can be saved, which in turn reflects in the base revenue. Planning is the best way to devise some strategies (and the backup plans) so that a structured way can be followed while managing a risk.

Adept Cyber Security

In the case of an online shopping website, the importance of cyber security increases manifold. Information security controls are the process, technical, policy and physical safeguards that are designed for the protection of sensitive data by mitigating the identified risks to its integrity, confidentiality and availability. Obtaining an excellent data security program that ensures control and management of identified data security risks is a must regardless of the type of online business. It will limit the organization’s vulnerability to data compromise and hence significantly influences operational, reputational, legal and strategic risks.

Prevention of Employee Theft

Preventing embezzlement or employee theft can be difficult at times. The first and foremost thing is to recognize the signs of warning and, therefore, implement an efficient internal system of controls. The term ‘embezzlement’ is a fancy way of describing that the employees are stealing from the company, and it is a common scenario, especially in online-based grocery stores. A few signs have been interpreted below as warning signs of embezzlement.

  1. A fraudulent scheme is often covered up by atypical bad-debt write-offs. A decrement or little increase in credit or cash sale could indicate that a number of transactions have not been traced.
  2. Concealments of accounts receivable payments can be done by increasing the overall sales returns.
  3. Too many bounced company checks can be a result of funds that are siphoned out of the bank account.
  4. Often embezzlement is masked aptly by slow collections.

Risk Insurance

In managing risk, insurance could act as a principle safeguard. And it must be noted that most risks are insurable. For any business occupying physical space, the first necessity is fire insurance. Product liability insurance comes next in the list. Some specialized insurance companies underwrite cash bond in order to provide monetary coverage in case of embezzlement, fraud and theft. The golden rule is to consider the worst case scenario while insuring against the potential risks.

As the business develops and evolves, the risks and threats associated with it emerges side by side. But sure enough there are ways to prevent them, insure them, and minimize the damage if not nullify them.

Conclusion

A business cannot exist without a particular set of risks. There’s nothing called a risk free business. It is never easy to run an online supermarket because there are lots of factors that are constantly changing, and so are the risks. Scheduled evaluation and efficient planning are the only way to keep a check on the dangling factors. No matter whatever the strategies are, they should be revised and updated from time to time ensuring an almost perfect way to mitigate the risks, and assure the consistent functioning of the business.

References

Dozier, W. John (2008, July 30). Legal: The Top Ten Risks For Online Businesses.

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Budgetary Control Systems

Budgetary Control Systems

Budgetary control

Budgetary control is always followed by budget preparation. Budget needs not only top management assistance but also the control is supported by “participation of budgets holders into the investigation of solution to the problems which arise”

Budgeting acts as a service function because these did not put back management. Organizations draw budgets to achieve excellence and meet strategic business plans to avoid from any failure in future. These strategic business plans are divided into midterm and short term plans for cost minimization and profit maximization. This is a benchmark to measure the results of planned budgets. Reynolds told that budget planning is a source for the endurance of organizations in these highly competitive and challenging organizations.

A case study “Budgeting and budgeting control in business organization” written by Chika Agu (2006) defined that Budgetary control is the deployment of budget as a tool which regulates and guides the business activities and operations. The case study showed that budget is a measuring tool to administratively control operations and to determine whether planned goals are achieved on desired time or not?

Budgeting control system controls cost through budgets. It compares actual results with budgeted one by keeping in view whether obtained outcome matches with planned results. If any divergence from budgeted results is obtained, corrective measures proposal is established to achieve actual performance that matches with planned budget. Core objectives of budgetary control system are comprised of planning, synchronization and control. All these functions are interconnected (Arora, 1995).

Budget meets two fundamental prerequisites in the entire control procedure:

Feed forward

It provides fundamental control which can better help in decision making process in initial phase. These budgetary controls should be made whether the desired goals are rationale or not? Amendments should be made if budget is found irrational.

Feedback

Feedback provides foundations to measure the effectiveness and efficiency once point of action has been taken into account. This helps to improve previously committed mistakes and unmanageable impediments.

Budgetary control system has following functions:

Planning

Planning being an important part of budgetary control system encompasses long term, strategic and short term planning as well. Further, he stressed upon short term budgeting that must admit current environment, tangible, human and financial resources which is available in the organization. (Sizer, 1989). Planning is made by selecting goal and ways to attain them. It has a strong association with budgeting due to similarity in nature. Top management primarily focus upon the importance of planning and they plan where to invest, how to finance and how to increase market share keeping customers loyalty towards their brand. It is also certain that only planning and budgeting are the key survival for an organization.

Participative Budgeting

Research publications by various authors have substantial concern for participative budgeting despite of contradictory findings. Cherrington & Cherington (1973) found that negative relationship exists between budget participation and performance. Merchant (1987) and Brownell (1982) found positive relationship. Participative budgeting is utilized mostly when lower management has immense knowledge than middle management.

Monitoring

Budgetary monitoring and control approach is systematic and unremitting which is simplified by different steps: Establish departmental target performance of each organization by establishing goals to be attained so as to improve overall monitoring and performance of each organization. Communicate detailed budgetary strategy to entire stakeholders to greet and admire established goals and objectives. It boosts ownership of the consequences obtained at the end. Monitoring of real revenues data is evaluated by comparison of actual performance with the budgeted performance; thereby, reporting differences to the concerned officers on continual basis. The reason for variation in achieved data can be sort out and recommendation can be made (Drury, 2006).

Control

Control is set by comparing actual performances with planned and differences are addressed to management for intriguing corrective acts. Control is impossible without planning and it facilitates to maintain expenditures within planned perimeters. (Alesina and Perotti, 1996).

Achievement and accomplishment of the anticipated output data and results, their monitoring and assessments is compulsory. Both monitoring and evolution sustains steadily environment irrespective of various challenging forces; therefore, it is significant to local government effectiveness as well. It is also found that monitoring and evaluation need just raw data for test purpose and consumes a lot of time to scrutinize performance. Therefore, a valuable control system is needed for organizational development and continuous improvement with significant growth.

Budgetary Control Systems
Budgetary Control Systems

Performance Measurement

Horvath & Seither (2009) stated that performance measurement is a continuous process which quantifies the effectiveness and efficiency of each action, being a versatile concept; it also tells use of technology can better improve business functions. It is comprises of entire management planning, controlling and leading concept. Performance measurement could vary from business to business i.e. service sector and manufacturing sector but overall concept remains the same. In case of financial sector, budget performance can be quantified which helps to learn from mistake and perform better in the future.

Performance Indicators

Performance indicators include input, output, efficiency, effectiveness, cause and effects and outcomes as well. Input can be defines as all the necessary efforts required to keep on a project i.e. land labor, capital, raw material and money to meet necessary expenses. While, output is the outcome of input efforts and these are end results. Example may include budgeted overhead in production department which are calculated by costing department.

Outcomes and organization’s mission are closely related with each other. Outcome measures and evaluation of effectiveness defines the degree, the firm is attains its missions and objectives.

Disadvantages

  • Budget is totally based upon estimations and there is always uncertainty and ambiguity as future is uncertain.
  • Budget assumptions may or may not actually happen in real life. Many organizations face bankruptcy and insolvency problem due to poor liquidity.
  • We cannot blindly focus on it and it may affect long term planning and organizations nay face profitability issues.

References

Arora, M.M (1995). Cost Accounting, Principles and Practice (4th ed.) Vikas Publishing.

Sizer, J. (1989). An insight into Management accounting (3rd ed). Penguin Books Limited.

D.J. & Cherington, J.O. (1973). Appropriate reinforcement contingencies in the budgeting process. Journal of Accounting Research.17 (2), 225-253

Brownell, P., Dunk, A.S. (1991). Task Uncertainty and Its Interaction with Budgetary Participation and Budget Emphasis: Some Methodological Issues and Empirical Investigation. Accounting, Organization & Society.16 (8), 693-703

Drury, C. (2006), Cost and Management Accounting (6th ed). Boston Irwin. McGraw-Hill, 422-471

Alesina, A. & Perotti, R. (1996). Reducing Budget Deficits. Swedish Economic Policy Review, 3(1)

Horvath, P. & Seiter M. (2009). Performance Measurement. Die Betriebswirtschaft, 69 (3), 393-413

Agu Chika E., (2006) Budgeting and Budgetary Control in Business organization. (A case study of Emenite Nigeria Limited Emene Enugu Branch)

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Foreign Outsourcing

Foreign Outsourcing

Foreign outsourcing is a byproduct of the globalization where societies and the cultures across borders have become integrated. This integration had been through globe-spanning network of communications and executions of the national economies. As a result, the economies integrated into international economy through trade, cash flows, foreign direct investments, migration and spread of the technology. However, national economies integration has given rise to controversies owing to outsourcing. Though, it appears to the economists to be an opportunity for states to gain growth through comparative advantage aspect, there are various critiques on the same regarding its demerits. For this case, therefore, it is a twofold-problem which seems debatable among the persons of US and across nations (Snyder &Jeremy 2010, p. 20-22).

Among foreign outsourcing companies, for instance, Delta airlines outsourced 1,000 jobs to India in search of cheap labor. The company realized $25 million in savings and hence allowed the company to add 1,200 reservations and sales positions as well. Similarly, positions in IT had gone offshore with a total of 400,000. US positions recorded. Meanwhile, a total of US employment increase from 129 in 1993 to 138 million in 2003 mainly in services was also recorded. This way, it reveals that despite of heated public debate, outsourcing in US America is very positive to the American economy.

This paper, therefore, takes into consideration of the background of the study; US companies move to outsource factories to undeveloped nations. Besides, it critically looks into the business ethics regarding the barely faire wages that employees receive relative to their performance.

Foreign outsourcing background

It is a practice which had gain fame in the recent past decades as a way that is commonly used by different companies to reduce labor cost. Outsourcing is an effective cost-saving strategy used by transferring portion companies’ work to the outside suppliers rather than completing it internally. It is a practice which relies on the comparative advantage principle; at times it is more affordable to purchase a good or source labor from companies with comparative advantages rather than to produce internally.

Benefits of Foreign outsourcing

Outsourcing jobs to foreign countries has boosted American business to compete in the global economy. As the world economy has become less restrictive as a result of liberalization, US. companies modify their strategies to meet these contemporary world challenges. Competition in the world economy escalates the globalization, in turn incorporates the need for outsourcing for cheap labor. This way, outsourcing is a tool used to obtain a competitive edge in a globalized economy.

American trade across border for cheaper labor had been a crucial movement which has made a number of nations strives economically. Especially, its relationship with undeveloped countries had been an essential to their economic growth by a margin. This way, more and more of the American companies are hiring employees abroad hence enhancing job creation in undeveloped countries.

Outsourcing barely pays well

Many aspects of the average American’s good lifestyles can be solely attributed to trade relationship between US and Asia. That is, a significant proportion of clothes they put on, toys they nature their childhood, and given technologies the use at work or homes, was produced somewhere in Asia. Similarly, commerce with developing nations majorly China and Indonesia is as well reportedly crucial for America’s owned progressive economic achievements. Accordingly, manufacturing investments in developing states are in tens of billions of dollars and a huge number of contracted plants with American companies. However, many of Americans are barely aware that their appetite for consumerism fuels to heights controversial industry. Put simpler, just as the manufactured goods are in plenty than to meet the eye, sweatshops are very complicated (Hira, & Hira, 2005, p. 44-56).

Sweatshops are those factories which are considered to have unreasonable authoritative overseas, enforces long working hours with low payments, giving very harsh working conditions which are either physically or psychologically unhealthy. These outsourcing factories barely pay well regarding to the working conditions employees are subjected to. Considering the living wage, which is barely met by outsourcing factories, is a wage required by a million of workers to met their basic needs for survival. However, it is one of the brands which will remain unreality especially where government of state favors minimum wage. On the other hand, minimum wage is the amount of payment legally set as a benchmark by the states. In which it has to be met by the factories in a host country (Linder& Jane, 2004, p.75-90).

Reasons why outsourcing companies pay minimum wage

There exist some excuses why these sweatshops barely pay well for a living their employees overseas. Despite of the escalating food, energy, housing prices and transport fee around the world outsourcing factories has left workers a dire poverty. They barely receive a living wage to gather for their basic needs and those of their family members. Whether these manufacturing firms operate in Bangladesh, Cambodia, China, or in Philippines, their brands use all sorts of tricks to avoid paying their workers a sustainable living wage (Krishnan, 2007, p. 48).

Sweatshops posits that, paying a living wage seems impossible because there is lack of consensus on how to calculate it. However, from the workers point of view the problem has a little sense in this argument. Even though factories cannot agree on the figure many of similar firms had made no attempts to raise wage at all. Over the past years, of this dilemma have been in existence, multi-stakeholders such as Asia Floor Wage Alliance an alliance of 80-plus garment workers unions, workers representatives and the NGOs from six Asian garment producing nations have attempted to reach consensus but have failed in 2009. It is not the case that consensus is impossible to be reached rather it is just that sweatshops does not want to find it. The living wage was a workers buying power figure suggested to companies as a benchmark solution to the dilemma. Majority of the companies even was to the opinion but to date no company has started to officially it as a living wage benchmark (Snyder &Jeremy 2010, p. 20-22)

Outsourcing companies also argues that consumers do not want to purchase more of the products produced in this firms. For instance, consumers pay only a very small amount on their clothing needs. This way, sweatshops argues that it worth nothing however that a garment worker’s wage is merely 1-3% of the total cost of the garments. If a consumer is willing to spend eight Euros for a shirt, then means the worker though in harsh working conditions is receiving 24 cents. This as well is disputable in that doubling this wage would merely be another 24 cents. The consumer will barely realize the increased figure and if the consumer fails to, the factories will neither notice it. These profits have been observed being observed in the sweatshops profits margins and yet workers’ wage is still way below living wage (Krishnan, 2007, p. 48).

Sweatshops argue that low wage payments enable the hosting nations to gain competitiveness. This dilemma is also argues by the government of states giving reasons for setting minimum wage. Simply because, allowing living wage by the states would shun away the benefits from the sweatshops hence losing competitiveness edge. Cheap labor is a factor that entices production in majority of countries. For instance, China population attracts cheap labor force as well as the productivity of the industry is efficient. Contrary, increased wage rate have been an observed factor that boost morale of productivity, reduce absenteeism and employee turnover. This way, paying the workers a living wage is ideal to improve quality and flexibility. For this reason, therefore, allows the enlighten suppliers to retain a competitive edge (Bosniak et al., 2005:40).

Foreign Outsourcing
Foreign Outsourcing

Developing countries are desperate for jobs owing to their unemployment rate. On this note, outsourcing companies hold that they boost these countries significantly as they create job opportunities. It is actually the truth that workers getting jobs at sportswear and garment factories are better than some of the alternatives available to them. The flow of the cash flow from a country into another country has a detrimental impact of paying unfair wage yet they reap massive returns. The slave pay is not at all correlates to the returns realize even though the create employment to most of the developing countries. Generally it is unethical.

Outsourcing payments is unethical

Some of the world leading economists have recognized outsourcing as a necessary step in modernization and development. Jeffrey et al of Massachusetts Institute of Technology have asserted that sweatshops manufacturing in foreign countries, especially, in production of goods like garment and shoes are essential move towards a prosperous economic. This economic growth rate has been evidence in Asian tigers; Korea, Honking, Singapore and Taiwan. A study by University of Santiago de Compostela on the poverty relief and development also indicates that, sustainable international investments have been an economic progress in low income countries (Babin et al., 2012, p. 123-138)

However, foreign outsourcing by garment and footwear factories such as Nike, Converse, GAP, and Levi’s, has been genuinely linked to sweatshops as they are overwhelmingly lucrative. This is because they capitalize immensely on low-wage labor to significantly reduce cost of production. Such factories have been criticized as being involved with other agents, the government of US and developing countries, US corporate business which employs sweatshops labor, and the laborers in the developing countries, in exploitation of the workers. This is because they have been failing to correct the malpractices, in which they are pretty aware of but often claim they are hard to be corrected as purported by NGOs, workers alliances and so forth.

Rawls’ (1971, p.56-70) argument from the veil justice of ignorance would provide a view that foreign outsourcing is unfair and unethical. This is because there are great in equality between the US and the developing states. In developing countries which are relatively worse off the US, the laborers are exposed to the worst working conditions. Besides, it is unfair to as there exists difference in their payment as well. They actually take advantage of the developing country’s desperate need for job. It is true low-income countries are in great need for job creations which outsourcing countries are well-position to provide help. However, outsourcing companies have failed to justify their special obligations on either part of Enterprises Corporation or sweatshops to bare the shift of high wages, good working conditions and so forth.

Even though, outsourcing US companies are not charitable organizations and they are actually subjected to the stiffer market mechanisms, it does not mean that they have to maximize on their returns and fail to regard the socio well-being of its laborers. According to Immanuel Kant’s practical moral comparative posits that human beings ought to be treated as ends in themselves and not only as a means of exploitation to strive (Paton, 1999, p. 19-39). This way, sweatshops are not acceptable at all from their capitalism perspectives to mistreat their labors. It is unethical and unethical to use workers overseas as instruments in the amassing of the ventures profits (Zwolinski & Matt, 2007, p. 689-727)

Conclusion

The controversies surrounding the outsourcing companies in the US labor are suggestive of the ethical challenges. These are inevitable challenges which face US-Asia relationships. Besides, outsourcing companies’ reasons given for low-income payments to sweatshops workers are unethical and not justifiable. Their Laborers are the critical units that constitute and contribute to the nation’s economy at large. For this reason, US and Asia relations contribution to the overall progress needs not to overlook the moral obligations of respecting human rights. It is an essential need to be negotiated by the agents on the incompatibilities between the relative costs and the accruing advantages that are realized as results from their interactions.

Work cited

Babin, Ronald P, and Brian Nicholson. Sustainable Global Foreign Outsourcing: Achieving Social and Environmental Responsibility in Global It and Business Process Outsourcing. Houndsmills, Basingstoke, Hampshire: Palgrave Macmillan, 2012:123-138. Print

Bosniak, L. and others. Working Borders: Linking Debates about Insourcing and Outsourcing of Capital and Labor. Texas International Law Journal, Vol. 40, 2005

Ganesh, S. Foreign Outsourcing as Symptomatic. Class visibility and ethnic scapegoating in the US IT sector. Journal of Communication Management, 11.1: 71-83, 2007

Hira, Ron & Hira, Anil. Outsourcing America: What’s behind Our National Crisis and How We Can Reclaim American Jobs. AMACOM, 2005

Krishnan, J. Outsourcing and the Globalizing Legal Profession. William and Mary Law Review, Vol. 48, 2007

Linder, Jane. Outsourcing for Radical Change: A Bold Approach to Enterprise Transformation. AMACOM, 2004, p.75-90

Mitchell, Edwin T. A System of Ethics. New York: Charles Scribner’s Sons, 2005:485-490. Print

Paton, H J. The Categorical Imperative: A Study in Kant’s Moral Philosophy. Philadelphia, Pa: University of Pennsylvania Press, 1999:19-39.

Snyder, Jeremy. “Exploitation and Sweatshop Labor: Perspectives and Issues.” Business Ethics Quarterly 20.2 (2010)

Zwolinski, Matt. “Sweatshops, choice, and exploitation.” Business Ethics Quarterly (2007): 689-727

Rawls, John. A Theory of Justice. Cambridge, Mass: Belknap Press of Harvard University Press,  1971:56. Internet resource

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