Budgeting in Leisure
This piece of work will analysis different financial models such as zero, incremental, fixed and flexible budgets along with their strengths and weakness. Organisations use such models to try and improve there business performance. Here we look at Leisure fixed budget process on how the financial model works and roles throughout the organisation also how it links in with the organisations mission statement and improvements that can be made.
Any budget may be altered a number of times during a year, although there would always need to be a considered reason for doing so, this being a reason why we need to look carefully what budgeting model we use. Main Section Organisations do not run themselves; they need plans of which the business plan is the key. But the critical plan that is developed from the business plan is the financial plan or budget. There are several types of budgets used in today’s business some more popular than others, each type of budget has it strengths and weakness.
Business who adopt these budgets do so to improve there business plan and it evolves around the type of business they operate. Below are a number of budgets used today. Budget A quantitative statement,
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‘In zero-based budgeting the financial planners start from a zero base. In other owrds, they assume that no programme is necessary and no money need be spent. For a programme to be accepted, it will have to be proven worthwhile and financially sound in an evaluation of all elements of revenue and spending. An incremental budget, on the other hand, treats existing programmes and departments as already approved, subject only to increases or decreases in the financial resources allocated.
The organisation’s historical costs are the base from which budget planning starts. The focus of the budgeting process is on the changes anticipated in last year’s figures. The planning process has already been completed and the programme priorities established. ‘A fixed budget is defined as a budget, which is designed to remain unchanged irrespective of the level of activity actually attained. It is based on a single level of activity. Fixed budgets do not change when the level of business activity changes.
‘ In practice however, fixed budgets are rarely used, as the actual output is different from the budgeted output. In such a case, the budgets cannot be used as a tool of cost control. A flexible budget is a budget that is prepared for a range i. e. for more than one level of activity. The flexible budget is also known as a variable, dynamic, sliding scale, step budget. The underlying principle for a flexible budget is that every business is dynamic and ever changing. Thus, a flexible budget is developed for a range.
The flexible budget covers a range of activity, is easy to change with a variation in production levels, and thus facilitates correct performance measurement and reporting. ‘A method of budgeting in which activities that incur costs in each function of an organisation are established and relationships are defined between activities. This information is then used to decide how much resource should be allocated to each activity. Basically, ABB is budgeting by activities rather than by cost elements. ‘