NVR, Inc is a company that deals with two major projects; home building projects and credit banking operations. The Home building section depends mostly on the availability and cost of working capital financing which may be affected by fluctuations in cost of financing. The credit banking section depends on the availability cost and other terms of advance financing facilities and can also be affected by fluctuations of such finances (INVR Inc. February 26 2010). This paper will look into the company’s budgeting process and identify if the process is the best given all the circumstances.
A budget is a plan that identifies the fiscal assets required to achieve programmatic goals. Once constructed, this plan helps staff and board in running the organization both programmatically and monetarily throughout the year. After all the necessary items have been consolidated, the budget then takes shape and from it a number of statements accrue. NVR, Inc deals with a number of projects; home building project and the Mortgaging project that it expects to make a profit from.
This is evident because the company has over three hundred share holders all of whom expect the company to earn them something. There is also a need to compare
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The budget that NVR, Inc uses is a traditional budget. A traditional budget focuses on growth and improvement of the company’s situation fiscally; it’s all about making profit by controlling expenditure and income in such a way the company achieves all its goals and all parties are happy. A home owner has a home and the NVR, Inc has made its profit from tat particular project (Drury 2008). The budgeting process involves a number of information.
The first being the planning process, this involves the identifying the person who will coordinate the whole process. This includes the selection of staff and board members that will be involved with the process. This is important as it gives every one a purpose and functions in the team and avoids unnecessary conflicts. It is in this stage that the key definitions and assumptions are agreed upon. Finally an agreement is reached as to when the necessary meetings are to be held and what is expected out of them (Drury 2008).
The second process is the communication process. Here accurate communication is necessary. Information is them passed as to the out comes and expectations or each and every individual involved in the budgeting. It is also during this stage where the distribution of forms and assumptions are explained. Everyone is kept at per. The third stage is the programmatic process where all goals and everything appertaining to the budget are agreed upon.
This is followed with information gathering; where all the resources that the company has is documented, including the income coming in. The fifth process is compilation and reviewing of all the gathered information both fiscal and physical information. Here consistency is checked and re checked to ensure that the information is uniform and accurate (Drury 2008).
The sixth process is the committee review. Here all the necessary committees are involved in checking and confirming all the necessary assumptions; are they consistent. It is here that all the errors should be identified and solved therefore enough time should be given between meetings. This is promptly followed by the approval of the budget. It is here where the key committees present sections of the budget to the board. There has to be clear and concise explanation of the information. Finally we have the implementation and management of the budget. It is here that the real work now begins. The stated goals and projections have to be met accordingly and the progress communicated monthly or as agreed (Drury 2008).
The traditional budget is still effective. The process described above though cumbersome is necessary in ensuring that the company is moving in the desired direction. Such a budget is therefore necessary in ensuring that a company has realistic goals, that the company’s resources are adequately used to meet the goals and projections as states. The budget can be considered as the aims of the company for a specific period of time. Failure to achieve these goals may prove damaging to the future of the company (Breul & Moravitz 2007).
The budget clearly identified and clearly defines all the goal and objectives of the company. Part of its process is to identify all the resources that the company has; ensure that the company uses what it has. The process is all encompassing; it has involved all the staff and board members in one way or the other. It has been documented; human memory can not be depended upon (Drury 2008). The documentation is clear and precise. All this are reasons as to why the traditional budget is effective for this particular company.
VR INC. (February 26, 2010) Retrieved from http://www.faqs.org/sec-
Breul J, D & Moravitz C. (2007). Integrating Performance and Budgets: The Budget
Office of Tomorrow. Lanham, Md.: Rowman & Littlefield.
Drury C. (2008). Management and Cost Accounting. London: Cengage Learning EMEA.
Thompson J, L & Martin F. (2005). Strategic Management: Awareness and Change.
London: Thomson Learning.