1

Orgman

(JEIN)

Let’s test your reflexes!

(Explain ang ice breaker)

(Discuss ang secrets)

In the game earlier, the groups were able to accomplish their objective of
getting the bottle first and winning because they effectively planned,
organized, staffed, led, and controlled.

They came up with a plan to get the bottle first, assigned the members they
trusted, chose a leader to guide them, and maintained control by evaluating
their performance.

Similarly, in companies or organizations, the functions of management are

important for reaching the organization’s goals and making sure it succeeds.

Recap: In the previous weeks other groups have discussed the planning,
organizing, staffing, and leading.

Their importance, nature, and other characteristics.

Planning -

(JEIN)

Introduction: (Remind to open books to page 101)

For today we are going to discuss, Controlling.

This is the last function of the management that we are going to discuss.
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Controlling -

Controlling: The Engine of Success

As the book mentions, imagine a fancy car (Lamborghini Veneno) that

can’t go anywhere because it's out of gas. This is similar to a business that
doesn’t manage its resources well. Just like that luxurious car, who needs a
vehicle that you can't even drive? Similarly, who needs a business that you
can’t manage or control properly? Without effective management, the
resources invested in the business or organization will only go to waste.

That’s why it's crucial for management to know how to effectively control
resources. But it’s not just about managing resources; it’s also about
ensuring that the performance of team members is aligned with the values
and standards of the organization.

Through continuous monitoring, comparison, and correction of actions,

proper control can be maintained, helping the organization run smoothly and
efficiently.

This is where controlling comes in. It acts like the engine that keeps a
business running smoothly. Controlling ensures everything works together,
from how the business spends money to how well the employees performs.

So, how can a business succeed without managing its money wisely? It
can’t.

Controlling helps the business use its funds effectively to keep operations
running, support growth, and improve overall performance.

So, I will discuss this topic further later to deepen our understanding of controlling. Please listen
carefully as we explain controlling.
(KESHIA)
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Objectives:

At the end of this chapter, we will be able to:

Discuss the nature of controlling.

Describe the link between planning and controlling.

Distinguish between control methods and systems.

(KIMBERLY)

Lesson 1: Definition and nature of management control

In earlier times, controlling was associated with the concept of just being a
corrective action.

Present day management, however, applies it as a foreseeing activity that

sets standard in determining actual performance to correct previous decision
or actions. Therefore, management must focus on management control
and the control process.

(Keshia)

Importance of management control

Management control - making sure that the firms operating cash flow is
sufficient, efficient, and, if possible, profitable when invested.

(Jein)

(Controlling not only limit in the employees but also to the organization’s
resources as a whole.

Resources it can be your human resources and also resources in the form
of the cash, inventories, and assets. So all of it needs a good control.

It is important to make sure that our operating cash is sufficient, efficient,

and, if possible, profitable.

The ultimate goal of an organization is to gain profit. That’s why, one of the
things that we need to make sure is that we are earning at the same time
kailangan sufficient sya para don sa operation nung business mo.

Like for example, you can pay from the salaries of your employees or you
can pay for the day to day normal expenses of your business.
4

Why do you think ito Yung isa sa mga hinahighlight? When we talk about
control kase cash is very revolving in any business. So ibig sabihin, madali
yung paglabas at pag pasok ng pera.

So if you don’t have a proper control or management of that, mas madali

kang malugi o manakawan.

Like if hindi mo na memake sure na maayos ang recording ng mga cash na

narerecieve mo.

It is susceptible na Yung mga employees mas madaling makapag nakaw

sayo wherein magiging panget or eventually makikita din Yun sa records and
baka in the near future, ito pa ang maging Sanhi kung bakit mapabagsak
Yung business. So that’s why management control is very important.

It doesn’t involved only the operating cash flow but Yung day to day
activities or Yung mga nangyayari sa management that involves, of course
for the business to operate.)

(kim)

Working capital, when properly controlled, must be adequate enough for

daily operations such as financing, inventories, credit payments to suppliers,
reinvestment to cash surplus, and the salary of employees, or, in general,
maintaining an acceptable capital structure.

The decision to seek funds should be appropriate, so as not to incur

expenses since borrowing would be subjective to payment of interest.

(Keshia)

Spending without thinking of how it could be regained in the future could

put any starting business or even a well established one in jeopardy.

There should be a continuous monitoring of the organization’s

activities, followed by corrective actions based on previous planned
programs of action.

Moreover, tasks should be completed with less errors. This could be

achieved by comparing task with previously set standards or with
competitor’s standards or standards prevailing in a particular industry
setting.
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(Kim)

The Control Process

Control techniques used for controlling financial resources, office

management, quality assurance, and others are essentially the same.

The typical control process involves:

1. Establishing standards
2. Measuring and reporting actual performance
3. comparing it with standards
4. taking action

(jein)

ESTABLISHING STANDARDS - Means setting criteria for performance.

- Managers must identify priority activities that have to be

controlled, followed by determining how these activities must be
properly sequenced. In doing so, managers will be able to set key
performance standards that need to be achieved.

(So here in establishing standards para syang kunyari merong

contest,
Singing contest.

So before sumalang or kumanta yung mga contestan, yung

management and Yung judges, mag seset sila ng criteria for
judging. So it is the same in organization or business.

Your setting criteria for performance of your employees na dun mo

parang i gegrade yung ginagawa nila or yung nangyayari dun sa
organization mo.

So from there nag kakaroon ka nang standard so again hindi lang

sya sa performance nung nga employees but also sa performance
or dun sa activities that are happening in your business.
6

Next is.

MEASURING AND REPORTING ACTUAL PERFORMANCE and

COMPARING IT WITH SET STANDARD – Is essentially the monitoring of
performance.

- To be able to do this, managers must develop appropriate

information system which will help them identify, collect, organize,
and disseminate information.
- Managers are able to control facts and figures called data, and
information, which have been given meaning and considered to
have value.
- Analyses of data or information gathered measure actual
performance and comparing it with set standards serves as a
means for detecting deviations. Deviations must be revealed as
early as possible in order to correct them.

Under this monitoring of the performance, usually meron kang mga

information systems especially if it is a big organization.

Kung may deviations o kakulangan na nangyari at hindi na-meet ang

standards, mas maganda kung i-relay agad ito. Mas maaga mong mabanggit
ang issue, mas madali itong maagapan at ma-correct. By addressing it early,
hindi lang ikaw, kundi pati na rin ang team, ay magkakaroon ng sapat na
time para gumawa ng solutions at maiwasan ang mas malalaking problema
sa hinaharap.

(Keshia)

The last step,

TAKING ACTION - involves the correction of deviations from set standards.

- This activity clearly shows the control function of management.

Managers may rectify deviations by modifying their plans or goals,
by improving and training of employees, by firing inefficient
subordinates, or by practicing more effective leadership
techniques.
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(Jein)

So through those things, yun Yung parang taking action mo na, dun sa nakita
mong deviations like Diba nag set ka nang standards and then u measure
and then u report ung comparison or Yung difference between the set
standards and in the actual performance or the activities within the
organization and then now you will take the action.

So ito na talaga Yung control function nung mga managers.

So ano ano ba Yung mga solutions nila kung bakit nag karoon nung mga
deviations na Yun. Then if nakikita nila na parang technical problems lang
naman so they can train more their employees or if meron talagang subrang
inefficient na subordinates, then they need to make a decision to fire them
and then if nakikita naman nila parang sa side nila as leaders, Yung parang
nagkakaroon nang dahilan kung bakit nagkakaroon nung nga deviations,
parang mas kailangan nilang nag progress or mag practice ng effective
leadership.

So that’s the control process sa organization and management.

(Glojean)

Lesson 2: Link between planning and controlling

Planning and Controlling are closely related.

•Planning involves setting goals and determining the best way to achieve
them, while controlling involves monitoring progress and making
adjustments to ensure goals are met. Control is integral part of planning as it
ensures effective and efficient execution of the plan.

(Jein)

Bakit sya close related to each other?

8

Kase nga si controlling ang nag implement sa kung ano Yung

napagplanohan at sya rin Yung mag aasure kung Yung bang napagplanohan
ay naaachieve or hindi.

(Jamaica)

A pro forma financial statement is created periodically to forecast the

balance sheet, income statement, and cash flow statement.

It is Used for internal planning and control purposes and as an aid to present
plans to creditors and future investors

•Helps in making projections and informed decisions about investments and

resource allocation

(Jein)

As Smart (2013) cited, "by making projections of sales volume, profits, fixed
asset requirements, working capital needs, and sources of time to have
additional financing sources available when needed. financing, the firm can
predict any liquidity (organization's ability to meet short-term obligations)
problems with enough lead time to have additional financing sources
available when needed"

•this helps the firm manage its cash flow and make informed decisions
about investments and resource allocation.

(glojean)

Shim et al. (2012), emphasized that "any CFO (chief financial officer) must
prepare short-term, company-wide, or division-wide planning reports. These
reports may relate to product distribution by territory and market, product
line mix analysis, warehouse handling, salesperson performance and
logistics. Long range planning reports may include five to ten year
projections for the company and its major business segments."

•It is essential for monitoring and managing the financial performance of

the company.
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(Jein)

The Balance Sheet

Balance sheet is financial statement which is defined by most accounting

books as the “snapshot” of any entity’s financial condition because it
presents the financial balances of a particular period.

It follows the pro forma accounting entry:

A(assets) = L(liabilitie) + C(capital or owners equity)

Income statement

The income statement also known as the profit and loss statement, revenue
and expenses statement, statement of financial performance, or earnings
statement, shows whether the company made money or lost money by
displays the cost and expenses charged to recognize revenues in a specific
period.

•It shows whether a company made a profit or incurred a loss during a

specific period by displaying the costs and expenses charged to recognize
revenues.

Cash Flow Statement

Without adequate cash for the timely payment of obligations, funding,

operations and growth, and for compensating owners, the firm will fail. The
statement of cash flow summarizes the inflow and outflow of cash during a
given period.
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(Jamaica/Glojean)

Summaries of significant accounting policies and assumptions.”

 Management’s intent of preparing the prospective financial statements

should be stated, and it must be mentioned that prospective results may
not materialize. It should be clearly stated that the assumptions used by
management are based on information and circumstances that exist but
at the time the pious statements were prepared.

“ORGANIZATIONAL PERFORMANCE CONTROL”

>All managers must know which measure will give them data and
information about overall organizational performance control. The usual
measures are organizational productivity, organizational effectiveness, and
ranking in industry.

~~TYPES OF ORGANIZATIONAL PERFORMANCE CONTROL ~~

1.) ORGANIZATIONAL PRODUCTIVE

- is the amount of goods or services product output divided by the inputs

needed to produce the said output. In general, all generations in their work
units aim to be productive. In other words, they want to produce the biggest
amount of outputs using the least input.
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EXPLANATION – ARA LANG SAKON INDI KUNA PAG E SEND MWA

OUTPUT – Output may be measured by the a sales income, which an

organization gains when goods are sold.

INPUTS – Inputs, on the other hand, may be measured by the amount spent
on acquiring and transforming resources into outputs. Decreasing inputs by
being more efficient in work performance will decrease the organization
expenses, thus increasing the ratio of output to input in achieving what
management want.

2.) ORGANIZATIONAL EFFECTIVENESS

- It’s a measure of organizational goals, suitability of two organizational

needs, and how well these said goals are being attained. Managers make use
of this in their decision making regarding the design of organizational
strategies and work activities and in linking the various of work and
behaviors of their employees.

EXPLANATION- ARIMAN SAKON INDI KO LANG PAG E SEND

“RANKING “ – in industry is a way commonly used by managers to measure

organizational performance. Being is fortune magazine’s list of most Admired
Companies, 100 Best Companies who to work for, 100 Fastest Growing
Companies and other is a good measure of an organization’s success is
business world. Being ranked high, middle or low in dedicates the company
performance in comparison with others.

OTHERS PERFORMANCE CONTROL IN ORGANIZATION

1.) COMPUTER – Ranking in industry is a way commonly used by managers

to measure organizational performance. Being is fortune magazine’s list
of most Admired Companies, 100 Best Companies who to work for, 100
Fastest Growing Companies and other is a good measure of an
organization’s success is business world. Being ranked high, middle or
low in dedicates the company performance in comparison with others.
12

EXPLANATION- ARIMAN GIHAPON SAKON INDI KUNA PAG SEND MWA

HAHAHAHAHA

2.) BUREAUCRATIC CONTROL -makes use of strict rules, regulations, policies,

procedures, and other forms format authority. Negative performance
evaluation is given to human resources who do not comply with the said
control measure.

EXPLANATION- SAME ARI SAKON

3.) CLAN CONTROL – is based on compliance with norms, values, expected

behavior related to the firm’s organizational culture and other cultural
variables of the country where the company is located. Positive
performance evolution rate, things are given to employees or terms who
quickly adapt to possible changes of

Norms and values in the firm’s internal and external environment.

EXPLANATION-SAME ARI SAKON HAHA GOODNIGHT GUYS GODBLESS TOM

(Princess)

Lesson 3: Control Methods and Systems

CONTROL METHODS – are techniques Used for measuring and

organization’s financial stability, Efficiency, effectiveness, productive output,
and organization members’ attitude and morale.

From the general point of view, managerial effectiveness must be concerned

with the maximizing of the funtions mentioned that are measured my the
control methods.

(Jein)
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Therefore, the challenge for present day managers is to device control

methods and systems that are aligned and consistent and will help attain
these concerns.

Meaning… ang kailan mag device nang control methods is Yung mga
manager.

Kailangan nilang I asure na Yung mga factors nato is magiging maayos or

macocontrol nila nang maayos through those control methods and systems.

(Princess)

We will discuss what are the control methods?

(Carl)

We have….

methods of control

Quantitative or non quantitative.

(Jein)

Quantitative methods

quantitative methods make use of data and different quantitative tools

for monitoring and controlling production output.

Ibig sabihin dito, meron ka talagang actual na I kinuquantify. Meron tayong

Quantity. It can be numbers or certain outputs.

Under quantitative methods we have budgets, audits, and charts.

Budgets and audits are among the most common quantitative tools.

The most widely recognized quantitative tool is the chart

Charts use as control tools normally contrast time and performance.

The visual impact of a chart often provides the quickest method of relating
data.
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Ibig sabihin, dito sa nga chart, pag gumagawa or gumagamit tayo ng chart.
Mas madali natin makikita Yung parang current situation or current na
nangyayari through charts.

(Chart)

As you can see here, this chart shows the SALE STRENGTH. For condo and
coop, ito yung parang performance or ito Yung nangyayari and then singles
family and then for the total. Sya yung mas madali agad nating makikita or if
it is displayed graphically, madali nating ma checheck yung mga quantity or
mga data or information na meron tayo.

If the manager used these control method, makikita nila agad yung parang
performance or Yung mga nangyari, and then they can identify what are the
reasons behind these, and moving forward, what are the actions for them by
just looking at this chart.

Budgets. The budget remains the best known control device. Budget and
control are, in fact, synonymous. As organization’s budget is an expression in
financial terms of a plan for meeting the organizations goals for specific
period. The budget is an instrument of planning, management, and control.

Diba kapag sinabi nating budget, parang nag paplan tayo and then
minamanage natin sya and at the same time, we control.

So ano Yung kino control natin?

Yung nga finances natin. Yung ang ibig sabihin kung bakit tayo nag
bubudget.

Budgets are used in two ways:

to establish facts that must be taken into account during planning

and

Ano Yung ibig sabihin nito?

From previous data, or from the data of your competitors or from the actual
data or based no the actual market that is happening currently, parang
nakakapag establish ka ng mag facts na pwede mo gamitin sa pag paplano.
15

Like for this year, hanggang magkaon Yung kaya nating ubusin, for example,
for utility sa expense or for the salaries of the employees.

Or magkano for example Yung I bubudget natin na ibibentang gantong

products.

Dito Yung parang nag establish ka ng facts na pwede mong gamitin dun sa
pag pa plano mo.

To prepare a description and financial information to be used by the

chain of command request for and manage funds.

So, once na nakapag establish sya nong facts and then na take into
consideration mo na sya dun sa planning. Makakagawa ka na nang budget
and then makakapag prepare kana ng proper description and financial
information na kailangan mong gamitin para for example, sa tinging mo ito
talaga kung kailangan nating I set na budget for this expense.

Para mas ma manage natin Yung funds, and then makapag request tayo dun
sa mga upper or higher ups for these certain expenses na sa tinging talaga
natin and based on facts na kulang for example Yung ganitong budget.

Usually, in the government ginagamit din nila to, Yung pag babudget,
specially, wala naman silang clear na alam kung magkano Yung expenses na
for example na iincur nila per year. Kaya kung malalaman nyo or if you are
aware of na Diba nag kakaroon ng hearing for certain budgets of different
government bodies. Like sa deped, DOH, and others na parehong may
kanyakanyang ginagamit na budget.

(Princess)

Audits – Internal auditing involves the independent reviews and evaluation

of the organizations non tactical operations, such as accounting and
finances.

As a management tool, the audit measures and evaluates the effectiveness

of management controls.

audit service provides an independent audit of programs, activities,

systems, and procedures. It also provides an independent audit of other
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operations which involves the utilization of funds and resources as well as

the fulfillment of the management goals .

(Jein)

Under audit service or audit, there is a independent person or group of

people, na kaquantify or mag checheck or mag oaudit, nung mga operations,
programs, activities, and also the finances, specially the financial
statements.

Ang gagawin nila sa pag oaudit is to check if Yung proper controls ba ay

talagang maayos na naiimplement kasi Diba, for example, maganda talaga
Yung control methods ng isang organization but if its not properly
implemented, so parang bale wala lang Diba? So through audit, ma checheck
nila if talaga bang nagiging maayos Yung controls or if talagang nagagawa
and then at the same time, if Yung utilization nung funds and Yung resources
is properly managed, recorded, and if lahat ba talaga is truthful, so iton Yung
chenicheck nung audit.

Like Yung kanina, example natin Yung sa government, meron tayong

tinatawa na commission on audit, so sila Yung nag oaudit nung mga
budget or Yung mga finances or Yung mga operations na nangyayari don sa
mga government bodies natin.

So if you’re planning to take up accountancy, under the accountancy

program, pag-aaralan din itong audit. The Accountants and CPAs are also
Auditor, and usually ganyan talaga ang nagyayari, so in order for you to
practice audit so you must be a CPA.

(Carl)

Non quantitative methods

non quantitative methods refers to the overall control of performance instead

of only those of specific organizational processes.

These methods use tools such as inspections, report, direct supervision, and
on the spot tracking and performance evaluation or counselling to
accomplish goals.
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As you can see, Doon sa quantitative methos, meron talaga tayong Quantity
na chenicheck or merong na kaquantify. Pero dito sa non quantitative, wala,
it is more of the control na meron dun sa organization and then I checheck
mo yung overall nun, as to their performances or processes.

Other control methods include feedforward control, Con current control,

Feedback control, employee discipline, and project management
control.

(Jein)

Feed forward control

Prevents problems because managerial action is taken before the actual

problem occurs.

Overheating

Con current control

Takes place while work activity is happening. The best example of this type
of control is direct supervision of management by walking around.

Vehicle

Feedback control

Its control that takes place after the occurrence of the activity. It is
disadvantageous because by the time the manager receives the information,
the problem had already occurred.

Ask feedback

When the above 3 control methods are compared, managers choose the feed
forward method as the most desirable because of its preventive action.

“Prevention is better than cure”

The concurrent control’s advantage is that it can help managers correct

problems before they become too costly Or damaging.

Feedback control’s advantage is The exhibiting of variance between the

standard and the actual work performance. Little variance indicates that
18

planning is successful while significant variance may give managers an idea

how to plan better.

(carl)

employee discipline

Is the control challenge for managers. Enforcing discipline in the workplace is

not easy. Concerns regarding this include workplace privacy, employee theft,
and workplace violence, among others.

From simple monitoring of employees’ Computer usage At work to protecting

employees at work from Psychologically unstable workers who may have
hidden desires to harm them, managers need discipline control to ensure
that thus can be efficiently and effectively carried out as planned.

Project management control

Ensures that the task of getting the project's activities done on time, within
the budget, and according to specifications, is successfully carried out.
Project managers need technical and interpersonal skills to control the
implementation of the project efficiently and effectively.

The project planning process controls include:

Defining objectives, identifying activities and resources, establishing

sequence and estimating time for activities, determining the project
completion date, and comparing with objectives and determining additional
resource requirements.

(karen)

Lesson 4: Application of management control in accounting and

marketing concepts and techniques

(Kathreen)

Quick introduction
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Accounting - is a service activity, it’s function is to provide quantitative

information. Primarily, financially nature about economic entities that is
intended to be useful in making economic decisions.

It is also the art of recording, classifying, and summarizing in a significant

manner and in terms of money, transactions, and events which are in part
atleast of financial character and interpreting the result thereof.

(Karen)

Management control in accounting and finance is the control that makes

use of balance sheet, income statement, and cash flow statement to analyze
and examine financial statement in order to determine the companies
financial soundness and viability, as well as financial ratios to determine the
company stability.

(Kathreen)

Sales is considered to be the “lifeblood of the business”.

Without sales, walang kikitain sa company.

No matter how good the product is, if it is not sold in the market, there's no
way that a business can survive. Thus, the projected sales often guide the
sales manager or the marketing head on how much the target or the quota
must be.

In a way, this will also serve as a guide for the operations manager in
determining the number of units to be produced.

Excess production may mean cost, end unsold items may resort to inventory
expenses or worse, the obsolescence or degradation of the products. Indeed,
the sales forecast requires consideration.

For more established businesses, or those that have been in the industry for
quite some time, the most commonly used technique is to look at the
historical demand and actual consumption, with the assumption of the
same economic condition.

(Jein)
20

(Composition Asset)

(Karen)

A firm may generate a set of assumptions regarding the macroeconomic

environment which all divisions must adhere as their guide, but forecasts can
still be generated from the customer level and taken into account. Some
firms produce two Set of forecasts, one that uses a statistical approach and
another that relies on customer feedback. Senior managers then compare
the two Forecast to see how far apart they are before setting the final sales
objective.

(Jein)

ACCOUNTING/FINANCIAL CONTROL RATIOS

In accounting, we make use of the financial ratios in order to determine the

company’s stability. We have some ratios para ma check if ano ba yung
nagiging lagay nung business natin.

-the goal of businesses is to gain profit.

In order to achieve this, managers need accounting/financial controls.

Managers must also analyze the organization’s financial condition.

(Karen)

A.) LIQUIDITY RATIO

21

- Test the organization’s ability to meet short term obligations; it

may also refer to asset test done when inventory is turn over
slowly or are difficult to sell.

(Jein)

Current ratio = current assets ÷ current liabilities

(Kathreen)

B.) LEVERAGE RATIO

- Determines if the organization is technically insolvent,

organization’s financing is mainly coming from borrowed money or
from the owners’ investments.

(Jein)

Dept-to-assets ratio = total dept ÷ total assets

(Karen)

C.) ACTIVITY RATIO

- Determines if the organization is carrying more inventory than

what it needs; the higher the ratio, the more efficiently inventory
assets are being used.

(Jein)

Inventory turnover = cost of goods sold ÷ average inventory

22

(Kathreen)

D.) PROFITABILITY RATIO

- Determines the profit than are being generated;

(Jein)

Net profit after taxes ÷ total sales

Or it measures the efficiency of assets to generate profits.

Return on investment = net profit after taxes ÷ total assets

(Karen)

Asset management is also practiced to achieve organizational goals. Asset

management is the inability to use resources efficiently and operate at
minimum cost.

(Jein)

Inventory turnover = sales ÷ average inventory

(Kathreen)

STRATEGIC CONTROL
23

- Planning and controlling are closely related.

- A Systematic monitoring at control points that leads to change in
the organizations strategies based on assessments done on the
said strategic plans
- Control provides a chance for comparing the plan’s intended goals
with the actual organizational performance this becomes the basis
of modifications in the firm strategies

(Karen)

BENCHMARKING

- An approach or processes of measuring a company’s own services

and practices against those who recognized leaders in the industry
in order to identify areas for improvement. Widely used and well-
accepted approach because it helps organizations gather data and
information which performance can be measured and control.

Weihrich and koontz (2005) gave three types of benchmarking

a. STRATEGIC BENCHMARKING
- Compares various strategies and identifies the case strategic
elements of success.

b. OPERATIONAL BENCHMARKING

- Comparative cost or possibilities for product differentiation

c. MANAGEMENT BENCHMARKING

- Focuses on support functions such as market planning and

information systems, logistics, and human resource management,
among others.

Many companies use benchmarking. Some prefer to benchmark only the top
10 or the best companies in their particular industry.
24

(Kathreen)

STRATEGIC CONTROL

-a Systematic monitoring at control points in strategic plans that tend to

change in the organization’s strategies.

MACROECONOMIC ENVIRONMENT

- Business environment that includes or considers economic

aggregates such as national income, total volume of savings, and
money supply.

(Ronela)

Lesson 5: ROLE OF BUDGETS IN PLANNING AND CONTROL

“In every organization, planning is crucial to attain goals. Budgets are vital
tools in planning and control, providing a framework for strategic planning
and performance monitoring. “The budget serves as a guide for a business or
organization to plan and prepare for future endeavors. It is through the
budget that planning and preparation for upcoming projects begin.”

(Hazelyn)

Budget -are plans to monitor, control and implement the firms resources on
its operation based on its objectives or goal.

Budgeting- is the responsibility and activity of the management which

requires extensive planning throughout the organization’s entire units and
department.

Budget preparation may either utilize historical budgeting or zero based

budgeting.

Fixed budget-allocation of a fixed amount of resources for specific purpose.

The characteristic of fixed budget- inflexibility, predetermined allocation and

no variance accounting

(Ronela)

Fixed Budget*
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1. Remains unchanged over a specific period

2. Predetermined, inflexible allocations

3. No adjustments for changes in external factors

*Flexible Budget*

1. Adjusts to changes in external factors

2. Allocations can be revised as needed

3. Accounts for variances and uncertainties

When to use each:

Fixed Budget:

- Stable, predictable environments

- Short-term projects

- Small businesses/organizations

Flexible Budget:

- Dynamic, uncertain environments

- Long-term projects

- Large, complex organizations

(Hazelyn)

Planning is the initial step and it includes the development of firms objectives
and the creation of the budget

Planning leads to Budgeting*

1. Identifying goals and objectives (planning)

2. Allocating resources (budgeting)

*Budgeting supports Planning*

1. Provides framework for resource allocation (budgeting)

2. Helps prioritize spending (budgeting)

Operating takes on the decision -making that guided by budgeting. The

control process then checks and guarantees whether the set objectives are
accomplished. The operations and production department usually generate
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short term budgets, which customarily cover less than a year since it must
take into account economic trends such inflation, cost and personal
spending for the desired inventory and final production.

(Ronela)

*Steps toward better budget making

•Collaborate and communicate with organization administration and

selected members so that the budget becomes more acceptable to all.

•practice flexibility as the budget adapts to the organization’s needs.

•Relate the budget to company goals since their achievement is the primary
objective/goal of the firm.

•coordinate the budget with all the company departments so that they may
be able to make full use of the budget allocation given to their respective
units.

•Use computer software or applications when needed to facilitate accurate

computations and proper dissemination of information related to the budget.

(Hazelyn)

Fixed Budget-It helps organization to set objectives,allocate

resources,manage cash flow, monitor performance,and make informed
decisions.

Budgets-are necessary to highlight the financial implications of plans,to

define the resources required to achieve these plans and to provide a means
of measuring, viewing and controlling the obtained results,in comparison
with the plans.

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