Planning and Budgeting Concepts CMA Part 1 Part of this strategic plan will be a review of the capacity and the capital resources of the company. Though these two items are related, they will be looked at separately. Capacity is the ability of the company to produce its products or services. Capital resources are the companys fixed assets. Capacity may exceed capital resources if the company has arranged to use another companys resources to produce its product or is using facilities temporarily. In the long term, the company will need to make certain that its capacity will be able to meet the expected demand and also decide how to obtain this capacity. The firm may either purchase or lease the necessary fixed assets, but a plan is required to determine how the company will obtain the necessary financing for whatever option it chooses (this is the process of Capital Budgeting). By taking all of this information into account, the company is in a position to make long-term business plans. These plans may be related to or adding product lines or specific products, making long-term capital investments in increasing capacity or capital resources, or decreasing these. It may also generate a plan that will lead the company into a different business model altogether (for example, a shift from production of a product to servicing and supporting the product, leaving production to another company). Note: Strategic planning is directional, rather than operational. This means the company focuses on where it wants to go instead of specifically how it will get there. Intermediate and Short-Term Plans The strategiC plan is then broken down into intermediate or tactical plans (one to five years), which are designed to implement specific parts of the strategic plan. Tactical plans are made by upper and middle managers. Short-term or operational plans (one week to one year) are developed from the tactical plans. Operational plans focus on implementing the tactical plans to achieve operational goals, and operational plans include budgeted amounts. It is operational plans that drive the day-to-day operations of the company. Operational plans are developed by middle and lower-level managers. The shorter the time frame, the lower the level of management that should make the plan. Thus, strategic plans are developed by top management, tactical plans are developed by upper and middle managers, and operational plans are developed by middle and lower-level managers. This means that the board of directors should not be involved in developing weekly work plans for an assembly line. All shorter-term plans need to work towards the strategiC plans of the company. If the tactical and operational plans are not working towards that goal, the company will not be able to meet the longer-term, strategiC goals that they have set. Short-term or operational plans are the primary basis of budgets. Operational plans refine the overall objectives from the strategiC and tactical plans in order to develop the programs, policies and performance expectations required to achieve the companys long-term strategic goals. Most budgets are developed for a period of one year or less. Thus, the budget formulates action steps from the organizations short-term objectives. The budget reflects the companys operating and financing plans for a specific period: a year or a quarter or a month. The budget contains the action plans to achieve the short term objectives. The one exception to this is the capital expenditures budget. The capital expenditures budget is generally developed for a long period of time and the relevant impact is incorporated into the operating and financial budgets each year.
Posted on: Mon, 17 Mar 2014 10:51:13 +0000
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