BUDGETING IN A MODERN ENVIRONMENT

BUDGETING IN A MODERN ENVIRONMENT

Implementing budgets in a World Class Manufacturing (WCM) Environm may be affected by the impact of: TQM
                      JIT
                      Activity Based Focus

The principles of these systems can result in changes in the way in which budgets are prepared as compared to a traditional incremental budgeting system.

TQM embraces the need for continuous improvement. It envisages change about the way things are done. The features which it will contain are:

• It aims towards an environment of zero defects at minimum cost. This is different to the incremental nature of traditional budgets.


• It requires that all staff are aware of the changes. This requires greater employee involvement in the budget setting process


• It recognizes the need to increase value added activities & seeks to incorporate methods changes which will assist in this process. The budget process must incorporate & quantify such changes.

JIT focuses on customers demand for the product or service. It assumes a pull through approach. It aims at improved planning from the inflow of raw materials from the supplier to the delivery of the finished product to the customer. This requires moves to eliminate raw materials stocks, WIP & finished goods. It will also require closer liaison with customers & suppliers with regard to the timing of requirement.
All such factors will affect the structure of the budget model & preparation.

ABB

An activity based focus attempts to rectify some of the inherent weaknesses in a traditional incremental budgeting system. The major focus in ABB is on strategies for change which aims at efficiency & continuous improvement.
The features which will distinguish ABB from incremental budgeting are:

1. It forges closer links between planning & budgeting through identifying options for change. It will probably be operated in conjunction with a TQM programme.

1. It focuses on activity rather than expenses. This will require identification of activities & their classification into primary & support activities. Also value added & non value added activities.

1. It follows a TQM philosophy of involving all employees in the planning & budgeting process. Focus can be in identifying cost drivers for each activity. The budget will be prepared after considering how the incidence of a cost driver can be reduced & in which ways it may be more efficiently implemented.

It is therefore evident that the TQM philosophy, JIT, Activity based focus are likely to be inter related in the preparation of budgets in a WCM environ.