GinternationalBudgets+%2526+Global+Companies 2
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Transcript of GinternationalBudgets+%2526+Global+Companies 2
Objectives
1. Understand how budgets can be use to measure performance.
2. Understand that costs are investments not liabilities.
3. Understand how a good definition of processes and activities can help you save some money.
Develop Budgets
How are budgets usually seen? Workload Unnecessary Necessary but unwanted
A Systematic Method of allocating financial, physical and human resources to achieve strategic goals.
Develop BudgetsBest Practices
1. Link Budget to Strategy
2. Tie Incentives to performance
3. Reduce Budget Complexity
4. Design budgets that accommodate for change
Link Budget to Strategy
Fujitsu Computer Products of America1. The executive team determine strategic and
Tactical Issues2. Filters he information down to product-line and
sales managers3. They create forecasts and tactics to support the
corporate objective.4. Results are measured to ensure they conform to
the original target.5. If forecasts and tactics fall short, they make
corrections.
Tie Incentives to performance
3M Company The managers are evaluated based on how much
their division’s performance improves upon its prior actual results.
Accept the reality: people do play with budgets
What companies gain: More realistic budgets Stronger entrepreneurial efforts Greater satisfaction with the compensation system
Reduce Budget Complexity
Handelsbanken Before 1970: 1500 people at head office 30 Years Later: 300 people at head office
Two big enemies: the artistic view of the budget and its cycle
Reports Time
Design budgets that allows change
Borealis A/S: A Danish Petrochemical Company
The cyclical nature of product prices and raw materials
Rolling Forecasts that look 5 Quarters ahead Reduction the processing time down to 4 days
each Quarter Gain reforecast capability in a crisis
The Nature of CostsBasic Principles
1. Costs are investments not liabilities
2. The Vicious Cycle of Cutting Costs
3. Costs are the result of action: The Value Chain
The Value Chain
The Goal: creating value for buyers that exceeds its costs.
Value Activities: activities that creates a product valuable to its buyers. Primary activities Support activities
The Value Chain: disaggregates a firm into its strategically relevant activities in order to understand the behavior of costs.
Saving Money
“Economic results are directly proportionate to revenue, while costs are directly proportionate to transactions and activities”
Saving MoneyBest Practices
1. Dismantle bureaucracy
2. Manage processes and flow
3. Manage fix costs through directional goals
Dismantle bureaucracy
Toyota: over one-year period employees had made eighty thousand improvement suggestions…and the plant had implemented 99% of them!!!!
Handelsbanken: operating with the devolved management model.
The worst enemy of an initiative is bureaucracy.
Manage processes and flow
Dell: continuously finds ways to cut costs as it continues to improve operating processes ($3.3 billion in two years).
“We manage the supply chain end-to-end, from order to delivery…over the past five years Dell has reduced its supply chin costs by 60%.”
Jeffrey Clarke, product group vice president
Taiichi Ohno defined capacity as work plus waste.
Manage fix costs through directional goals
“If we can make fewer mistakes and turn more of our resources into value-adding outcomes, then I’m sure we’ll all be happier.”
John Wilton, World Bank CFO