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Classic

Lesson 2

Budgeting

What is a Budget?

Budgeting is:

  • comparison Actual vs Expected

What's expected?

  • Benchmarks: comparing with competitors
  • Revenue Operations: what is the expected revenue?
  • Cash Flows: what the company paid last year, during the year, etc...

Results

If the Actual Cost > Expected Cost: CHANGES NEED TO BE MADE.

Actions?

  • Cutting Costs: reducing costs
  • Increasing Revenue: increasing revenue
  • Managing Inventory Efficiently: what goes in? what goes out?
  • Outsourcing: hiring external companies to do the job (MAKE IT OR BUY IT)

Target Net Income

Target Net Income=SalesFixed CostsVariable Costs\text{Target Net Income} = \text{Sales} - \text{Fixed Costs} - \text{Variable Costs}

Reaching a target net income is particularly important for a public company.

Wealth of a public company:

  • Share Value
  • Book Value

Analysis

Variance Analysis

Variance Analysis = comparing actual results with expected results

It is used to identify area of improvement.

Process Value Analysis

Process Value Analysis (PVA) = analysing each step of a speicifc business progress

It is use to determine if a process can be improved (needs changes) or streamlined (can be used).

Quality

Quality = the degree to which a product or service meets customer expectations

  • Delivered Quality: the quality of the product/service delivered to the customer
  • Perceived Quality: the quality of the product/service perceived by the customer
  • Expected Quality: the quality of the product/service expected by the customer

Costs

  • Fixed Costs: costs that do not change with the level of production (rent, insurance, etc...)
  • Variable Costs: costs that change with the level of production (raw materials, etc...)
  • Direct Costs: costs that can be directly traced to a product/service (raw materials, etc...)
  • Indirect Costs: costs that cannot be directly traced to a product/service (overheads...)

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