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
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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