BT2

• Budgets


  Financial plans that allow managers to plan out the future finances of their organization
• Budgets


  • Used to set targets for different parts of an organization (branches, profit centers, departments)
  • Allow senior managers to retain control and direction over different areas of a large business
• Types of budgets


  • Sales revenue budgets
  • Expenditure budgets
  • Profit budgets
• Variance analysis


  1. Compare budgeted figures to actual performance

  2. Calculate the difference (variance)

  3. Determine if variance is favourable or adverse
• Favourable variance in sales revenue


  Actual figure is higher than budgeted
• Adverse variance in expenditure

  Actual figure is higher than budgeted
• Profit budgets are the difference between sales revenue and expenditure budgets
• Advantages of budgets


  • Allow dissection of underperforming areas
  • Motivate employees to achieve targets
• Limitations of budgets


  • Inaccurate budgeting can be demotivating
  • Departments may overspend to preserve future budgets
• Ansoff matrix


  A tool or model to help businesses decide their strategic positioning or formulate their strategic plans
• Ansoff matrix


  • Laid out in the form of a four-sided grid matrix
  • Separates strategies based on whether the business is offering new or existing products, and targeting existing or new markets
• Ansoff


  A Russian immigrant into America working in the 1950s who investigated successful business strategies
• Four different strategies firms can adopt

  • Market penetration
  • Product development
  • Market development
  • Diversification
• Market penetration


  Continuing to sell existing range of products to existing markets
• Market penetration is the least risky strategy
• Product development


  Bringing out new product offerings targeted at the same existing markets
• Product development is a moderately risky strategy
• Market development


  Continuing to sell existing product range but targeting new geographic markets or new market segments
• Diversification


  Developing new product offerings and targeting new markets
• Diversification is the most risky but potentially most lucrative strategy
• Firms need to choose the strategy that best fits their vision and objectives