Understanding The Budget Process In Organizations Is Crucial For Financial Stability. (70 Characters)

What is the budget cycle in the organization?  

What is the overall budget process?  

What organizational area provides overall budget coordination and control functions?

What function do you play and your area of responsibility play in the overall budget process?

How is the budget used to make plans for the upcoming year?

How is the budget used to communicate senior management goals and objectives?

What method(s) are used to estimate budget amounts?

What systems or software tools are used to aid in preparation of the budget?

How is the final approved budget communicated?

Does your organization report variances between the budgeted plans and the actual results?  If so, how frequently and in what manner?

How are budget variances reported and resolved?  What actions are taken to resolve variances?

Are budget results considered as part of employee annual reviews and compensation?

What levels of employees, at your organization, are involved in the budget process?

Do you think that the budget process at your organization serves as an effective tool in communication, planning, and control related to resource allocation?  Why or why not?

What advice would you give, based on your experience, to a new organization who is developing a new budget process?

General interview questions

1.1 Date and time of interview:

The interview has been conducted on 16/4/2017 and the time of interview has been between 12:00 p.m. to 1:30 p.m. within the normal business hours.

The interview has been conducted in person, as the interviewer has visited the office by seeking prior appointment from the necessary personnel of the organization.

The person that has been interviewed is Roger A. Campbell and the person is currently the Vice-President of operations for the wholesale corporation of Costco. However, the person has been unwilling to provide personal contact information and therefore, it could not be provided.

The name of the organization is Costco and the business location for the interview was 3656 Wall Ave, Ogden, UT 84405, USA.

Costco Warehouse Corporation is one of the biggest warehouse clubs in US providing a vast choice of merchandise. It is the second largest global retailer after Wal-Mart and it is currently headquartered in Washington, United States. In addition, it has been the leading choice of organic foods, prime beef, wine and rotisserie chicken (Costco.com, 2017). Furthermore, the organization offers an environment for the staffs to thrive along with exceeding the shopping experience of the customers.

The primary role of Roger A. Campbell in Costco includes developing, communicating and implementing the vision, mission and direction within the operations department. The person is involved with monitoring the work of the other organizational executives as well. Finally, the person is involved in creating and implementing the strategic plan for guiding the business direction to improve the overall performance of the organization.

According to the response obtained from Roger A. Campbell, the budget cycle of Costco takes place in four phases. The first phase is the budget preparation, in which careful evaluation has been conducted at the lower management level regarding the requirements and new initiatives to be undertaken (Baiman, 2014). The second phase involves approval of the budget, in which the approval process has been viewed as an opportunity in relation to fund spending. The third phase is the budget execution, in which the key executives impose funds for restricting wasteful spending of money. The final phase is the evaluation of budget, which deals with determining the return on the amount invested (Braun, Tietz & Harrison, 2013).

The budget process of Costco takes into account the following steps:

• Updating budget assumptions
• Reviewing bottlenecks
• Available financing
• Developing budget package
• Issuing budget package
• Obtaining revenue projections
• Obtaining departmental budgets
• Obtaining requests of capital budget
• Updating the budget model
• Reviewing the budget
• Iterations of process budget
• Issuing the budget
• Loading the budget

Costco has developed a responsibility centre for coordinating and controlling the budget functions. This centre includes revenue centre, in which the firm outputs are gauged in monetary terms. Expense centre is also included, which is involved with measuring the firm inputs in monetary terms. Profit centre is a part of the responsibility centre of Costco, which determines the organizational performance by subtracting the inputs from outputs. Finally, investment centre is present, which compares the outputs with the assets deployed in producing the same (Butler & Ghosh, 2015).

According to the response obtained from Roger A. Campbell, the person is involved in providing details about the expectations of the management and the ways of accomplishing the same. In addition, the person is involved in motivating the senior managers to meet the organizational objectives through commitment to a pre-ascertained action level.

Way of conducting the interview

Costco places the saved capital on regular business expenses into a special reserve account for choosing new opportunities of business. Thus, budgeting for future augmentation assures the availability of adequate capital for making effective decisions to diversify business operations. In addition, the company has a contingency plan of using the saved capital during recessionary periods for meeting daily business expenditures (Epure, 2016).

Costco develops a schedule for the budgeting process to complete the allotted work within specified timeframe. This starts in the final quarter of the past fiscal year. The next step involves identifying the person from each department to participate in the process. The third step includes setting out roles and responsibilities by providing accessible forms and templates to the staffs. The final two phases involve developing SMART objectives on the part of the managers and validating the assumptions (Kaplan & Atkinson, 2015).

According to Roger A. Campbell, Costco makes use of zero-based budgeting (ZBB) for anticipating the budgetary amounts. This is because under ZBB, expenditure needs to be justified for a new period. It initiates from a zero base and each function within the organization is evaluated for its requirements and costs (Van Der Stede, 2014). The budgets are then formulated around the needs for the future period irrespective of the previous year budget.

In order to prepare annual budgets, Costco uses Time Camp software, which helps in automatic tracking of time. In addition, this software keeps the budget of the organization under control by responding adequately to the individual tasks.

After the proposed budget in Costco is finally approved, it becomes the plan of policy for the firm for the budgetary period. The pertinent budgets are then communicated to each centre manager for providing encouragement in operating within the budgetary framework of sales, costs and performance.

Costco is involved in reviewing its budgets half-yearly and any variance identified is reported immediately to the concerned personnel. Each department has a special personnel for keeping track of the expenses and incomes and if any deviation from the budget is identified, it is immediately reported to the senior management of the organization.

As mentioned above, each department head reports the variances to the management accountant of Costco. In order to resolve the budgetary variances, the organization employs interim changes in short-term coupled with the identified long-term changes. In addition, the organization uses corrective action log for tracking the actions taken and the status of the undertaken action (Warren, Reeve & Duchac, 2013).

As per the response of Roger A. Campbell, if any unit performs above the budgeted results, the staffs of that unit are considered for annual reviews in relation to their compensation. The hike in overall salary is based on the feedback of the line managers of each unit for improving the organizational productivity.

  Roger A. Campbell has agreed that the budgetary process acts as an effective tool in relation to resource allocation. For instance, if Costco plans to add a new warehouse, it is based on the resource allocation from the developed budget. Therefore, the company plans its resources to complete the project within time, as preferred in the market. The top-to-down communication method is used to coordinate with the staffs of each department and strict control procedures have been enforced for effective resource allocation.

For a new organization, it is advised to adopt zero-based budgeting technique, as it initiates from the zero base. In addition, with the help of ZBB, the new firm would be able to focus on its business mission. This is because, with the passage of time, it is expected that the business would grow and certain product lines would be added in the future. ZBB would enable the new organization in identifying those operational areas resulting in loss for the firm and accordingly, actions could be taken to rectify them.

References:

Baiman, S. (2014). Some ideas for further research in managerial accounting. Journal of Management Accounting Research, 26(2), 119-121.

Braun, K. W., Tietz, W. M., & Harrison, W. T. (2013). Managerial accounting. Pearson.

Butler, S. A., & Ghosh, D. (2015). Individual differences in managerial accounting judgments and decision making. The British Accounting Review, 47(1), 33-45.

Costco.com. (2017). Retrieved 17 April 2017, from https://www.costco.com/

Epure, M. (2016). Benchmarking for routines and organizational knowledge: a managerial accounting approach with performance feedback. Journal of Productivity Analysis, 46(1), 87-107.

Kaplan, R. S., & Atkinson, A. A. (2015). Advanced management accounting. PHI Learning.

Van Der Stede, W. A. (2014). FOREWORDSome Ideas for Further Research in Managerial Accounting. Journal of Management Accounting Research, 26(2), 117-118.

Warren, C. S., Reeve, J. M., & Duchac, J. (2013). Financial & managerial accounting. Cengage Learning.

Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2015). Financial & Managerial Accounting. John Wiley & Sons.