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Performance Management

Performance Management. An overview. Lecture 1. Dr. Haider Shah Dr. George H. Papadopoulos. Semester B. Reading sources. Management & Cost Accounting Bhimani et al. Module Guide. Learning Objectives?. Have an overview of the module Review basic concepts relating to performance

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Performance Management

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  1. Performance Management An overview Lecture 1 Dr. Haider Shah Dr. George H. Papadopoulos Semester B

  2. Reading sources Management & Cost Accounting Bhimani et al Module Guide

  3. Learning Objectives? • Have an overview of the module • Review basic concepts relating to performance • Understand how budgeting is used as an instrument of performance management

  4. Assessment • Coursework 40% • Exam 60%

  5. Performance Management

  6. Defining Performance “Performance is the record of outcomes achieved in carrying out a specified job aspect during a specified period” Kane (1996: 125) outcomes specified period specified job aspect (Management by Results, MBR)

  7. Results & Behaviour Framework (Brumbach, 1988: p 388) Two dimensional typology of success and failure to view the notion of performance. Performance can be a ‘positive success’ if both results and behaviour were positive. It will be a ‘negative failure’ if both behaviour and results are negative. Performance can be a ‘negative success’ if results are positive but behaviour was negative.

  8. Budgeting!

  9. Planning to Budgeting What’s common in having a gadget, throwing a party or buying a book?

  10. Strategic Planning and Budgeting Measure Outcomes Fitzgerald et al, 1991

  11. Definition “A Budget is a quantitative statement, for a defined period of time, prepared and agreed in advance, showing planned revenues, costs, assets, liabilities and cash flows”. (CIMA) “The budget for an organization is essentially a model of the expected physical, financial and (to a limited extent) non-financial consequences of all its activities for a certain period in the future.” (Wilson & Chua 1993)

  12. Planning and Control • Identify Objectives • Search for alternative Courses of action • Gather information about alternatives • Select alternative courses of action • Implement decision planning Long term Planning process Short term Budgeting process • Compare actual and planned outcome • Respond to divergences Control

  13. Why do we need budgets? They are generally essential for • CONTROL • CO-ORDINATION • COMMUNICATION

  14. Functions -1 • Quantification of plans • Ensuring plans are financed • Controlling resources and performance Otley (1996): p 290

  15. Functions - 2 • Forecasting • Planning • Communication • Co-ordination • Authorisation • Motivation • Evaluation Few People can carry amale elephant EQL (UMA)

  16. Budget Terminology Planning Establishment of objectives, and the formulation, evaluation and selection of the policies, strategies, tactics and action required to achieve them. CIMA Official terminology

  17. The Budget period • A segment of time for which budget is prepared and used • Can be sub-divided into 12 or 13 control periods.

  18. Budget manual • Instruction manual governing the creation of the budgets within an enterprise. • Contents: • Objectives of process explained • Organisational structures • Principal budgets • Administrative details • Procedural issues

  19. Budget committee • Functions of: • Co-ordination • Issuing of timetables • Allocation of responsibilities • Provision of information • Communication of final budgets • Continuous assessment • Assisted by a budget officer; reps from all parts of business

  20. The budget – where do we start? • The principal budget factor – that which limits the activities of the organisation. • Potential ones are:-

  21. The budget process • The process will differ from one organisation to another • Preparation may take weeks or months • Budget committee may meet several times

  22. Steps in preparation • Identify limiting budget factor • Preparation on sales budget • Preparation of finished goods budget • Preparation of production budget • Preparation of budgets for production processes • Prepare raw materials inventory budget

  23. Steps in preparation • Prepare raw materials purchases budget • Prepare overhead cost budgets • Prepare overhead absorption rates • Prepare Cash budget • Prepare Master budget

  24. Private study • What are different types of budgeting methods? In what way Zero base budgeting and Rolling budgets improve upontraditional method of incremental budgeting?

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