Unit 2: Exploring Business Activity Assignment 2 D1
Subject: How managing the resources of the organisation and effective budgetary control can improve the performance of a business.
Introduction: In this report I will be speaking about how managing the resources of an organisation and effective budgetary control can lead to improved performance of a business.
Findings/ Main Body: As I have talked about with you before, managing the resources of an organisation and looking closely at its budgetary control is absolutely vital in business. It improves performance over every department and gives the business management team a clear view on where they can expand and develop in the future.
Every public limited company that allows people to buy shares within their business must publish their accounts so that investors can see how well they are doing and judge whether or not to buy their shares on the stock exchange. All the top dog companies have a clear view on their resources and budgets; this is evident from Tesco who have lists of all their resources and a clear cash flow all on one financial statement. They made profits of over £2 billion in 2005 and this tells us that managing budgets and resources well really does improve businesses performance.
Managing resources of an organisation improves performance as it gives more cash flow, providing you cut back on unnecessary resources; this gives more to re-invest or to pay off liabilities. E.g. If John Lewis had £4600 of current assets and £3600 of current liabilities then they would have a working capital of £1000. By managing the resources and cutting back on waste products, such as recycling paper, they can decrease the liabilities figure from £3600 to £3200. This gives them £400 more working capital and add that to the previous amount of £1000 you get £1400 working capital. Working capital is essential to keep businesses active and trading, they need it to pay bills and avoid debt. Managing your resources and budgets well will increase your work capital and therefore increase the stability of your business.
Managing the budgetary control effectively helps improve the performance of an organisation as, if you can mark up the break even point on a chart of business, you can identify the point where your business has sold enough products or service in order to cover your expenses. This is crucial information for any business trying to avoid losses, knowing the point that you break even is a good target to reach and keeps everyone in your organisation focused and therefore improves performance. Furthermore, the margin of safety can also be found in order to allow the business to work out the amount of units by which sales can fall before the business starts to make a loss. This improves the businesses performance in hard times such as the current recession as the management team know how much security they have until they start making a loss. An example of the margin of safety could be when John Lewis has 65 units and a break even point of 50 units. This gives them 15 units of lee way until they start making a loss.
If you was to look at the break even point in more detail you could increase the point where your business breaks even by increasing the price of products. You would also have to, in return, consider how this will effect the sales figures and whether your business will still be selling. A wise option is to increase the price when the demand is high and the supply is low, this way you are virtually guaranteed on increasing the break even point and widening the margin of safety with the high level of sales.
Another example of how managing the budgetary control and resources within a business helps improve performance is the effect of changes in fixed costs. When running a business there is fixed costs that are always the same, these include costs such as rent, insurance and road tax. Knowing the changes of your ‘fixed’ costs...
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