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

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

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

4. Assessment  Coursework 40%  Exam 60% 4

5. Performance Management 5

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 job aspect specified period (Management by Results, MBR) 6

7. Results & Behaviour Framework Behaviour Results Achieved Did not Achieve Positive Success Positive Failure Negative Success Negative Failure 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. (Brumbach, 1988: p 388) 7

8. Budgeting! 8

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

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

11. Definition “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) “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) 11

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

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

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

15.  Forecasting  Planning  Communication  Co-ordination  Authorisation  Motivation  Evaluation Functions - 2 F ew P eople c an c arry a m ale e lephant EQL (UMA) 15

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

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. 17

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 18

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 19

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

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 21

22. Steps in preparation 1. Identify limiting budget factor 2. Preparation on sales budget 3. Preparation of finished goods budget 4. Preparation of production budget 5. Preparation of budgets for production processes 6. Prepare raw materials inventory budget 22

23. Steps in preparation 7. Prepare raw materials purchases budget 8. Prepare overhead cost budgets 9. Prepare overhead absorption rates 10. Prepare Cash budget 11. Prepare Master budget 23

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