Research Articles Base: Corporate Finance Examples

Procurement Function

Procurement Function   Introduction             Business firms or companies have internal organizations, which perform different functions. Separate functions are being executed for the efficiency of the company for faster production, for easier dissipation of information, for clear evaluation of the employees, for implementation of projects, and for the development of the whole company. The establishment of different organizations with various functions enables the companies or business firms to effectively penetrate the market for faster trade and relations with the consumers or with other business firms as well. This is even more evident when the company decides to expand, having more organizations and an increase in the workload.             Business firms are consumers as well, so as consumers, they are also entitled to purchase good and services. Constant participation in trade and relations enables business firms to have reliable contacts and suppliers for better quality of goods and services, which helps the company in efficient production, and in turn, serve their customers better. With this kind of chain of reaction, companies continuously develop and improve their internal organizations in generating success. One of the vital organizations, which a business firm must thoroughly develop, is its procurement or purchasing division. The procurement function has a crucial role in the success of a company, and somehow dictates the rising or the downfall of a company in the market.             This paper discusses the procurement or purchasing function of a business firm, its importance in its internal organization, and the interrelation of organizations. It also emphasizes on the value-added elements of the procurement function, and its significance to the company.   Business Organizations and Their Functions             It has been reported that business enterprises perform certain functions, which are separated in nature but are closely linked to each other (2006). These business organizations perform eight basic functions, namely, the management function, the production function, the human resource function, the finance function, the marketing function, the communication function, the information function, and the procurement or purchasing function. The management function is broadly concerned with planning, organizing, directing, staffing, controlling, and communicating for business operations, and each businessperson must understand the importance of these managerial functions for purposes of effective operations (2006). The production function is concerned with transformation or changing raw materials into finished goods and services needed by customers (2006)., along with other organizations, which are also engaged in transformation of inputs. Another function is the human resource function, which is concerned with managing the people as an important business resource. The finance function is involved with the budget and allocation of resources of the company, while the communication function and the information function focus on the dissipation of information. The marketing function is concerned with ensuring that goods that have been transformed reach the final customers (2006).             The procurement or purchasing function, which is the focus of this paper, influences other functions of the organization and success of the business. It has been reported that for businesses to operate successfully, they need an uninterrupted supply and flow of requirements to perform all their business activities (2006). This situation can be compared to the acquisition of raw materials of the right quality and quantity, at the right time and cost or price from the right sources, for the interruption of the supply of the required materials could also interrupt the operation of the business.             In relation to other departments or organizations, good procurement practices will ensure the efficient running of the operations department, influences production, and marketing. Marketing depends on efficient procurement practices, and facilitates procurement as well. The procurement division contact with suppliers and enables them to identify products with good market potential, and provide this information to the marketing department, and in turn, the marketing department will require these products, which have to be produced by the operations department (2006). Additionally, the personnel or human resource department also depends on efficient purchase or procurement requirements, as it cuts across the rest of function. In each of the functions, the value of the people cannot be overstated, for each function in the business firm requires the use of the human resource and their potential has to be harnessed to get the best out of them (2006). Similarly, the finance and the administration departments require services of efficient procurement, and cut across the variety of business functions. However, it can be deduced that the procurement department links the business firms with the external environment, and the perception created by the procurement department can either improve or damage the image of the business enterprise (2006).   Elements of the Procurement Function              (2005) reports that procurement is the common point of contact for departments in an organization, a central repository for corporate knowledge of acquisition of goods and services (). Moreover, the author adds that effective procurement departments operate on a corporate oversight perspective, evaluating the total cost of ownership of products, providing a durable product while minimizing operational support costs, and provide assistance in determining alternative acquisition and payment methods ( 2005, ). In this light, procurement functions compile and analyze historical data to identify opportunities for cost avoidance, standardization of goods and services and implement pricing agreements for goods and services based on volume or critically, and corporate-wide services contracts, consider issues such as longevity of items and future redeployment of assets, and bring consistency to due diligence aspects and legal compliance for procurements and reporting requirements ( 2005, ).             The effectivity of the procurement function depends on its key elements, namely, customer service, supplier performance, people capabilities, cost performance, and future direction setting. <li class="MsoNormal" style="text-align: justify; line-height: 200%"> Customer Service</li> Procurement will not be as effective without a good quality of customer service. Customer service determines the sales of the company from outside suppliers, and its success in the market by adequate interaction with the consumers and with the employees as well. (1998) reports that in the process of developing customer needs, it would be extremely beneficial to evaluate the key processes used to complete purchase transactions. This means some level of continuous improvement and flowcharting of the procurement flow, perhaps with user assistance. In addition, similarly, the supplier is also a customer of procurement, and provides ideas and suggestions for improvement. One of the ways to determine the extent to which customer needs are satisfied is to conduct a user and supplier satisfaction survey on a periodic basis, which provide an independent and regular way to receive customer input so that improvement can occur ( 1998). <li class="MsoNormal" style="text-align: justify; line-height: 200%"> Supplier Performance</li> It has been reported that the procurement makes the buying decision on selected suppliers and must ensure that the suppliers meet the user requirements, so the crucial step is to align the actual measures with those requirements (1998). This could lead the procurement to evaluate the cause and effect of customer satisfaction, and ensure that supplier improvement occurs in the key measures. <li class="MsoNormal" style="text-align: justify; line-height: 200%"> People Capabilities</li> Without the right skill sets and competencies, procurement departments will be unable to participate in the key activities of the organization and satisfy the needs of users ( 1998). The quality of the employees has a great impact with the effectivity of the decision, so assessments must also be done. This assessment can be accomplished by employing a matrix defining the position and the skills required, which can also be used to define training and development requirements, job descriptions, making hiring or promotion decisions, or developing appropriate training ( 1998). <li class="MsoNormal" style="text-align: justify; line-height: 200%"> Cost Performance</li> Cost performance must be tracked and measured to evaluate the total cost of the company. These procurement organizations have found that although total cost measures are difficult to establish and maintain, they are a true measure of overall supplier and procurement performance taking into consideration the supplier quality and delivery performance, the payment terms, the freight and packaging, tooling, the warranty costs, and the currency ( 1998). <li class="MsoNormal" style="text-align: justify; line-height: 200%"> Future Direction Selling</li> It has been reported that the selection of a future direction will govern the organization, the competencies, the measures, and the performance of the organization ( 1998). Some procurement departments can develop the direction from the ground-up using the data gathered from the other parts of the organization, while others can use their organization to set up the future direction, and definitely need both elements to achieve both. Measurement of the Elements              (2006) reports that one of the most important issues in procurement is the need to prove the business value of its products and services using more effective performance measurement practices (). This feedback is essential to demonstrate that procurement is indeed providing the needed goods and services at the best prices, in a reasonable period of time, and with a high degree of compliance to procurement regulations (2006). However, measures that exist are also plagued with problems, such as technical, financial and institutional obstacles, which make the measurement of procurement function difficult, expensive to develop and maintain. Nevertheless,  (2006) points out that experience shows that it can be accomplished with dramatic results, for as benefits, by reduction in the cost of goods and services, it radically improved throughput times, increased compliance, and improved client and supplier relations (). Despite this situation, a few effective procurement performance measures that are valid, reliable, timely, and comprehensive are existent, including the PMI or the Performance Management Index. The PMI is an integrated and index-based performance measure comprised of component performance measures, which allows the combination of qualitative and quantitative information yet provides the ability to quantify both so that all component measures become output or results-oriented (2006, ). In addition, it is used to provide the strategic, tactical or operational feedbacks at all levels, and provides the essential feedback to improve procurement decision-making within the organization by enabling proactive problem solving, and by institutionalizing continuous improvement (2006, ). It has been reported that the Procurement Management Index (PMI) has been used successfully to provide a balanced or systematic assessment of the public sector procurement function from multiple points of view, which include the challenge function, cost of goods and services, throughput time, internal procurement costs, compliance to procurement regulations, issue management and client education, and overall effectiveness (2006). <ul style="margin-top: 0in; margin-bottom: 0in" type="disc"> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> Challenge Function. This is used to challenge the necessity of any goods procurement or large-scale projects, which aims to provide checks and balances in purchasing to ensure that the client organization receives value for the funds expended prior to contracting (Shane and Lafferty 2006, ). The results of the formal or informal diagnostics determine whether the procurement would be approved, amended or disapproved, for less complex and costly goods and services. </li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> Service Delivery Measures. This consists of three components:</li> </ul> 1. Cost of Goods and Services, which refers to the volume change and cost savings obtained through the centralized and standardized purchase of goods and services. 2. Throughput Time to Acquire Goods and Services, which refers to the changes in the average throughput time it takes to conduct a procurement, where throughput time is measured for different types of commodities and procurement vehicles. 3. Internal Procurement Costs, which refers to the internal procurement organization costs of acquiring goods and services and includes staff and operations managing costs. <ul style="margin-top: 0in; margin-bottom: 0in" type="disc"> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> Compliance. This component refers to the role of protecting the interests of the government and the taxpayer, while facilitating the delivery of quality procurement services. </li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> Issue Management. This consists of the identification, analysis and resolution of strategic issues that can impede the functioning of procurement operations when dealing with clients or suppliers on short, medium or long-term basis, and include internal organizational issues and those related to client satisfaction and supplier performance. </li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> Client Education. This refers to educating and communicating the latest procurement policies, strategies, new approaches or success stories to clients in an attempt to anticipate non-compliance by increasing awareness, understanding and effective use of existing and new procurement rules and regulations. </li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> Overall Effectiveness of Procurement Operations. This component is determined by examining the degree of success of each sub-components of the PMI and making a judgment as to its overall effectiveness on the procurement function at any point in time. </li> </ul>   Conclusion             The procurement function is an essential and crucial element in the performance of business organizations or firms. It has been reported that no business can survive without a heavy investment in under-studying skills of procurement and the benefits of efficient procurement practices (2006). Procurement function, along with the other functions of the different organizations in a business firm determines the company’s success in penetrating the market. It has several elements, which can help in the development of action plans for improvement, to communicate current and future goals to the organization, measure their performance and satisfy the goals of their users (1998).                In spite of the importance of the procurement function, many business enterprises do not consider its importance, having little realization, appreciation and acknowledgement of the value an efficient procurement scheme can have on the performance of the business (2006). However, in reality, business firms must give importance to procurement function. When compared with other business organizations, business people somehow neglect the procurement function but this will be at their own expense (2006).             Business people thus need to have a clear understanding of the procurement processes and procedures first, if they are to benefit when doing their procurements, and second, if they are to get business with other companies ( 2006). In this way, the company can enjoy its benefits and advantages, and ensure the existence of the company in the market, continuing to provide sustenance to its employees and its consumers.                Credit:ivythesis.typepad.com

Procurement Function

Procurement Function Introduction Business firms or companies have internal organizations, which perform different functi...

INSURANCE BROKER ENTRY STRATEGIES AND RECRUITMENT

Insurance Broker Entry Strategies and Recruitment   Introduction               There has been a refocusing of attention on the insurance industry in recent times. A number of global events bring about this refocusing. For example, unanticipated claims encircled the insurance industry and adversely affected their bottom lines ( 2005). It is also the case that unabated calls for improving the services of insurance companies have been prevalent in the industry that it drove insurance companies to reorganize their ranks in order to provide the kind of service that their clients demands.               It is important to note that the insurance industry is complex. There are many branches in the insurance industry including general insurance, life insurance and insurance brokerage. In order for this complexity to be understood, one must invest time, effort and resources in understanding the nature of the businesses involved (). Therefore, working closely with clients, while utilizing domain expertise and perceptive technological comprehension is essential. These are important in insurance company if they want to formulate a solution that is customized.   Customized insurance solutions can be more beneficial to businesses since they will be able to provide action plans that will target specific problems of the company and are of measurable benefits. As such, the complexity of the insurance industry can be countered by insurance company’s ability to deconstruct their clients’ businesses and then construct the best possible solutions based on the results of the deconstruction.               In addition, the significance to provide customized solutions for business is highlighted by the fact that the face of  many businesses in today’s context is complex. This means that risks and challenges in workplaces are also becoming more difficult. This difficulty is intensified by the intricately woven connections of various company departments such as finance, sales, customer service, technology and human resource. This means that the problems being experience by one department can be felt by the other departments and as such, the performance of other departments can be affected by the problems of others. This means that the profitability of a company is partly dependent on the smooth working relations and operations of all departments.               Moreover, both internal and external factors are persistently threatening to offset the balance that ensures the profitability of companies. As the dependence of internal company department’s increase, so does the interdependence of companies, both within and outside, the same industries.  As such, many companies are turning to external sources that will help them in developing and managing applications that will enable them to have an edge over the competition. The edge comes from being able to differentiate themselves from other companies in the same industry.               In the case of the insurance industry, insurance and risk management is important since it identifies, evaluates, reduces and manages the risk in all the locations or countries that one specific business operates in. It is the case that experts in the insurance industry put their experiences and knowledge to work in order to help companies standardize as well as alleviate exposures that are distinctive to the sector of their business. It is also their responsibility to ensure that strategies and insurance programs are being implemented constantly in all the departments of the company. It is also crucial that local gaps are filled. Overall, as well as globally, insurance brokers play a crucial role in all of the processes abovementioned.               This means that insurance firms must ensure that employees who will represent their firms will have the adequate skills and knowledge to aid companies in reaching their goals. Numerous companies know that a larger degree of risk retention could mean more benefits for them. Premium rates are also increasing. In addition, achieving and maintaining most favorable balance between transferred and referred risk for every specific client are reliant to the skills of brokers to obtain and design market support.               These factors contribute to the attitudes of insurers towards availing of the services of insurance firms. Premium rates and selectiveness of insurers are the factors that directly affect the insurance industry. This means that the choice to insure the risks will be less popular or perceived a not so important process to undertake especially in large cases. As such, insurance firms must ensure the quality of their insurance brokers.   Insurance firms are now, more than ever, focused in hiring the best of the best to ensure that they will not fail the demands of their clients. Recruitment processes and requirements are stricter so that insurance firms will be able to screen the best possible candidate for the job.               In the same way, would-be insurance brokers must feel the pressure of the industry. They know that the industry is getting more and more competitive. For that reason, they would have to strive harder in order to be noticed by any insurance firm. In addition, they must be able to utilize effectively entry strategies. This means that would-be insurance brokers must be well aware of the changes that occurred and that are still occurring in and around the insurance industry. Familiarization to the changes within the industry will allow would-be applicants to better position as well as their skills to which they will be best noticed.               With this in mind, it is important to determine the entry strategies as well as the recruitment process within the insurance industry. This will allow would-be brokers to prepare themselves for the challenges of attempting to enter the industry. In the same way, this will also be beneficial to insurance firms since the chances of hiring highly qualified applicants may increase. The following sections of the paper will be discussing the various entry strategies available to insurance brokers as well as the recruitment process generally being used within the insurance industry.   Entry Requirements and Recruitment               As stated earlier, insurance brokers apply their knowledge and skills in identifying and arranging suitable insurance coverage for both individuals and organizations. Actually, they work as mediators between individuals or companies and insurance firms. As such, it is the responsibility of insurance brokers to assess accurately the risks of clients’. After which, they will look for the most appropriate policies to recommend to the insurance firms.               This means that insurance brokers must be client-centric, even though, the insurance firm that they work for pays their commissions. This is the case since they must be able to precisely identify the risks of their clients and not their firms. Therefore, the profitability and integrity of their firm depends upon their handling of client needs and not necessarily their firms. The roles that insurance brokers play vary from firm to firm. In the case of large insurance firms who provide services to major clients, career development is mainly focused on financial spots. In the commercialized side of the insurance industry, career developments can also include those in areas of client development and even marketing.               This means that insurance brokers are specialize in core areas. This most is evident in larger companies. On the other hand, insurance brokers employed in smaller companies tend to be involved in most functions, performing tasks of placing brokers, insurance account executive and technical broker. The client-colleague liaison often involves:   -          client communication  regarding requirements and technical staff -          identification and comprehension of the individual needs of the clients -          understanding clearly the business and risk profiles of clients -          development of a relationship with clients, which allows for the prompt response to requests of the clients -          discussion of future insurance needs with clients as well as maintaining business contact -          liaison with professional staff including photographers, surveyors and structural engineers -          organize and attend meetings -          representing clients in negotiation with insurers  -          premiums collection -          develop new business -          market brokerage services   Knowledge and information management is also important in an insurance broker’s job. This is the case since ensuring that work requests are carried out promptly in order to keep up with the demands of the clients. Therefore, it is essential that detailed records be kept for analyzing and collating numerously information. The information that were collated and analyzed will be the one sent to underwriters for preparing reports and presentations. This means that it is crucial for insurance brokers to keep up to date with paper works as well as correspondence. New industry tends to develop and play an important role in the analysis of information pertaining to the risks involved in company operations. As such, insurance brokers must continuously study the developments that occur within their industries to ensure that their recommendations will still be able to resolve the changing problems of companies. Therefore, undertaking researches regarding the availability of insurance policies and products is vital. The outline of the job description of insurance brokers brings about the requirements the employers look for when filing a post.  Ensuring that candidates for employment posses the traits needed to,  successful insurance brokers will be crucial in selecting the best possible employee. In the preceding sections of this paper, the requirements of most companies looking for insurance brokers will be presented. This presentation will serve as the platform in launching the discussion of the entry requirements and recruitment process within the insurance industry. A case study will also be presented to show how the people are able to meet the requirements and thus get the job as insurance brokers. Being an insurance broker is open to all graduates. However, applicants with a degree in the following have more chances of getting short-listed – accounting, finance, business management, mathematics, statistics, economics and businesses with languages. Theoretically, being an insurance broker is open to all Diplomates. However, companies, especially larger ones, tend not to hire applicants who are not Higher National Diploma holders. Nevertheless, applicants without HND still have the chance to enter the insurance industry. In case like this, applicants can start off at junior or in administrative level. In this entry method, the employees would have to make it up the corporate ladder. Entering the insurance industry without a HND will give the employee the needed training to face the demands of being an insurance broker. In addition, a higher degree in risk management will give an applicant the advantage needed over others. In the same light, pre-entry experience is not a requirement but experiences in banking and insurance sales can come in handy during training and actual performances. Usually, employers are looking for the combination of qualities that they believe will help candidates in actually performing well in their jobs. These qualities include strong interpersonal skills as well as communication skills. These are needed since insurance brokers are expected to develop and maintain relationships with their clients. It is also the case that they would have to gather information about the companies and pass them on to underwriter. Strong communication skills are needed to ensure the fluidity of information transfer from one medium to another. Confidence is also important if the tasks mentioned earlier are to be performed with the best possible results. Negotiation skills are also important since they will be dealing with various people who are driven by different motivations. As such, they as insurance brokers must find the middle ground where all of the parties involved will be willing to compromise. In addition, a person’s ability to manage numerous projects at the same time will give the employer the impression that the applicant will be able to handle different projects at the same and thus give the insurance company the ability to handle as many cases as possible.                Other important personal qualities that employers are looking for in an insurance broker are good utilization of analytical skills, understanding of legal issues, integrity and attention to details. All of these qualities are important since they ensure that insurance brokers will not make wrong interpretations of data needed to make the best possible recommendations regarding insurance policies and products. Otherwise, more risks may develop instead of helping wipe them out.             In order to maximize the potentials of new hires, insurance companies hold trainings. Different areas are included in the training schemes. This allows new hire especially fresh graduates to experience works in different areas for a period of eighteen months to two years. In addition, training covers technical aspects of broking, management development and other general skills.             The process of recruitment starts with examinations. During this time, applicants study for the Chartered Insurance Institute examination, which is a structured qualification examination that aims to meet the needs of insurance professionals. Applicants who take the Chartered Insurance Institute examination have the chance of being awarded various recognitions ranging from Award in Insurance to Diploma in Insurance. The latter is awarded to practitioners who are able to exhibit professional qualifications. In turn, Advanced Diploma could lead to Associate membership in Chartered Insurance Institute, which is open to all who are able to obtain A-level education or above. It takes two to three years to obtain Associate membership. Nowadays, an associate membership to Chartered Insurance Institute is being seen as an essential rather than a luxury. This is the case since associate membership status ensures that they will be recognized in a professional status. In addition, appropriate qualifications are needed to continue professional development, which is stated in the regulations of the Financial Services Authority. This is the reason why, new entrants to the insurance industry are encouraged to take the examination despite the difficulty of juggling work and studies. Case Studies Insurance Broker Trainee             The insurance broker in training graduated from a reputable university with a degree in accounting. He started his career with a popular bank. This was in relation to his plan of gaining experience and being able to apply the theories that he learned into practice. After two years, he decided that it was time to further his experience in the industry and thus he started to look for a job that would better suit his career interests. Not long after, he secured a position with another company that offered training scheme. The training scheme of the new company included risks management, reinsurance, special risks and programs and facilities. Aside form the training scheme being offered by the new company, the trainee also took up courses on soft skills and theoretical background.             Due to the various exposures to the theories involved in the insurance industry, the trainee was able to apply different approaches to the insurance needs of their clients. This allowed him to better understand the theories since he knows how they actually work in real life situations. As such, the simultaneous education and practice being undertaken by the trainee prepared him for the Chartered Insurance Institute examination. In addition, it paved the way for the trainee to develop further his communication and interpersonal skills. As a result, the trainee was able to perform his duties more efficiently. With this, he concluded that he must continue on developing his skills and gain more experiences to further his career growth.   Conclusion             The case study presented above as well as the entry requirements and recruitment shows that insurance brokers must be versatile and trainable if they want to succeed in the insurance industry. The combination of the right and appropriate characteristics will allows an applicant to show employers that he or she will be able to complete the tasks presented with efficiency and thus satisfy the needs of the clients.             Even the regulations of the financial services authority support the need for continuous education among insurance professionals. This means that entrant to the insurance industry must be able to recognize the importance and the role that education play in professional or career development within the insurance industry. Doing so will allow insurance brokers to prioritize their actions and as such they will be able to device programs that will help them to juggle everyday work and studies.             In any job, it is important to take note of the lessons that experiences teach us. This will ensure that the same mistakes will not be repeated and as such, essential time and resources will be saved. Career development within the insurance industry is also dependent on the ability of employees to learn new things. However, it must not stop with acquiring theories. Success lays at being able to apply theories into practice.             Reference             Credit:ivythesis.typepad.com

INSURANCE BROKER ENTRY STRATEGIES AND RECRUITMENT

Insurance Broker Entry Strategies and Recruitment Introduction There has been a refocusing of attention on the insura...

Essay on Corporate Finance

Corporate Finance   Business enterprises have various areas of responsibilities, and one area that considered    a major key in running the business smoothly is the   This area of Corporate Finance Department is dealing with the monetary decisions  that the organization make; as well as  to support financially  whatever marketing tools and analysis  that are appropriate for the more effective operation and production of the entire company.    In fact, the primary goal of corporate finance is to maximize shareholder value  while managing the firm’s financial risks.  The principal role of corporate finance is to solve any financial problems of all types of organizations.  Additionally, the discipline is divided into long-term, as to short-term decisions and techniques.  The capital investment decisions are considered  long-term choices about which projects receive investment, whether to finance that investment with equity or debt, and when or whether to pay dividends to shareholders.  On the other side, a  short term decision  deal with the short-term balance of current assets and current liabilities;  it  focuses  on managing cash, inventories, and short-term  financial borrowing and lending  from financial institutions. (http://en.wikipedia.org/wiki/Corporate_finance)  Furthermore, corporate finance as well as the corporate financier are both related to investment banking.  The normal role of investment banking is to assess the company’s financial needs and raise the appropriate type of capital that best fits those needs. Therefore, the terms “corporate finance” and “corporate financier” may be related to the transactions in which capital is provided in order to create, develop, grow, acquire or expand businesses. Specifically, capital investment decisions are considered long term finance decisions which are connected to fixed assets and capital structure of the business. Business decisions are based on several inter-related criteria.   First,  corporate management  should seek to maximize the value of the firm by investing in projects which provides  a positive net present value when valued using an appropriate discount rate in consideration of  certain risks. Second, these projects must also be financed appropriately.  Third, if no such opportunities available, maximizing shareholder value dictates that management must return excess cash to shareholders like distribution through dividends. Also, capital investment decisions, hence, must comprise an investment decision, a financing decision, and a dividend decision. (http://en.wikipedia.org/wiki/Corporate_finance) Correspondingly, the corporate finance should allocate budget for the potential projects, and this financial process is otherwise known as “capital budgeting”.  In making this kind of financial investment, the decision requires estimating the value of each opportunity or project, which is a function of the size, timing and predictability of future cash flows.  Typically, every project costs will be calculated by the use of a discounted cash flow (DCF) valuation; and the opportunity with the highest value as measured by the Net Present Value (NPV).  And, this needs to be estimated through the size and timing of all the incremental cash flows from the project. All those future cash flows will be then discounted in order to determine their present value. Then, these present values will be totaled, whatever the net amount of the initial investment is the Net Present Value (NPV). On the other hand, to be able to achieve the goals of corporate finance, it must require corporate investment that can be financed properly by the company. The sources of financing are, usually the capital self-generated by the company.  In the same way, the debt and equity financing sources have both higher rate and cash flows, this financing combination will give significant impact on the valuation of the firm as well as long-term financial management decisions. In this event, there are two interrelated decisions that are very important to take into account in corporate finance.  Foremost is the management should identify the maximum   financial emergence.  Next, equity financing is less risky with respect to cash flow commitments, but results in a dilution of share ownership, control and earnings.  Aside from that, the cost of equity is also typically higher compared the cost of debt and so equity financing may result to an increased rate which may offset any reduction in cash flow risks.  (http://www.economywatch.com/finance/corporate-finance/) In the final event, corporate finance is also in charge of deciding on the dividend distributions among the stockholders of the company.  There are varied factors that   must be taken into consideration such as shareholders must shoulder their own taxes on the dividends.  In the same way, companies have an option to retain earnings or to perform a stock buy back.  Alternatively, some companies will pay dividends from stock than in cash.  Usually, it is accepted that dividend policy is value neutral; meaning, the value of the firm will be the same, whether it is issued cash dividends or repurchased it. (http://www.economywatch.com/finance/corporate-finance/)  References: http://en.wikipedia.org/wiki/Corporate_finance http://www.economywatch.com/finance/corporate-finance/     Credit:ivythesis.typepad.com

Essay on Corporate Finance

Corporate Finance Business enterprises have various areas of responsibilities, and one area that considered a major key in running...

EMERSON PERFORMANCE BUDGET SYSTEM

EMERSON: THE QUEST TO IMPROVE THE BUDGET SYSTEM    Introduction             Emerson can be considered as a cost-averse firm due to its historic reservation and cultural infusion of continuous cost-effectiveness activities in its operations.  However, without an effective budget system, the culture could draw them into the pit of zero-innovation and sub-optimal value-adding activities.  They perform industry scanning before budgeting so it is helpful to implement a certain method that can maximize the environmental information and its relative impacts to internal operations.  Thus, the introduction of performance-based budgeting is suggested to this end.  Presented in the paper is the description and evaluation of Emerson budget system and the beneficial contribution of performance budget not only to its financial but also business performance.      The Firm and its Budgeting System             Emerson Electric Company is a US-based manufacturer that produces electric motors and computer support systems.  It gained prominence due to  30-years continuous growth in profit and stock value.  The key exists in goal-orientation is when the business managers presented at least 40 divisions plans and executes independently, while the headquarters serve as the monitoring administrator of key result areas.  In 1998, the B firm showed business simplicity is truly beauty in empirical sense primarily which attributed to its financial track-record.  CEO  believed that providing the environment for unit managers to plan their own group’s targets and its concurrent budget line will lead to responsibility and accountability that makes smooth implementation and result-based approach to execution.               Planning is decentralized to general managers of each division including strategy formulation and operations.  They set their own targets together with other subordinates.  They work for months initially determining SWOT in the external environment and capital expenditure required to exploit or mitigate them.  Afterwards, the 50-year old ideology of cost-reduction goals, a way of life in the firm is formulated and gave managers the pro-active view of what activities should be done in the coming year to align in this firm culture.                Strategic guidelines in planning and budgeting are followed.  First, employee involvement is aimed for managers to get useful information from different sources and at the same time create a mechanism wherein resistance to change could be minimized.  Second, competitive position is protected through continuous improvement in the value chain, assessing their resources and capabilities with rivals and product innovation.  Finally, prudence in capital expenditure would give the planners rationalized trade-offs between investments (improvement) and accompanying costs (departure to cost-reduction culture).                Crucial to the firm is to achieve the designed results through rigorous planning and tight control.  With this, they can shape the future as they have intended while profitability is considered merely a state of mind and not a chance.  Also, how they will determine the results is largely dependent on operational level where long-run performance is deemed to stem.  While the firm does not have complex business papers to reflect their plans, simplicity would fill the gap as it will foster discipline to employees driving them to pre-determined objectives and work practicality.         System Evaluation             As observed, Emerson has been able to minimize complexity of planning and remain objective in installing goals.  The most knowledgeable, proximate and concerned people relative to resource and capabilities are the one who will allocate resources.  These results to less effort and time devoted to arrive at reasonable forecast of results.  Whatever the information they would use (cash, accrual or modified accrual) and template or software to be utilized, operating budget emerged through the minds of those who experienced budget shortage/ surpluses and who applied certain contingencies on emergency situations.  Thus, only objective matters rather subjective or gut-feel are inputted to determine financial results.  With this, determining the reserve budget need not be outsourced to an engineering firm while future revenues/ expenses are easily deciphered from the past year.  As a result, there will be optimal resolution to avoid revamping that could arise in special assessments.                   However, there are also loopholes in simplicity and cost-reduction scheme of the firm.  First, since their major concern is scanning the industry and competitive environment, decentralization may increase research and monitoring costs for detriment of consolidated efficiency.  Second, cost-reduction culture and emphasis on short-term gains could impede innovation and value-adding activities that could result in imitable competitive advantage as cost-cutting and price based competition have lower switching costs than value based ones.  Lastly, oversimplification of setting annual budget would shift the manager strategies towards practical approach to recognize contingency opportunities/ threats that is risky for the division’s contribution for the whole organization.                Of course, the headquarters (HQ) is there to signal and apprehend the concerned division about symptoms of departing to activities determined in budget planning to arrive at results so these loopholes can be easily resolved.  However, it is questionable that they can always decode what is in each manager’s heads.  As a result, the picture seen by the HQ could be myopic that instead of enhancing the focus of the division to its goals, it would rather annoy and confused managers.  It is not disclosed how strict is the monitoring of HQ and what disciplinary actions would be resorted, but our concern is a definitive structure that would lessen incidence of failure notification from HQ to division managers.  With short-term operational lens applied, increase reliance to financial assets would undermine intangible resources such as human capital, innovation and reputation.                   Apparently, the CEO’s belief to natural efficiency across the firm’s divisions has its trade-offs.  Without caution, competitive advantage can only be sub-optimal.  It is also observable that some of its planning guidelines are in conflict like being competitive with financial prudence and decentralization initially, but party centralization in execution as HQ monitors the implementation of each division.  As a result, there is a need to fill these gaps by providing a clearer border line between HQ oversight and managerial flexibility using budgeting techniques from academic sources and best practices.   The Technique and Tools for Analysis                      Performance-based budgeting is mission-driven, result-oriented budgeting that can clearly explain how Emerson would achieve cost-effectiveness in a consistent and sustained way.  This form of budgeting details the cost of each activity- a certain organizational unit will perform that is tied with specific goal or performance level.  For Emerson, efficient allocation of resources is a culture so the analysis would involve the economic aim of budgeting which is to achieve the best use of resources wherein benefits from expenditures are worth of their costs in terms of the sacrificed or displaced alternatives.  Using this lens at the fore requires measurement of activities according to their incremental values and relative effectiveness although we should not hesitate to suggest modification and enhancement in its view on making annual budget to maximize the discussion.        Emerson Annual Budget: From Bad to Good             It can be argued that Emerson would likely use the line item budget to adhere in its simplicity.  However, it does not show what key activities or programs of the firm will undertake that makes the HQ monitoring of division operations more unpredictable since both units do not have the map to guide their actions (divisions) and reactions (HQ).  Aggravatingly, performance evaluation would highly depend on the level of periodical expenses since results in the annual budget for a specific activity is not indicated.  Uncertainty of number results would basically make the budget yardstick futile.               Performance budget can ease the pressure of HQ to invest in monitoring mechanisms and to safeguard division’s adherence to their determined budget and results.  The system will highlight key activities or those with relatively higher investment and crucial results providing the HQ key areas to look at.  This could finally infuse strategic planning to the firm in order for specific steps back-up the objectivity of a certain project.  Day-to-day operations oversight will be minimized instead diverting monitoring endeavors to the long-range actions and responses of division managers including their contingency decisions.  Also, indirect cost of follow-up by HQ will be prevented like managerial demoralization leading to decrease in productivity due to frequent inquiry of HQ officials when an activity is done (incurring cost) without its presence in the determined annual budget.                As divisions can overcome cost-reduction culture through research supported activities, innovation will not be neglected primarily because of supply-side cognition of making budget.  They can also transfer the additional or increased financing of a major activity like product development against trade-off in minor activity like firm funded parties.  Priority areas are highlighted due to the existence of target outputs and their costs.  As a result, managers can easily evaluate possible manipulation of operational areas financing for firm to bear the value-adding and sustainable feature of strategic planning.  In effect, cost-reduction would not limit growth of the firm, instead, it will provide the platform to efficiently use its resources and improve its capabilities in view of its valuable contribution in allowing them to manipulate the flexibility of internal activities in favor of exploiting opportunities from the environment.               Contingency decisions during the operational year of division managers could also be limited and rationalized by the system.  The budget ceiling implored in contingency account and its desired results will possibly mitigate the effects of an abrupt competitive wide-scale advertisement, will give the HQ and division managers the objective benchmark in which to base their actions-reactions.  Of course, the HQ wants to protect shareholders and long-term stability of the whole organization.  On the other hand, divisions intend to show performance that can differentiate them from other division and possibly get a higher budget for the succeeding fiscal year.  The system will enable HQ and divisions to lobby their oftentimes conflicting goals of agency relationship in financial terms, thus, preventing them to argue in objective terms in case one request departure to the original budget due to unforeseen events (failure to reach quarterly sales quota due to increase in imported raw material costs).   Emerson Annual Budget: From Good to Better                    Although the firm is successful in bridging simplicity of operations to reduce complexity and objectivity of planning, it does not have the budget database for all divisions to figure-out possible integration of individually determined activities.  Division 1 would implement a strategy which is partly  or the same  as Division 4.  With measurable results opposite to investment needed in performance budget, the HQ can identify possible synergy between two or more division having the same level of significance tied to a certain project.  This can enhance the lobbying power of divisions to demand higher annual budget since they exhibit similar decision and priority patterns.                In addition, it can promote harmony across the divisions including HQ relations.  Decentralization somewhat bring competitive tendencies between divisions to prove their worth of the annual budget and other division benefits.  When they are aware that their projects are compared with others especially those that require large amount of investment, it would suggest teamwork and platform to remind them that they are working for one company.  Also, HQ would have better company-wide planning as inputs from divisions who examined and looked for a possible joint project or intensive sharing of resources.  As a result, the supposedly determinant of strategic direction of the whole firm would have greater inclination to leverage individual division’s operations intended to reach corporate long-term goals.                Further, using the system will strengthen the firm’s SWOT analysis because it requires substantial data, in this case, both external and internal data.  Each division would then give ample effort to study the general environment on top of competitor and internal analysis.  Of course, major activities would delimit their research endeavors since it needs huge organizational resource than minor and regular activities.  This will not only build a bounded budget that is within achievable and calculated risk framework, but also stimulates human resources reception to both internal and external updates.  In effect, they can argue their ideas during planning that will be the source of confidence to discuss the matter in front of the managers.  This will support employee participation in decision making.               Finally, the supply-side stance of the firm could appreciate the importance of result-based approach to planning.  This will minimize the tendency of the firm to be cost-averse despite of strong value chain and determined opportunities.  It will provide the backbone to believe that budgeting is the means to an end and not simply awarding a budget to the end skipping the value-adding capability of improving the execution of the means.  With two lenses at hand, Emerson would simply use the one appropriate to a divisional activity balancing the long-term and short-term prospects including accompanying costs and benefits.  This will support entrepreneurial tendencies and creativity that is crucial to a globalized firm’s survival and profitability.    Conclusion                    As said, using cost-leadership strategy is ineffective when the firm is unable to meet the acceptable level of goods and services it offers to customers relative to competitors.  As a result, performance based budgeting could drive the organization to maximize the purpose of competitor and internal analysis by inputting activities that will respond to the finding through exposing them in the annual budget.  Supposed that the competitor decided to directly compete in the market of Emerson, a large and innovative firm could drive it away in the industry due to its capability to absorb looses due to liquidity.  It can indicate clear distinction and functionality of several major activities while testing cost-reduction regimes employable to them and would be set-aside as to give way to full divisional accountability to meet results.                Even though the system has benefits, it should be cautioned that extensive research is required to arrive at objective activities.  Also, minor activities or those that are done every year are impractical to provide neither varying results nor extensive research as this would depart to simplicity culture of Emerson.  In aggregate, what the system aspires to the firm is to adhere to their begging-of-the-year promises (divisions) wherein HQ has invested scarce resources to finance.  It is an effective tool to promote responsible and accountable decentralized divisions, supportive and firm HQ and efficient allocation of resource in case of meeting the intended result or extending it.  It will also measure the credibility of managers and financial tolerance of HQ concretizing the learning curve in budgeting and testing effectiveness of cost-reduction culture at the same time.        Bibliography Book Periodicals   Electronic Sources                   Credit:ivythesis.typepad.com

EMERSON PERFORMANCE BUDGET SYSTEM

EMERSON: THE QUEST TO IMPROVE THE BUDGET SYSTEM Introduction Emerson can be considered as a cost-averse firm due to its...

Budget and Motivation

Table of Contents                                                                          Page Introduction                                                                                          1                   Budget Level             Training Received                                                                  2             In the Public Sector                                                               4 Budget Concentration Bottlenecks in Allocating Budgets                                                   6 Budget Purpose Time Frame                                                                             9 Budget Planning The Level of Employee Involvement                                 11 Conclusion                                                                                         12   Introduction             Money is often referred as the lifeblood of the business since it is use to source out factors of production.  A budget, on the other hand, provides this business money certain path, guide and basis of spending, investing or saving.  Without a clear budget in mind, the business would not achieve optimize returns since it cannot anticipate the risks and costs involve in its future transactions.  It is also difficult to establish certain goal in mind because such firm tends to operate without performance control and measurement.  In this view, this paper deals with different aspects of a budget.  Specifically, it evaluates how budget affects employee motivation ().  In doing this, budget is viewed in different directions not merely on money terms (budget level) but also budget concentration, budget purpose and budget planning.  This is done to show the broad implications of the budgeting to organization’s human resource motivation.   Budget Level   Training Received Cross-training can be done horizontally, upward and downward (2006).  It is against human nature to remain static making job enrichment like cross-training beneficial to the human resource aspect of the firm.  It is a form of motivation because it offers career development opportunity (personal) as well as promotes corporate loyalty (organizational).  However, the benefits of reducing the trade-offs between personal and organizational needs would be limited by the budget level since the cost of training has both its direct cost (honorarium to the speaker) and indirect cost (productivity loss in the short-run).               Without enough budget appropriated to lost opportunities especially on the financial aspect, the firm tend to implement cross-training programs infrequently.  However, the less frequent it is, the bigger the tendency for employees to see themselves as a mechanical robot within the waiting time.  This may lead to reduced motivation as their worth and consequently self-esteem are strictly bounded on a 3-year assembly line responsibility.  The firm, on the other hand, cannot develop a formal cross-training schedule like a monthly enrichment due to a specific performance target.  In the early years of Ford Corporation, Founder and CEO  made an assembly line where employees would work for a single task for the rest of the day (2006).  Good thing that the firm had money to increase incentives for the employees.  At the end, budget for either cross-training or substitute for cross-training like cash incentives matters.                 Without training, the ability factor in job performance would be static at least for those contributions coming from the firm.  This is based on the formula: Job Performance = F (ability) (motivation) ( 2005).  The production manager will come and ask the assembly line how to minimize defects or conversely announce policies of doing so.  With insufficient and poorly identified training budget, imparting knowledge or following line procedures will be limited to intrinsic abilities of employees.  And since heuristic applications to difficult situations tend to be strong under time pressure or coercion ( 1994), subjective and individual approach to the problem at hand will be used as a main tool.  This in turn is likely to deviate from the corporate goals on the average which is not the best interest of the established corporate programs.                Applying the concept of hygiene and motivation theory ( 2005), the motivational side of performance requires relatively bigger attention from a training budget.  Even though there is supervision, managerial-employee relationship, working environment and salary (animal needs) referred to them to fall short of human needs.  The satisfaction and recognition (human needs) that staffs can receive is derivable in advancement mechanisms being provided by the firm.  In cross-training, people can receive supervision and inter-department relations as well as progress in their knowledge about the whole assembly line.  The sense of responsibility is important in this theory that cross-training can provide to an employee.  This is especially true when one is exposed in the whole assembly line process where he can develop concern for the next batch.  Thus, this can positively impact how fast and reliable he does his part for the line.    In the Public Sector             The budget serves as the major weapon of the public to instill responsibility and accountability among politicians (2001).  This somewhat drives public servants to avoid, if not hide, their deviations from such expectations as it could mean public speculation that if proven can result to ouster or election defeat.  On the other end, at times of perceived short budget, they could resort to receive “grease money” from sectors/ businesses/ entities where the purpose of doing so is primarily for the public welfare.  However, the latter statement is prone to public speculation and legal counteraction even under the shadow of good deed.  Nonetheless, the given public budget confronted by politicians suggests how they would handle the risk and returns of filling the gap of the budget against their tenure goals.  The motivation comes from personal interests initially, but ultimately, results to embody political aspirations for their constituents.                   Applying the four causes of Aristotle (2006), the final cause tends to be the ends in which politicians are measured.  Since it is unlikely on the average that they will resort to robbery to obtain the right budget, “grease” money especially from the business sector is a very lucrative source of financing.  The motivation to do so which substantially deviate from honesty virtues has been enforced by public expectation lingered when the candidate announced his formal cause.  To make him efficient and moving cause, he should accept trade-offs between doing the right and wrong or returns and risks.  He can obtain or at least confident to meet the end he designed in pre-election campaigns.                          Using budget outsourcing at times of recession makes politician trustworthy and dishonest as well as situational and relative heroes.  They become vigilant in the process in both environmental scanning for greener industries and internally generating strategies that will connect them to their budget needs.  Strategies include increasing registration and renewal fees, under-the-table settlements, front-up subsidy in favor of tax rate increase, among others.  It motivates his inner circle political organization to remain in continues communication and efficient transactions to avoid being caught by the media or public.  Also, his office would remain collaborative with all the sectors of community not only to scan public opinions and speculations but also to identify opportunities to increase the budget.                Thus, the rule-based category of trust in which promises should not deviated results is worked by corruption strategies (2001).  Of course, societal concern should be bigger than personal motives.  Here, corruption’s wicked meaning is transformed into an acceptable one when translated as efficient corruption (2003).  This is so because the excess of one sector of the community can be diverted to the less fortunate through political intermediaries.  Resources that should be turned into investments by a private firm are delayed as to obtain sector balance, of say, farmers.  Thus, a minimal budget can be optimized in favor of community goals through political manipulation.  In effect, entrepreneurship and decision-making capabilities including values of political leaders are challenged.  Such motivation would likely not happen if budget is in appropriate level.    Budget Concentration Bottlenecks in Allocating Budgets             Applying managerial motives of the firm theory (2001), managers cannot obtain their self-vested interest as well as those of the firm without a hefty budget to implement acquisition and other diversification strategies.  Without minimization of agent risk to job loss or maximization of compensation, managerial motivation would collapse.  On the other hand, such mentioned strategies require physical, financial and organizational resources that may have complex consequences.  Expansion is a major corporate restructuring which entails strategic actions/ responses.  Being so, when implemented, reversing the strategy would be very costly and has long-term adverse effects.  Without budget to support managerial entrepreneurship and leadership including their market value, they would feel unchallenged and less well-off than peers in other companies.  Turn-over and internal corruption would tend to be seen as worthwhile options.                Departmental networks also often argue about appropriation of annual budgets for their specific causes.  When budgets fail to meet expectations of such units, it may result to reduced motivation and even firm rebellion particularly against the finance division.  For instance, a cut budget due to conservation endeavors by the firm may hurt the annual targets of the marketing and sales department to be able to get their productivity bonuses.  On the other hand, manufacturing department may develop envy from the same unit due to higher budget of the latter due to intensified customer focus for year.  The perceived excessive budget could have been used to buy new machineries or train new employees.  These intra- and inter-unit bottlenecks that stemmed in budget allocation have also their impact to unit, relational and overall performance.               Applying performance budgeting to these instances can mitigate the destructive speculation of excessive/ meager budget allocations.  Managers will be periodically audited in the post-expansion implementation to identify discrepancies from the original shareholder promises.  In the same manner, departments who feel aggrieved will be provided with performance targets within the capacity of their budget level.  Since this budgeting system is result-oriented, it should be coupled with ethical committee oversight to regulate unacceptable level of immorality to obtain intended results.  Allocation of the budget and selecting the appropriate model should be inferred in firm specific aspects in order to identify motivational points.               In this process, the level of budget is undermined in favor of value-creating results it can offer to the organization after implementation of the strategy.  The rules of the game are more important than the competencies of the team (firm) in this case.  Even though that the probability of losing is over 70%, the team manager only expects his players to do their best to beat an unbeatable opponent.  By doing so, employee motivation will meet its target no matter how much departmental budgets are.  Managers, on the other hand, will enhance their strategic decision-making motivation with increased accountability.  In effect, the whole organization will have a culture of meeting calculated expectations based on budget limits.  Incentives can increase the boundaries of such approach that will reward performance that exceed a certain level or performance that surpass an operational difficulty and still obtain its goal.     Budget Purpose Time Frame             A budget that is associated within a specific time frame also affects the level of motivation, if any, employees will receive after the budget post-implementation.  One that is intended for monthly payment on electric bills is a kind of budget that does not affect employee motivation.  Applying the Hygiene/ Motivational theory, this merely suffices the environmental side of animal needs.  This is a proof that operational budgets are the least kind of budget that can affect employee behavior since it only resolves the baseline environment for employees to work.    On the other hand, price changes or productivity level rationalization can have positive effect to employees in an intermittent basis.  Sales forecasts may anticipate high demand for the coming year and rising price can mitigate the intensity of production.  Such can imply recognition to employees (human needs) that is a factor of motivation.  However, after the lowering of production level to increase the leisure time of the staffs, corporate inertia evolves.  Management would feel that one-time big strategy is enough.  Unknown to their tactical approach, that non-managerial staffs are prone to see the small picture and derive conclusions for motivation.  In effect, the absence of reinforcing motivational strategies can mean as economizing employee welfare wherein money is valuable than people.   Coming-up with a specific part of the budget dedicated for employee motivation can prevent indirectly relating their welfare to other projects/ expenditures.  The focus is on people and not acting secondary or off-the-target priority.  In the contrary, weekly, monthly and even annual budgets do not have the necessary tools that can relate internal resources and external opportunities of motivation.  In the operational level, managers have the option to use theory X to discipline the non-conformant.  In the tactical level, managers have the option to use theory Y as suggested in the preceding paragraph but theory X could be resorted if the theorized attributes of people excessively reach the limit of a used-to-be democratic leader.    Due to these difficulties, longer time frame analysis should be introduced.  This can be in the form of training and development, productivity-based incentives, pension programs for loyal employees and educational scholarship.  These programs, however, requires internal and external audit under managerial commitment coupled with stable or growing profit.  Shareholders/ investors would not inject necessary funds if the plan is vague or non-measurable, some other business units are loosing and the firm is restrictive of change.  Due to this, strategic approach to relate budget to the level of motivation is complex and tiresome method.  Nonetheless, it successfully implemented, the firm will not only have a quantifiable annual motivational reports for evaluation but also managers are more confident and true in their relation with employees since they are aware that every task completed has its cumulative incentives afterwards.                           Budget Planning The Level of Employee Involvement             Budget is not necessarily meant above the tables of the finance and accounting departments.  When a firm is strict in implementing policy with the CEO as the approving officer, inter-organizational conflicts and reduced motivation would ensue.  This is why many of the firms have scheduled and even created management teams composed of different department and division heads.  Based on my own experience, management meetings are held without staff involvement.  The latter are only allowed observing management reports and operational outputs without the “right” environment to comment or suggest.                The absence of the “right” environment is the root cause of boredom, indifference and detachment with my company policies, standards and culture.  Unit managers are acting like Gods because what they say is what would employees are intended to do.  Even though at the end of every presentation the question “Is there any reactions?” would be invoked, such is only a dummy to imply everybody should affirm to make things simply and efficient.  Budget matters are worst.  Managers are only allowed to contribute even though employees are affected by its consequences.  As illustrated, the communication system of the organization directly affects the procedure of making the firm’s budget.  The problem of the model, however, is that the process becomes financially-centered without valuing (or respecting) its effects to employees especially for unit managers who have new or unattached subordinates.              Applying  theory, the absence of employee involvement undermines the psychological energy the firm can use to obtain annual targets or to implement a corporate change like downsizing.  Even staffs are not gifted with the ability to quantify their needs, their views are useful in managerial decision-making.  This is especially true when the management is planning to adopt programs that directly affect the extent and scope of their work.  The level of budget or nature of program can be rationalized by employee opinions and personal experiences.                In this view, management teams should include the officials of the labor union in preparing budgets particularly those areas that directly affect employee.  In that manner, a budget cut in training will not be viewed differently by concerned employees because they are represented in budget preparation.  In the contrary, a minimal increase in basic salary can be enforced by providing “in-kind basket” distributed monthly.  The mitigation of employee-management conflicts can be included in budget preparation.  Thus, employees welfare are protected as well as boosted that affects how will they view the company and its managers in relation to their future working with them.                                 Conclusion             It is found that different aspects of budget/ budgeting can affect motivation of employees.  Further, to be able to understand the level of such effect, it is necessary to include specific organizational or employee factors in the analysis as suggested in appendix 2.  For example, budget level for training is less important in hi-tech firms due to fast product life cycle of their produced.  Even though there is substantial training budget, staffs may not exemplify additional motivation level at work because technology will be replaced frequently.  Therefore, what is needed is entrepreneurial spirit which would not be found in technical training rather inspirational seminars.  The challenge therefore for the organization is not to resolved unfilled budget issues where it may end up creating problem (both business and financial) to itself.  Rather, the task is to be able to identify key areas or problems (actual and potential) in the organization or the person in which the above budget aspects can treat or prevent.      Credit:ivythesis.typepad.com

Budget and Motivation

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