Evaluate the problems they have identified from unmonitored costs and budgets (D3)

a) Using the budget completed in P6, identify, analyse and evaluate the key costs which were left unmonitored.

b) Evaluate which unmonitored cost will lead to (or may not lead) to severe problems for Gordon Brown Ltd. Justify your answer and make three recommendations on how to overcome the problems

Inadequate planning: As in most businesses, Gordon Browns budget will involve planning for both short and long term needs of the business. If a business’s financial plans and budgets figures focus only on the short term, then there is a risk that future profit opportunities and real economic realities may be ignored /or not given adequate considerations. Gordon browns business needs to learn from past mistakes and avoid these mistakes in planning for the future.

1. Projections may be overstated. Budgets and projections needs to be realistic and achievable. Business decision makers and investors may be fooled by numbers in the short term, but in the end the company almost always gets hurt. A realistic budget takes gives adequate considerations to the business’ activities, competition, cost and state of the economy. It may lengthen the search for funding and profit, but when the money does arrive, it will be honest money. This helps to ensure that the business does not over-promise and under-deliver its targets. Stakeholders, customers and staff are also encouraged and adequately motivated.

2. Budgetary needs may be ignored. It is important for a business to have good understanding of nature of its products and activities and what drives an and On the other hand, if your plan shows that you need $50,000 to take a product to market, don't ask for only $30,000. Potential investors and bankers will only wonder why they should give you money for a project that will fail without additional funding. This was the sad lesson of the dotcom bubble. Companies burned through their initial seed money without coming close to profitability and then gave up. Investors have become more savvy and would rather spend $50,000 in a smart fashion than throw $30,000 out the window.
3. Assuming that the existence of revenue is indicative of being cash-flow positive. In virtually every transaction, there is a lag time between the finalization of the deal and the completed cash collection. This is a fact of business and should not be a problem, assuming you are prepared. Unfortunately, many businesses aren't and run into serious cash-flow problems because they spend money they don't yet have. Perhaps what's most troubling is many of these purchases could easily have been delayed for 30 days, when the available money is finally in the bank. A little wisdom, discretion and foresight can go a long way toward corporate survival.
4. Forgetting about Uncle Sam. End-of-the-day balances can often appear larger than they really are. Sales tax on revenues and employee withholdings may sit in your account temporarily but will ultimately be owed to the government. Your balance sheets should not count these finances as holdings, otherwise you run the risk of budgeting for future projects and costs that you will not be able to afford.
5. Mismanaging the advertising timeline. It seems so elementary: Advertising leads to sales. However, many budgets show advertising costs as a percentage of sales in the same period. To be truly effective, an advertising/marketing campaign will have to be initiated at least one period before sales can be expected. When the additional out-of-pocket costs are taken into account, a healthy advertising budget is needed before any revenue can be assumed. Failure to budget the appropriate items in a strategic time frame will under-utilize finances needed to achieve these sales goals and can lead to overspending in later months.
Formulating a vision is the hard part. Crunching the numbers is far more simple, yet it is where many dreams are shattered. Entrepreneurs who treat their budgets with the same meticulous care as their other components are the ones who survive.
Ian Benoliel is the CEO of NumberCruncher.com Inc., a developer of budgeting, manufacturing and management software for entrepreneurial businesses. NumberCruncher combines its accounting and finance expertise with technological know-how to deliver software that is affordable and easy to use, yet sophisticated and powerful. More information on the NumberCruncher's products and services is available at www.numbercruncher.com. Ian has nearly two decades of business, accounting and financial consulting experience. He has advised corporations on business plans, financial projections and accounting computer systems.

Breakeven refers to the income being exactly equal to the expenditure, therefore showing neither profit nor loss. of management to control cost and Beyond Budget Round Table (BBRT), an independent international research collaborative, recently produced a web article arguing that budgets tend to focus on targets based on incremental changes from the previous period.
"The result is a target that is inwardly comfortable to you, yet appears outwardly difficult to your superior. There is no focus on the maximization of customer or shareholder value."
Dean Meyer, one of the proponents of performance-based budgeting, adds that within project-based and service industries, budgets cannot support sound financial decision making, because they do not accurately reflect the full cost of individual projects and services.
Rather than driving strategy forward, budgets are said to be a barrier to change and innovation. Entrepreneurial managers tend to find themselves under fire for incurring costs on projects that were not included on their budgets.

Here are 10 reasons why, and how, budgets can cause your company problems:
1. Budgets are time consuming and expensive
Despite the advent of powerful computer networks and multi-layered models, budgeting remains protracted and expensive. The average time consumed is between four and five months. It also involves many people and absorbs up to 20 to 30 percent of senior executives' and financial managers' time. Some organizations have attempted to place a cost on the whole planning and budgeting process. Ford Motor Company figured out this amounted to $1.2 billion per annum.
2. Budgets provide poor value to users
The perception of the value provided by the budgeting process varies widely. In one firm it was apparent that the group board thought the budget gave them control, whereas operating managers thought it was completely irrelevant to their needs. One of the primary reasons that financial directors rank budgetary reform as their highest priority is that their staffs spend too little of their time adding value. One conclusion from a 1999 global best practices study was that finance staff spent 79 percent of their time on "lower value-added activities" and only 21 percent of their time analyzing the numbers.
3. Budgets fail to focus on shareholder value
Budgets focus on internally negotiated targets which tend to be incremental changes from the previous period's outcomes. The result is a target that is inwardly comfortable to you, yet appears outwardly difficult to your superior. There is no focus on the maximization of customer or shareholder value.
4. Budgets are too rigid and prevent fast response
The evidence suggests that only 20 percent of firms change their budgets within the fiscal cycle. Another survey result shows that 85 percent of management teams spend less than one hour per month discussing strategy
5. Budgets protect rather than reduce costs
"Use it or lose it" is the manager's mantra. Not spending the budget is a cardinal sin in most organizations. The result is that superiors invariably question why the resource is needed and are understandably reluctant to allow it to pass into the budget for the next period
6. Budgets stifle product and strategy innovation. "Never take risks." It is just not worth it. If it's not in the budget, you might be exposed. Anyhow, if you did take a risk and it worked out well, your superior probably thought of it first! And if it didn't work out, your job might be on the line .
7. Budgets focus on sales targets rather than customer satisfaction
Though everyone wants to satisfy customers, that is not how they are measured and rewarded. So they meet the sales target, persuade customers to buy their products, and convince them that their slow-moving stock really is a great deal!
8. Budgets are divorced from strategy
According to a recent cover article in Fortune magazine, around 70 percent of companies surveyed were poor at executing strategy-a massive indictment of the performance management capabilities of budgets.
9. Budgets reinforce a dependency culture
The way to survive and prosper in a budgeting environment is to do what you're told, meet the budget (but never beat it!).
10. Budgets lead to unethical behavior
Managing the results (also known as cooking the books) is a frequent outcome of budgeting. Many finance managers are well versed in "managing the slack" and feeding it into the results when needed. However, as we have seen, this practice can border on outright fraud maximise profits.
The different types of budget include:
Flexible Budget: Flexible or variable budget reflects and combats the changes in expenditure as a result of changes in volume of production and revenues.
Revenue and Expense Budgets: The revenue budgets should show anticipated sales by product or by geographical territory or department etc. To be defined properly.