Enhancing Operations and Performance at Neo Plastic

Introduction

Budgeting can be defined as the process of the organization for allocating funds to different approaches and plans (Jurczenko, 2017). Budgeting is considered one of the most crucial activities in the organization to determine the success of its operations and attain excellence in performances. Neo-Plastic LTD is an organization active in the fields of producing plastic bags. Along with this, the organization is also a prominent seller of plastic bags to various supermarkets. It is found that the organization produces budgets on an incremental basis every year. Budgets established by Neo-Plastic LTD includes a variety of elements such as sales, material cost, labor cost and many others. Purpose of the following report is to analyze various practices involved in budgeting in Neo Plastics LTD. The report intends to evaluate benefits that are likely to be achieved by the organization and contribution of the budget in business development. Further, the report also presents the application of traditional budgeting approaches to Neo Plastics LTD. Not only this, but the report also contains information related to alternative budgeting system, its benefits, and application to the organization.

Benefits obtained by Neo Plastics LTD from budget

Budgeting is considered the highly beneficial approach in business by business analysts. Some advantages can be obtained by Neo Plastics LTD by setting an appropriate budget, which are explained in the following manner.

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Review of profitability: it is one of the striking benefits that can be obtained by Neo Plastics LTD by setting a budget for the production and selling of plastic bags (Stamenova, 2018). Establishment of financial plans on paper can allow the managers in the organization to evaluate the profitability that is likely to be attained. Proper distribution of funds: it is essential to allocate proper funds to different business activities in Neo Plastics LTD for achieving sales objectives. For this reason, approaches to the setting a budget can be helpful in distributing the finances in bulk as per needs and activities. For example, allocation of funds to supply chain, production and marketing departments in Neo Plastics LTD can enhance the financial excellence of the organization. Forecast of outcomes: Another, yet the highly considerable benefit of forecasting can be gained by Neo Plastics LTD, by setting an appropriate budget (Meintjies, 2013). Finance managers in the organization can identify rate determining areas in production and marketing along with estimating the profits that can be achieved. This way, it can be said that approaches of budgeting can bring many benefits to Neo Plastics LTD in manufacture and sale of plastic bags in supermarkets.

Budget process and development of business

The budget process in Neo Plastics LTD is highly effective in developing the business due to the following reasons.

  • Budget process can allow strategic managers in Neo Plastics LTD to analyze the flow of cash in the organization (Scouller, 2015). Such approaches can be helpful in saving the capital from the areas of least importance and allocating it to the areas, which require massive budgeting.
  • Along with this, managers in Neo Plastics LTD can also rectify the annual budgets every year by analyzing the budgets of previous years. This way, it can be interpreted that the budget process can be helpful in the contingent development of the organization.
  • Development of more effective and feasible budgets every year will allow the managers to target higher production and sale objectives. Such approaches will lead the organization towards growth and development in future. This way, it can be said that budget process is immensely effective in organizational development for Neo Plastics LTD.

Application of traditional budgeting approaches to Neo Plastics LTD

Traditional budgeting can be defined as an approach in organizations in which new budgets are made by last year’s budget. Some of the consideration parameters in traditional budgeting include the rate of inflation, the new rate of taxes, demand, and supply in the markets and many others (Morlidge, 2017). In traditional budgeting, changes are made in the last budget by ongoing situations.

As far as the application of traditional budgeting is considered for Neo Plastics LTD, it can be said that the organization can consider it for establishing new budgets every year. Such budgeting is less time-consuming. Since Neo Plastics LTD tend to increase its budget in every financial year. Therefore, it becomes essential to obtain the budgeting data for the past year. Production and marketing plans for plastic bags in previous can be modified in Neo Plastics LTD by new emerging situations (Zeller and Metzger, 2013). It can be interpreted that such approaches of traditional budgeting will allow the organization to reduce its efforts and time in establishing a budget.

Key areas of business Neo Plastics LTD budget process needs to address

There are many areas and aspects that are required to be considered by finance managers in Neo Plastics LTD in the budget process. These areas are described in the following manner. Labor cost: in the budget process, it is important for the strategic managers to include labor cost. There are various employees and labors working in Neo Plastics LTD at different hierarchical positions. Payments and wages provided to these employees and workers must be included in the final budget of the organization (Lorain, 2010). These may include wages and salaries paid to the labor involved in production areas, marketing executives, managers, suppliers, employees, business associated and many others. Material cost: Along with labor cost, cost of material is also an integral part of the budget process. The cost associated with the raw material for the production of plastic bags should be included in the budget, which will be helpful in determining the operational cost of Neo Plastics LTD. Processing cost: This cost includes various electricity bills, the cost associated with the purchase of new machines and repairing of older machinery (Libby and Murray, 2010). Managers in Neo Plastics LTD are required to include processing cost while allocating finances for the production and selling of plastic bags in the budget. Marketing cost: Since Neo Plastics LTD also has a business function as selling the manufactured plastic bags to supermarkets; therefore, it becomes crucial to consider the cost associated with the marketing of the products in its budget. This may include packaging cost, shipping cost, and many others. Forecast values: These are the financial objectives can be considered by Neo Plastics LTD while setting its budget. Forecast values include estimate production cost and quantities along with targeted sales and profitability (Hansen, 2011). Estimation of forecast values can be helpful for Neo Plastics LTD in evaluating the meeting objectives and regulating the production and sale process accordingly.

Suitability of traditional budgetary system to business in its planned future form

There are various facts, which can be considered for determining the suitability of the traditional budget process for Neo Plastics LTD, which are explained in the following manner.

  • Ease of preparation is one of the crucial factors associated with traditional budgeting, which make it highly useful for Neo Plastics LTD. The study reveals that traditional budgets can be prepared and implemented in very less time (Coulmas and Law, 2010). For this reason, efforts and time involved in preparing new budget can be saved, making traditional budgeting considerable for the organization in its planned future form.
  • Continuous improvement in organizational performance can be obtained through traditional budgeting (Stamenova, 2018). Errors and loopholes found in the previous budget can be improvised such as the use of resources, acute need of capital in certain areas and many others. This way, more effective financial decisions can be made by Neo Plastics LTD.

Above factors indicate that traditional budgeting can be suitable to Neo Plastics LTD in its plans.

Alternative budget systems

Apart from the traditional system, there are also certain alternative systems that can be considered by finance and strategic managers in Neo Plastics LTD, which are explained in the following manner.

Zero-based budgeting: In this budget system there is no use of data obtained from past performances of an organization. Budgeting of all the approaches and operations is done with “start afresh” policy (Jurczenko, 2017). Such type of budgeting is suitable for the organizations that are entering into the market with new product or service.

Rolling Budgets: In comparison to other budgets, rolling budgets do not have fix parameters for financing. Rolling budgets involve periodic evaluation and updating of the budget. Several elements for change in rolling budget include external environment, competition, technological upgrade, inflation and many others.

Activity-based budgets: Inactivity budget system an organization is supporting to evaluate the strengths of different activities and their contribution in organizational development. It is necessary for the strategic managers to prioritize such activities and include them as per their suitability (Meintjies, 2013). Previously formed budgets can be improvised with the inclusion of such activities for the welfare of the organization.

Base budget system: this approach of setting a budget is also called no increment budget system. Organisations considering this budget tend to establish a new budget, which is a replica of the previous beneficial budget. There are no improvements and changes made in such budget system.

Benefits of the alternative budget system to Neo Plastics LTD

There are many benefits associated with the alternative budget system to Neo Plastics LTD, which are discussed below.

Motivation: the alternative budget system can be greatly motivational to the employees and workers working in Neo Plastics LTD. Consideration of zero-based budget and rolling budget can make the employees more enthusiastic (Scouller, 2015). New approaches and products can boost up the morale of workers and set new work environment in the organization.

Enhancement in profitability: Another benefit that can be obtained by Neo Plastics LTD with alternative budget systems is a remarkable enhancement in profitability. New approaches and products can be helpful for the organization in targeting new markets and enhancing its profitability.

New pathways for growth: Alternative budget systems break the traditional approaches of the organization while allocating funds (Morlidge, 2017). For this reason, complying market strategies can be considered by Neo Plastics LTD, which might open new pathways for growth and development.

Consideration of new resources: In traditional budgeting only cost changing parameters are considered by finance managers. Alternative budget systems can allow the managers in Neo Plastics LTD to look for new resources and include them in final business plans.

This way, it can be interpreted that Neo Plastics LTD can acquire numerous benefits with alternative budget systems.

Application of these methods to Neo Plastics LTD

Alternative budget methods can be applied to Neo Plastics LTD in managing business approaches and operating excellently in the markets by setting budgets from new perspectives.

  • The managers can consider approaches of zero budgeting in Neo Plastics LTD for launching new products in the business markets (Zeller and Metzger, 2013). Along with this, such budgeting will also allow the organization to enter into the new market with existing products of plastic bags.
  • Rolling budget system can also be considered by strategic and finance managers in Neo Plastics LTD to improvise the existing budget. The organization can also use this approach along with the traditional budget system. Various updates can be implemented in the budget after considering inflation, competition, existing technology, and many others.
  • The activity-based budget can also be considered by Neo Plastics LTD, and new activities can be included (Lorain, 2010). Such approaches can strengthen the pre-established budget of the organization and add value to the marketing and production section as well.
  • As far as the application of the base budget system is considered for Neo Plastics LTD, it can be said that the organization will have same profitability and productivity as that of previous years.

Potential problems

In successful consideration of zero-based budget system, Neo Plastics LTD is required either to launch a new product or enter into the new market. Targeting the same market with the same product can be challenging to the organization due to tail effects of past performances.

Neo Plastics LTD can consider rolling budget, but it can bring high-level differences in the financial parameters (Libby and Murray, 2010). Frequent changes in budgeting can be problematic to the production and marketing operations in the organization.

Consideration of the activity-based budget can increase the vulnerabilities of the organization in its business market. It is not sure that new activities included in the budget will certainly bring financial benefits. They can also intervene with the existing approaches, resulting in financial losses.

There are certain problems in implementing the base budget in Neo Plastics LTD. Firstly; the organization has the functionality of working on an incremental or traditional budget. For this reason, Neo Plastics LTD will have to drop the ideas of incrementing. Secondly; working on the same budget can be difficult for the organization due to factors of inflation, competition and many others (Hansen, 2011). Productivity and profitability of Neo Plastics LTD can decline in far future as prices of products may rise, and some competitors can enhance in the business markets.

Methods appropriate to Neo Plastics LTD

Various alternative budget systems are identified for Neo Plastics LTD including zero-based, rolling, activity based and base budget systems. Strategic and finance manager can consider some of these alternative budget systems in the future. Below are the explanations for the use of the above budget systems.

Strategic managers are required to consider rolling and activity-based budget for development and growth of Neo Plastics LTD in future. However, the organization makes use of the traditional budget system; but, approaches of rolling budget can allow Neo Plastics LTD to comply with emerging situations in external and internal business environment (Coulmas and Law, 2010). Frequent evaluation and updates can be helpful in mapping the approaches as per the set financial plans in the organization. Along with this, the rolling budget system will also make the approaches of Neo Plastics LTD suitable with conditions in the market.

The managers in Neo Plastics LTD can also consider Activity-based budgeting method. The organization can identify certain best approaches and activities and include them in the budget. Production of plastic bags is the core functionality of Neo Plastics LTD (Libby and Murray, 2010). Some of the approaches in activity-based budgeting can include the use of the non-invasive raw material in production or entering into production and marketing of paper bags. This way, Neo Plastics LTD can enhance its functionality and product range. Along with this, activity-based budgeting can also be helpful for the organization in attaining competitive advantage in its business markets.

This way, it can be said that Neo Plastics LTD can consider methods of rolling budget and activity-based budget in alternative budgeting.

Conclusion

It can be concluded from the above report that establishment of the budget is one of the essential activities in Neo Plastics LTD. Allocation of funds to different approaches in the organisation is considered in the organisation while making a budget. It is found that some of the benefits associated with budgeting include a review of profitability, the forecast of outcomes and many others. Further, it can be said that traditional budget system in Neo Plastics LTD includes setting a new budget based on a budget of past years, which is helpful in saving time and efforts. It can also be concluded from the report that alternative budgeting includes rolling, zero base budget system and many others. Rolling and the activity-based budget system can be considered by Neo Plastics LTD, which are helpful in updating budget on frequent intervals and adding new activities strengthening the business of the organization.

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References

  • Coulmas, N., and Law, M. D. (2010). Budgeting in a Chaotic Economic Environment…Factors Leading to Improvement. Journal of Marketing Development and Competitiveness, 5(1), pp. 42-46.
  • Hansen, S. (2011). A Theoretical Analysis of the Impact of Adopting Rolling Budgets, Activity-Based Budgeting and Beyond Budgeting. European Accounting Review, 20, pp. 289-320.
  • Jurczenko, E. (2017) Factor Investing: From Traditional to Alternative Risk Premia, UK: Elsevier
  • Libby, T., and Murray, L. R. (2010). Beyond budgeting or budgeting reconsidered? A survey of North-American budgeting practice. Management Accounting Research, 21(1), pp. 56-75.
  • Lorain, M.-A. (2010). Should rolling forecasts replace budgets in uncertain environments? In M. J. Epstein, J. F. Manzoni, and A. Dávila (Eds.), Studies in managerial and financial accounting. Performance measurement and management control. Innovative concepts and practices, pp. 177-208
  • Meintjies, A. (2013) The Incorporation of Alternative Budgeting Methods Relative to the Use of the Traditional Budgeting Method, UK: University of Pretoria
  • Morlidge, S. (2017). Traditional Budgeting: what are the alternatives?. [online] FPandA Trends.com. Available at: [Accessed 6 Aug. 2018].
  • Scouller, A. (2015). The budgeting process and alternative budgeting systems. [online] wordpress.com. Available at:
  • Stamenova, S. (2018) Benefits of a a budget system. Traditional budgetary Systems versus Rolling budgets, zero-based budgets and activity-based budgets, USA: GRIN Verlag
  • Zeller, T. L., and Metzger, L. M. (2013). Good Bye Traditional Budgeting, Hello Rolling Forecast: Has The Time Come? American Journal of Business Education, 6(3), pp. 299- 309.

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