Management Decision Making Essay Example | Topics and Well Written Essays - 2500 words

Management Decision Making - Essay Example This paper elucidates the problems faced by organisations while preparing the budgets. Table of Contents Table of Contents 3 1.0 Introduction 4 2.0 Issue associated with consolidation of balance sheet items of subsidiaries for large organisations 4 3.0 Impact of errors in consolidation of multiple subsidiaries on performance of organisation 5 4.0 Issue of unrestricted use of top down or bottom up budgeting process 6 5.0 Impact of unrestricted use of top down or bottom up budgeting process on organization performance 8 6.0 Issues like the failure to follow up and analyze variances 8 7. Impact of the failure to follow up and a analyze variances on organisational performance 10 8. Issue of lack of clarity in the budgeting process 12 9.0 Impact of lack of clarity on organisational performance 13 14. Conclusion 14 Reference 15 1.0 Introduction Processes of budgeting and organisational performance are linked intrinsically. The budgets are like self restricted mechanism. This self restricti on limits the chances of exceeding the limits set of for expenses, investment and over head costs. Most of the time the organisations are far apart from achieving the target set in the budget. This may not be due to the incompetent nature of the organisation for which it is unable to stick to what is prescribed in the budget. The reason is due to the faulty budget estimates. More specifically due to inability to filter the various problems and issues that arise while preparing budgets. The present research study tries to explain the issues associated with budgeting process and its impact on the organisation performance. The issues are first identified and the impacts associated with that issue is explained with suitable examples. 2.0 Issue associated with consolidation of balance sheet items of subsidiaries for large organisations Large organizations which have various strategic business units and subsidiaries and spread across different countries face problem when consolidations oc cur. Large companies while preparing the annual budgets have to consolidate the annual statements of the various subsidiaries and the strategic business units (Binkert and Jose, 2006). This consolidation involves transferring the liabilities and the assets of the subsidiaries into the accounts of the mother company. Most of the errors occur in this consolidation process. The problem gets multiplied when the subsidiaries are located overseas and are dealing with different currencies. 3.0 Impact of errors in consolidation of multiple subsidiaries on performance of organisation When subsidiaries are located overseas, then the consolidation of the balance sheet items needs to be done in parlance with the exchange rate. Now the currency exchange rate is prone to change and not static in nature, so the actual budgeting process may commence 2 months ago (Folscher, 2006). By then the consolidated balance sheet is reflecting the value of the assets and liabilities calculated at the exchange rate then. Although the present exchange rate might have moved up or have gone down. If the projections need to be done about the future value of the assets and liabilities in the balance sheet in the coming 2 years, then the projection will have a large room for errors if they are done on the basis of the