Word Count: 1500+
Budgets are used for detailed planning in the organization. Based on the budget, the resources are allocated to different activities. Top management would create the budget but this budget should be spread to low level management. One of the budget information problems is to cut short the expenses in every department based on the constraints put up in budget. This budget information problem is also rooted in the way resources are to be allocated in the organization. It can be said that, ‘resource allocation’ is the biggest and painful task after the declaration of budget. The budget information problem was limited in nature when the size of organizations was small. With…show more content… Every organization has to work inside the industry. The knowledge of industry would help companies to take decision. Industry parameters like growth of industry, market share of different firms in the industry would always firms to grow. Some of the industry parameters that should be considered are:
What is the current shape of industry, is it the sunshine industry or a sun set industry. The analysis around this area would help to analyse the future of industry are a whole.
What are the substitutes of products in this industry? How are these substitutes managed by different firms?
What is the threat of new entrants and what is the cost of leaving this industry. Leaving the industry should not be the best option but companies should always know the information about leaving the company.
The solutions to solve the budget information problem can be discussed as:
The management should have a policy to control both fixed and variable costs. Usually organizations care about the fixed cost and they forgot about the variable costs. As discussed above the budget information problem is that the control of fixed costs and variables costs is not communicated to the low level management. The communication is the key to success for budget information problem. It is recommended that management should adopt an approach of communication wherein the top management can communicate freely with all the employees.
To solve the budget information problem, it is essential that