Financial Analysis: Master Budget Planning

Scenario
You are a department manager for a distribution team that packages and ships products from a warehouse location to fulfill customer orders. Your company has been acquired by a larger firm. The new owners are requesting that each department manager prepare a master budget for the upcoming year and submit it for approval. The submission must include a written justification of the requested amount and at least one risk mitigation action to control or reduce costs.

The information available to meet this request includes:

The department’s expenses, staffing, and output for the past 12 months;
Metrics, financial and operational, that can be used to compare the department’s performance and output to a department that provides similar distribution support to another division of the company;
One potential efficiency project with two available financing options;
Data on the company’s historic employee practices such as annual raises and bonuses; and
The level of output that the department must meet in the upcoming year based on the new owners’ sales goals.
Instructions
Using the information provided, as well as relevant economic data researched independently, make decisions about:

The staffing level required to meet the expected output requirements;
The annual raises and bonuses that should be included in the budget;
Whether the efficiency project option should be implemented, and if so, using which financing option; and
The cost control (i.e. risk mitigation) action(s) for implementation.
From your decisions, prepare a master budget for the upcoming year in Excel. Then, prepare a written justification, memo-style, for the budget that discusses your decisions and the rationale for each. Include support for your decisions from your analysis of the data and the financial and operational metrics (historical and expected) as well as at least one external economic or industry source.

In the justification memo, include one visual (chart, graph, etc.) created from the data. The purpose and type of visual selected should be based on the data being highlighted. Examples include a summary pie chart of the total budget, a bar chart comparing the department’s historical metrics to the expected metrics with the new budget, or costs across time to implement the efficiency project using the recommended financing options.

Submit an Excel file with the new master budget and a justification memo with embedded visual.

ANSWER

Financial Analysis for Master Budget Planning, Excel and Memo

To: CEO

From: Department Manager

Date: 19 May 2022

Subject: Budget Justification and Risk Mitigation Action

The department has developed an effective logistics and shipping strategy to ensure the attainment of greater results for the company in the coming year. Apparently, logistics can spell the difference between success and failure in the business (Carbone, Rouquet, & Roussat, 2017). For this reason, the included budget is meant to achieve logistical efficiency and a greater level of success for the company. This memo provides the justification for the budget that has been developed to support this strategy. The justification is based on the department’s expenses, staffing, and output for the past 12 months. It has been based on the metrics, financial and operational comparisons of the department’s performance, and output to similar departments that provide the industry’s distribution services. It covers aspects of warehouse operations as well as warehouse general and administrative expenses. Besides, the risk mitigation action to control or reduce costs in the new financial year has been included.

526. Warehouse Operations Personnel: The budget caters for the employees for the various identified categories of the warehouse operations. It covers the wages and bonus estimates for the teams undertaking the receiving and the stocking operations, picking and packing operations, and administrative operations. Also included are the in-kind costs for those positions whose work is tied to the operations. The total cost for the warehouse operations is $11,422,526. They are distributed as shown in table 1.

Table 1: Warehouse operations

JUSTIFICATION: The names of the team members have been described in the staffing worksheet. At the same time, the Packing, receiving, stocking, and picking team lead would provide daily oversight of the warehouse operations and the teams working under them.

797. Warehouse General & Administrative: The budget caters for the various categories of the general and administrative. They include rent, insurance, repairs and maintenance, utilities, licenses and fees, administrative and management salaries, and employee bonus and benefit programs. Also included are the shrinkage and supplies-office. The total cost for the warehouse general and administrative expenses is $1,249,797. They are distributed as shown in table 2.

Table 2: Warehouse general and administrative expenses

JUSTIFICATION: The warehouse general and administrative expenses remain fixed in the new year, considering that the warehouse still has capacity for an additional 50% growth in volume. In this case, no new expenses would be incurred in this area as the team strives to increase operations to meet the higher volume demands.

The staff worksheets have been evaluated to guarantee optimal performance in the coming year. Steps that have been taken to mitigate risks associated with loss of money include:

• Evaluation of the goals: The initial step in the development of an operating plan is to assess the objectives to be achieved. By diagnosing the objectives that workers will be striving to achieve, the departmental managers can pinpoint the extent and nature of support required to achieve those prospects. The master budget has been made in a manner that guarantees a vivid comprehension of the task to aid the line professionals in supervising the work. The departmental objectives have also been aligned with the organizational objectives to support the successful achievement of the project goals (Shafagatova & Van Looy, 2020). Therefore, this implementation is an ideal chance for the departmental leads to reach out to fellow leaders to comprehend their departmental aspirations. Such a comprehension helps to lay a strong foundation for supporting the implementation of key projects, innovative strategic initiatives and modifications that enhances performance across the organization. Besides, leaders have identified the vital goals in their departments to aid integration and the smooth functioning of the organization. A possible reorganization or readjustment may be necessary in enhancing customer service and embracing specific expertise.

• Identification of the Influencers: In this step, the team leaders identified factors that could have an impact on the budgetary appropriations for the various functions. The Influencers include both internal and external experts with an understanding of the budgetary controls. Their views could be categorized as either positive or negative and do carry an ancillary influence on the plan, even though the department has limited control over the process (Fonseca, Anunciação, & Penalver, 2019). The assessment of the budgetary elements by the influencers provides the unit leads with vital information to identify the key budgetary areas and appreciate the strengths that will touch on the supply of talent. Instances of such influencers are a constricted labor market, shifting protocols and evolving functions.
• Analyzing the Current State: It is essential, as with any plan, to understand exactly the preliminary facts. In this mitigation measure, the team gathers evidence on the present status of the function in order to collate a catalog of the critical elements of the proficiency currently in use. Such an inventory includes a report of all the current resources, such as staff, contingency workers or other people who routinely support the objectives of the function (Rastogi et al., 2018). Besides, the current-state scrutiny highlights the competencies, skills and training needed to equip workers with the tools needed to achieve the planned objectives. Being part of the evaluation process helps the team leaders to understand the current state and make decisions on which systems would be ideal in gathering information and analyzing the data to get the desired budgetary allocations. However, the budgetary data for the different sections of the organization could be vital in establishing the necessary controls. Such sections include payroll, human resources, distribution, and supply systems. In addition, the leaders assessed factors that could change the department’s make-up.

Mitigation measures and risk controls have been envisaged in an attempt to achieve the objectives set out in the budget for the New Year. The secret to this envisioning is to gather all the relevant data and focus beyond the current state of play. This vision is set out in Table 3 and involves both final-state distribution personnel and interim needs.

Table 3: Envisioning distribution needs

Staffing plans can be the first step in the organization’s evolution towards the adoption of workforce planning. As leaders are becoming more satisfied with iterative head-to-head planning, the additional complexity in terms of criteria, timeframes, or scenarios may be implemented to improve team discussions and long-term strategic plans. This document’s shared details demonstrate the wider scope of the department’s work to ensure that organizations can enhance their shipping and distribution business, as shown in figure 1 below. In fact, the average costs for the two years remain relatively the same as demonstrated in figure 2.

Figure 1: Distribution operations

Figure 2: Average receiving and stocking costs for prior year and New Year targets

References

Carbone, V., Rouquet, A., & Roussat, C. (2017). The rise of crowd logistics: a new way to co‐create logistics value. Journal of Business Logistics, 38(4), 238-252. https://www.researchgate.net/publication/319325907_The_Rise_of_Crowd_Logistics_A_New_Way_to_Co-Create_Logistics_Value

Fonseca, G. L., Anunciação, P. F., & Penalver, A. J. B. (2019). The Role of Dynamic Capabilities as Influencers of Organizational Intelligence. In Handbook of Research on Business Models in Modern Competitive Scenarios (pp. 138-149). IGI Global.

Rastogi, A., Pati, S. P., Krishnan, T. N., & Krishnan, S. (2018). Causes, contingencies, and consequences of disengagement at work: An integrative literature review. Human Resource Development Review, 17(1), 62-94. https://journals.sagepub.com/doi/abs/10.1177/1534484317754160

Shafagatova, A., & Van Looy, A. (2020). Alignment patterns for process-oriented appraisals and rewards: using HRM for BPM capability building. Business Process Management Journal. https://www.emerald.com/insight/content/doi/10.1108/BPMJ-03-2020-0101/full/html

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