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Chapter 15

BUDGETS, SIMPLE NORMS AND CONTINUOUS IMPROVEMENT

 

by josavere

A good system of costs1 must serve like element as planning facilitating the processes as simulation, beginning by the results statement projected. To be "good" it must:

  • That  it is appropriate for the particular case (it does not have sense to use ABC costs for an industrial company because it do not take care of the plant capacity).
  • That it is clear and easy to understand for the users, specially for those who control it.
  • That present opportune information.
  • That it allows to apply the administration by exception that it induces to us to occupy to us of the abnormal situations.
  • That it indicates clearly the variations negative so that do not become cost hidden.
  • In the case of industrial companies, it must relate the production costs to the capacity budgeted in agreement with the plan of value generation2.

In agreement with the strategies and the tactics to implement them, aiming at an objective of value generation we can assign the resources that in countable terms are costs or expenses and must leave the sales to arrive at a number specifies of profit, that satisfies the expectations with the shareholders and in which take shape all the activities to develop.

Benjamín Zander3, director of the Filarmonic Orchestra of Boston attributes his success to the optimism of his preparation to face the life and says that the leadership consists of forming you lead that accompany. The optimism must accompany by passion and method. "Passion without method is the chaos, and method if passion is the death", wise words that we must consider when we began to work with the tool  called the Plan of Generation of Value, different from the budgets that must serve as guide the centers of responsibility to contribute to the general mission of the company and to which, obvious, all must be subordinates.

When the companies initiate the learning of the planning systems and presupuestación, disciplines that are acquired with the repetitive and analytical exercise, and are perfected with the feedback that becomes through pursuit, require a approximate cost that serves as base to initiate the exercise.

A good estimation of the cost is essential and high-priority to elaborate the budgets and these, as well, they constitute a good base to consider the costs and of fixing sale prices that facilitate the sensitivity analysis to us until finding the map course which we must follow to obtain the objective. Of there the necessity to do budgets affluent done.

Tad Leahy, published a document that reproduced the titled magazine MANAGEMENT “the traps of the presupuestación” in which it writes on the indirect effect of a bad budget done. I have taken it as it bases to indicate aspects of improvement in the elaboration of the budgets. He writes on which  is not due to do, I say, to my way, which is due to do.

 

 

1. HOW MUST BECOME A BUDGET?

a. To define the strategic plan: to design the strategies and to prepare the tactics for its implementation; thus we can assign the resources.

b. Using the suitable information of costs rejecting all the correctable errors (we cannot consecrate inefficiency). We must purify the information before using it and first of all, to measure the measurable thing and to think about the relation cost-I benefit.

c. To give active participation to the people in charge to facilitate that the managers become jumbled with him;  take control of the objectives and  assume the responsibility to execute them with the been suitable expenses.

d. Not to take them like unavoidable; if the circumstances change and the value generation is affected, it is due to reframe to look for the strategic target. The remuneration of the managers and executives must be based not solely on the performance evaluations and on results.

e. To give strategic nature him. The macroeconomic conditions and the variables that were used for their elaboration can be altered by some circumstances. If it happens we must reevaluar the numbers.

f. To use a suitable software which can facilitate the standardization of the information. One is due to obtain that it is simple, with an analytical application for the particular case. It must be appropriate and we must learn to use it.

g. It does not have to be confused with the business plan which must be realistic to combine risks and opportunities. The budget can be used like motivador element and factor of evaluation.

h. To analyze the deviations judiciously. The important  is that somebody takes care to investigate because and suggests a remedial action.

i. Corporative culture: Like in general, the budgets, of some form imply the concept of "measurement" and to the executives  do not like that "they measure them", is very common to find great obstacles in the first stages when the implementation of this discipline begins. It is difficult to take a step of outpost without direct intervention of the president of the organization who, in the measurement that this convincing of its kindness, can impel it openly.

 

 

2. STRATEGIES4

A good guide to implement the strategy to follow consists of carefully analyzing the matrix of margins of contribution and participation by lines, to see as the weighed average can be improved.

The strategy must become a set of simple rules5.

KATHLEEN M. EISENHARDT AND DONAL N. SULL, professors of the University of Stanford and Harvard Business School respectively, in his I articulate "the importance of the simple rules" present five great categories:

 

A. HOW TO DO: are oriented to organize to the executives in the search of opportunities, examples:

  • To use the telephone directory of each city.
  • To complement with the use of motors search in Internet.
  • To make specific appointments using the email and other means.

 

B. RULES LIMIT: serve to select quickly in the middle of multiple opportunities, examples:

  • Our potential client must display financial statements.
  • We do not take care of countries of Africa.
  • We do not take care of orders of 2,000 meters.

 

C. PRIORITY RULES: help to define an order for allocation of resources, examples:

  • Initially we will take care of the companies located in the five great capitals.
  • They interest to us plus manufacture products.
  • Preferential we will use transports terrestrial.

 

D. OF SYNCHRONIZATION: help to connect the opportunities by means of a coordination of the different areas from the company, examples:

  • Investigation and Development must elaborate a cronogram of launching of new products involving to those who must be committed.

 

E. OF EXIT: help to discard passed opportunities, example:

  • If during three years consecutive we did not fulfill certain goals with a particular product we retired of ours portafolio.

 

So that one regulates is simple does not have to be:

a. Ample: "we encouraged the qualification of our personnel".
b. Vague: "we will not sell payer bad clients to him".
c. Absurd: "we sell solely clients who we pruned to control".
d. It expires:
"our clients are small industralists".

The rules often arise from the experience and from the errors. All almost is in head of the personnel; lack to turn them institutional knowledge properly formalized.

All the simple actions of presupuestación and norms must orient us to the universal pattern consecrated in 9000 norm ISO version 2.000: "The continuous improvement".

The processes, in addition to the PHVA (to glide, to do, to verify and to act), must have an objective and an action of improvement.

 

TO GLIDE: while greater it is the proportion of time dedicated to a judicious planning, less taking doing like effect of the greater productivity than can be obtained. Our culture this very oriented when doing and despises the planning; almost that we condemned a person if it is being documented or it been thinking. "One goes doing nothing".

That form to act kind against the good execution and in fact affects the quality with the countable complicity that practically ignores the hidden costs or of nonquality which would have to be like negative variations that affect the financial results, in last instance, the true measurer of the generation of value in the measurement that the assets rent more than the capital cost (with an objective measurement that considers the expenses able to be capitalized). EVAC.

 

TO DO: the planning takes a suitable method to us that reduces the run time and guarantees to fulfill the maximum objective in trade terms: the satisfaction of the client receiving opportunely the amount that it asked for with the specifications that requested.

To reduce the run time is equivalent to lower costs of manual labor, indirect costs of manufacture, to trim times of delivery and to accelerate the recovery of the costs and the utility of the order. Let us remember an axiomatic principle in finances: "the money is worth based on the time".

Doing implies knowledge, fruit of the selection, qualification, attitude, dedication and level of motivation of the people who execute processes. Of there the great importance which we must give the human resource trying its personal growth and improving its quality of life, which takes to us to live the moment; as fruit comes the concentration and this one as well, it takes to us to work conscientiously and to obtain efficiency (effectiveness6 with quality and generation of value).

 

TO VERIFY: it implies measurement. Lately a very wise phrase has made race: "what improvement is not moderate not", which summarizes the concept.

In the life we must much more measure all the mesurable and in the companies. These measurements must periodically register as it demonstrates verifiable of the action of continuous improvement, via a the productivity. It must be done using the Bench Marking or comparison with the companies of the world, basic tool to face the globalización and to remove started off to him.

 

TO ACT: the term makes relation to all the pertinent activities to learn of the error and to perfect the productive processes, including the administrative personnel, where inefficiency by the great difficulty practical shines generally to measure its efficiency. For that reason he is urgent, periodically to make evaluations of performance of the executive personnel and office. In the production plant it is easier to quantify.

In order to clear all the plan of management of the quality, the company must implement the commando7 board where the strategic plan takes shape in indicators that it served departure the elaboration as the budgets, the design of the simple norms, the plan of pursuit and the remedial actions.

Finally, it must disclose with all amplitude, involving all the people, to his measurement, and complement with a policy of risk wages, respecting basic ones that allow a worthy life in agreement with the position which they carry out.

 

___________________________________________

1. See Managemental Costs
2. To Generate Value: All activity that we do and that the client this arranging to pay by her.
3. Better lecturer of Expo-management, 2003.
4. He consists of defining an objective and identifying the assets and the actions to obtain it.
5. The strategy of simple rules emphasizes in the processes nails and develops a pattern that gives form them (they serve as guide).
6. Effectiveness: to fulfill the objective without generating value.
7. See Strategic Finances

 

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