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MANAGING PROJECTS

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Projects represent nonroutine business activities that often have long-term strategic ramifications for a firm. In this chapter, we examined how projects differ from routine business activities and discussed the major phases of projects. We noted how environmental changes have resulted in increased attention being paid to projects and project management over the past decade. In the second half of the chapter, we introduced some basic tools that businesses can use when planning for and controlling projects. Both Gantt charts and network diagrams give managers a visual picture of how a project is going. Network diagrams have the added advantage of showing the precedence between activities, as well as the critical path(s). We wrapped up the chapter by showing how these concepts are embedded in inexpensive yet powerful software packages such as Microsoft Project. If you want to learn more about project management, we encourage you to take a look at the Web site for the Proj...
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Master Budgets and Planning

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CONCEPTUAL
Planning is a management responsibility of critical importance to business success. Budgeting is the process management uses to formalize its plans. Budgeting promotes management analysis and focuses its attention on the future. Budgeting also provides a basis for evaluating performance, serves as a source of motivation, is a means of coordinating activities, and communicates management’s plans and instructions to employees. Budgeting is a detailed activity that requires administration. At least three aspects are important: budget committee, budget reporting, and budget timing. A budget committee oversees the budget preparation. The budget period pertains to the time period for which the budget is prepared such as a year or month.
A master budget is a formal overall plan for a company. It consists of plans for business operations and capital expenditures, plus the financial results of those activities. The budgeting process begins with a sales budget. Based on expected sales volume, companies can budget production and manufacturing costs, selling expenses, and administrative expenses. Next, the capital expenditures budget is prepared, followed by the cash budget and budgeted financial statements. Merchandisers must budget merchandise purchases instead of manufacturing costs.
ANALYTICAL
Activity-based budgeting requires management to identify activities performed by departments, plan necessary activity levels, identify resources required to perform these activities, and budget the resources.
PROCEDURAL
From budgeted sales a manufacturer prepares a production budget. A manufacturing budget shows the budgeted production costs for direct materials, direct labor, and overhead. Selling and general and administrative expense budgets complete the operating budgets of the master budget.
The cash budget shows expected cash inflows and outflows during a budgeting period. Thisbudget helps management maintain the company’s desired cash balance.
The operating budgets, capital expenditures budget, and cash budget contain much of the information to prepare a budgeted income statement for the budget period and a budgeted balance sheet at the end of the budget period. Budgeted financial statements show the expected financial consequences of the planned activities described in the budgets.
The term master budget refers to a collection of individual component budgets. Each component budget is designed to guide persons responsible for activities covered by that component. A master budget must reflect the components of a company and their interaction in pursuit of company goals.
Guidance Answers to Decision Maker
Entrepreneur
You must deal with two issues. First, because fashions and designs frequently change, you cannot heavily rely on previous budgets. As a result, you must carefully analyze the market to understand what designs are in vogue. This will help you plan the product mix and estimate demand. The second issue is the budgeting period. An annual sales budget may be unreliable because tastes can quickly change. Your best bet might be to prepare monthly and quarterly sales budgets that you continuously monitor and revise.
Environmental Manager
You are unlikely to have data on this new position to use in preparing your budget. In this situation, you can use activity-based budgeting. This requires developing a list of activities to conduct, the resources required to perform these activities, and the expenses associated with these resources. You should challenge yourself to be absolutely certain that the listed activities are necessary and that the listed resources are required.

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