Body Glove Case

Question 1 For what purpose does Body Glove work its reckoning system? Which purposes are emphasized? The purpose of Body Gloves budgeting system was to project expenses and forecast revenues for the upcoming fiscal year. The budget is used to manage performance (but not linked to performance based incentives) and detect early warning signals of caper areas. The budgeting system allows the managers of each department monitor their expenses in which budgets suffer been set for materials, salaries and legal expenses amongst others.Question 2 Trace the steps in the development of the budget at Body Glove. What are the key events that relate to the time of the steps in the budgeting act upon? 1. The budgeting function of Body Glove began in November 1990. The management team estimated gross revenue growth for 1991 and the national sales manager, Kurt, then distressed down these forecasts to provide the total projected sales per month per product. 2. Each department was requeste d to developed monthly projection of key expenses such as materials, salaries, legal expenses, etc. for the upcoming fiscal year.3. Russ (president of Body Glove) consolidated, reviewed, and discussed them with his managers, suggesting changes if any changes were necessary as some managers were too optimistic with their forecasting. 4. The budget was finalized by the end of celestial latitude 1990, by Russ. 5. Throughout the fiscal year the budget was used to ensure figures were met and monitor the performance of departments. It was also used to detect early warning signals of problem areas by comparing actual performance on monthly basis and re-evaluate departments not achieving their budget targets. It was not linked to performance based incentives.The key events that guide to the budget being established were the fact that production was scheduled based on historical and pre- book information which meant that they did not have enough bloodline and were one month behind getting products into stores, which had two main impacts 1) the cost of inventory stock outs was greater than inventory carrying costs 2) the reputation of the governing was impacted. The budgeting process meant that managers based their forecasts on a wider scope of information rather than just pre book sales.Question 3 The case says that Body Glove never inclined(p) a budget prior to fiscal year 1991. How can a company like Body Glove function effectively without a budget, or can it? Body Glove had a great product with the neoprene wetsuits and had gained significant market share through its niche fun life style pic which challenged competitors. The business had a small but loyal customer base, and had attained no.2 market share. Whilst the business had significant growth, I dont believe it ran only effectively.An extract from the case state mentions they lost $1 million in sales due to a shortage of inventory and its forecasts on future sales were not accurate. Anthony, Hawkins & Me rchant (2008, p.740) assert If the total costs in a responsibility budget are expected to vary with volume, as is the case in most standard cost centres, the responsibility budget whitethorn be in the form of a variable budget. Such a budget shows the planned behavior of costs at various volume levels. If the company was able to better understand its costs, and forecasts for growth it could have made the necessary investments in upgrading the manufacturing operations to meet the demand. Body Gloves reputation was at stake and in 1990 the company decided to break away from employing family only which may have been a sign that they needed some fresh eyes to drive growth.Question 4 What changes to Body Gloves budgeting and review process would you recommend, if any?* Body Glove needs to undertake some major strategic planning to ascertain company key objectives and ensure that the budget reflects these plans. * Managers should not be the final people to establish the key figures relati ng to the budget, this should be done separately based on information provided by previous years data (a board or a strategy department should be in charge of this) to eliminate bias in forecasts* The president needs to ensure that the goals of the organisation are communicated clearly throughout the company and how each department runly relates to these goals. Calling a meeting with personnel from each department may be important in communicating this information. * Each individual should relate to the budget. For example, the sales forecasts are dependent upon the work of the sales team and therefore should be a motivator for them to perform. Achieving outcomes should relate to performance incentives, this includes managers also.Question 5 If Body Glove continues to grow and, perhaps, diversifies, what changes will have to be made to the budgeting and review process? strategic budgeting is imperative in any organisation. Leland (2003) asserts The behavior or capabilities of the l arge and complex organisation cannot be fully comprehended by analyzing its individual parts. Because of its complexity, the organisation or system, displays emergent behaviors arising from the relationships among those parts.Strategic budgeting is roughly comprehending the whole organisation in order to understand emergent behaviors. It requires a top down approach, not a female genital organ up approach and at the present the budget system is not really valued by the organisation. The budget system can be good modified, managers (whose forecasts will be biased) are setting numbers and the outcomes of the budget are not linked to organisational performance which would leave any manager to wonder what the determent is not to meet the results.A wide range plan should be established so that Body Glove can start some long range formal planning, they should also look at a Strategic Human resource approach whereby they incorporate these long term goals into the behaviors and perform ance of staff.How do these outcomes relate to an organisation that you are familiar with? Whilst at GSK, each year in February the company would commence the working year with a sales throng where all sales staff would meet and the opening day would include a talk by the managing director on the goals of the organisation. The MD would talk about previous year performance, what worked and what didnt work so well and key learnings.We were then told of the total operational budget and this was broken down into sales for our various products. As sales teams, our managers would then discuss with us which Key performance indicators we would be measured by, which was a mix of sales results and behaviors. Throughout the year, our direct managers would often re-communicate the budget to us and we would receive a monthly break down of targets and results.