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a) Improved Planning:
Action to be taken is described in
quantitative terms.

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a) Improved Planning:
Action to be taken is described in quantitative terms.
b) Better coordination & communication:
All departments have budgets which give future course of
action ± interaction between departments.
Eg. Increased Sales Increased Production
Increased Finance Increased MIS /
HR

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c) Control & performance evaluation Control &


performance evaluation:
Budgets outline objectives and responsibilities so
performance evaluation and control is easy. Eg.
Expense monitoring,
d) Psychological benefits:
Instills profit orientation / expense control / culture
in organization

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a) Sales Budget

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a) Sales Budget
· Detailed Plan showing the Expected Sales for a
Future Period «.
· Developed based on expected revenue (S-
forecast)
· Gives sales by geographically location / product
service / sales people & customers
· First part of Master Budget; Usually forms the
basis for other operational budgets like finance &
production.
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b) Selling ± Expense Budget


· Salaries / Commissions
· Traveling / Entertainment
· Training (new products)

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b) Selling ± Expense Budget


· Salaries / Commissions
· Traveling / Entertainment
· Training (new products)
c) Administrative Budget & Profit Budget, Rent,
Electricity, Office Furniture, Stationery
GP = sales revenue ± sales expenses

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a) Affordability Method:
Management develops SB depending on
ability to spend on sales function;
usually fall short of sales dept¶s
requirements
b) Percentage of Sales Method:
Multiply sales revenue by a given %;
Sales revenue = Past revenue / forecasted
figure / weighted average of both
c) Competitive Parity:
Based on budgeted figure of competitors or
industry average; competitor comparable in
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size and revenue is chosen
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d) Objective & Task:


a), b), c) do not take cognizance of
organization¶s objective in developing
budget.
· Identify objective with employees
· Identify tasks for achieving objective
· Expenditure required
· Form budget
e) Return Oriented Method:
ROI, ROA, ROTA, ROAM (Assets
Management)
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u Involvement & Support of Top Management
Support Budgeting & ensure all-round
participation; should not be viewed as a pressure
tactic but as an effective tool for performance;
ii. Flexibility in Budgeting
Should be adjustable to fast changing
environmental conditions


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|. Review and Analysis


Collection of past data and study of variances
between projected and actual
2. Identifying market opportunity and problems
3. Sales forecasting
4. Communication of Sales goals & objectives
Involvement of sales people is essential for mutual
agreement


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Ñ. Allocation of resources
Selecting salespeople, tools of sales, financial
resources
6. Preparing the budget
Balance between sales force capability and
market opportunities
7. Approval for the budget

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 Maximum possible
sales opportunities in part. mkt. segment,
over a future period, assuring application of
appropriate marketing methods.
 p   
 maximum possible sales
opportunity for specific company in part.
Mkt. segment over future period.
MP : Total Industry
SP : Part. Co.


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 p      In Re/Units, how much of


a company¶s product can be sold over a
future period, under a given marketing
program on assumed set of external factors.


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i. Market identification
ii. Ability to buy
iii. Willingness to buy
Sources of Data:
a) Secondary: Environment Analysis
b) Primary: Customers spending patterns,
preferences

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Why is SP different from SF?


Why is SP different from SF?

i. Inadequate Production Capacity


ii. Inadequate Distribution
iii. Inadequate Finances
iv. Profit Orientation: Profitable Sales vs. Possible
Sales



 
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i. Top down: Top mgmt. assesses market on


basis of macro environmental data
ii. Bottom up: Micro enviro. factors of market
like customer, products, ability to buy etc.
are analyzed by lower management


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i. Qualitative Forecasts
a) Judgment Methods
b) Counting Methods


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|. Delphi Technique: Systematic Method for


obtaining consensus from a group of
experts.
2. Nominal Group Technique: Experts from
diverse backgrounds
3. Jury of Executive Opinion: Opinions of
executives at top level, based on experience
& utilization ± Lacks scientific validity
senior most opinion prevails.

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|. User Expectations: Usually for industrial


products by directly getting data from
customers.
2. Sales Force Composite: Estimate of
expected sales from every salesperson; can
over/under estimate, lack broader
perspective.
3. Market Tests: Limited area consumer
acceptance.


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|. Time Series Analysis: Estimation of future


trends based on past performance; Long
Term Forecasts
Sales = T (long term variations × C
(cyclical variations) × S (Seasonal
changes) × I (Irregular changes in
environment)

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2. Moving Average: Sales forecasts on sales


of previous period: assumes environmental
irregularities in past will be there in
present.

( Sales t Sales t ±| Sales t±2 ....... Sales t±n


Sales t | 
n


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3. Exponential Smoothing Refines (2) ± More


weightage to sales in recent periods vis-à-
vis older periods.

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4. Regression & Correlation (Multiple Regression)


Correlation: Degree of relationship between sales &
other variables.

Regression: Identify factor that influence sales & predicts


changes in one variable due to changes in other.

· Most popular & widely used method


· Identifies relationship between sales and other
independent factors on which sales is dependant.

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a) Accuracy:
Quantitative better than qualitative,
short term: exponential method is accurate;
more than six months: exponential
smoothing and moving averages
more than one year: regression
b) Costs
c) Data availability
d) Software availability: models and
applications for forecasting need different
types of data
e) Companies experience in forecasting á
  
     

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a) Accurate
b) Cost effective
c) Comprehensible
d) Timely
e) Flexible
f) Plausible: Has to be done with sincerity hence
no manipulation of figures under pressure can be
allowed; Top Management has to be willing to
face accurate estimates even if they are not rosy.
g) Durable: By using quantitative techniques,
combining forecasting techniques; using
software.

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