D3 – evaluate the problems you have identified from unmonitored costs and budgets
Potential consequences for organisations arising from the budget variances
Budget variance is the difference between the budgeted expenses and revenue, and the
actual amount. Problems arise from unmonitored costs and budgets, these problems are:
Difficulty in making decisions
Difficulty in dealing with change
Less or no ability to look at the income compared to expenditure to make changes
Less or no ability to achieve goals
Difficulty in making decisions is an issue because it means that a business is unable to grow as it
cannot make any changes. The reason that the business will have difficulty in making decisions is
because if they have unmonitored costs resulting in issues with their budget they will not know if
they have money to make changes in the company this means that they could budget and make sure
that they have enough money for a new staff member but in reality they could not have enough
money due to an unmonitored cost and then end up spending too much, ending up with a loss
instead of a profit.
A business may find themselves with unexpected costs to pay, if they have an organised budget they
would be able to look at it and look to see if there are places where the money doesn’t have to be
and use that money to pay the unexpected cost. This is useful for a business to be able to do as it
means the business has a full comprehension of where the money is going and whether it is a
necessary expense. Without the business understanding where money is coming from and where it
is going to, they will not be able to pay any unexpected costs when they arise because they won’t
know where to take the money from.
If a company cannot look at the income compared to expenditure to make changes then they will
not be able to develop and grow as a company because they will not know what money they can or
can’t use. They also won’t be able to use these figures to see the areas that are not doing so well and
therefore changes cannot be made so without being able to compare the expenditure to the income
the business won’t be able to see where they are making a loss in profit.
Achieving goals is an important thing in a business because it allows businesses to grow and advance
with the changes in the market. A suitable budget which is laid out to show where and what money
should be spent is a good way to communicate to employees what they want to happen. If they have
unmonitored costs then they are going to have issues with the budget therefore the goals they have
may not be suitable or feasible causing over-expenditure or not spending enough at not having the
right resources to do the job.
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