Unit 2
D3: evaluate the problems they have identified from unmonitored costs and budgets.
In this assignment I will evaluate the problems that would occur if the costs and budgets are
unmonitored.
The most obvious problem that occurs when budget and costs are not monitored, is that is difficult
to judge how a business is performing. This is because a budget is set as a goal that should be met by
different departments that are part of the business, it is something that should be well planned.
Budgets prevent departments from going overboard on costs which keeps the business safe in terms
of surviving. It is vital for a business to understand how they are performing so they know what
areas to improve on, employees have no motivation to potentially decrease costs as they feel they
have the freedom to purchase with no limit. This is not safe for a business as employees are not
being encouraged to decrease costs, they have been encouraged to spend which can lead to very
high costs.
If budgets are left unmonitored, spending can go out of control and could lead to overspending.
Businesses could lose money and go into debt. Debt is a sum of money that is owned to an individual
or organisation and it builds up because businesses are unable to cover their cost. This could be the
future of a business that does not manage their budgets correctly.
The formula used to calculate profit is the following; Profit = Revenue – costs. Therefore this tells
businesses that a change in costs has an effect on profit. They are inversely proportional, in other
words as costs increase, profits decrease. The financial statement is used to represent budgets and
finance is found in the profit and loss account and balance sheet. These pieces of documents help
businesses estimate their cost and budget. A cash flow forecast helps businesses to calculate their
profit and loss. It is vital to calculate costs as businesses need to calculate costs for future
predictions, if it is not calculated, businesses cannot find out ow much progress it is making – in
terms of reducing costs per trading period. They cannot compare their costs and profits to other
successful businesses and this is essential as costs for competitors may be a reason why they are
more successful. To evaluate this paragraph, if businesses do not calculate their costs and budgets,
they cannot compare themselves to their competitors which is vital in order to survive against other
firms.
If the costs and budgets are not monitored within a business, then unforeseen circumstances may
take place, these circumstances can only be prevented if a costs and budgets are managed. These
circumstances can be very small, however they can get worse and have a long term effect on the
business. The problem will only be identified when the business is no longer able to cover costs and
will end up in debt. This circumstance could have been foreseen if they were initially monitoring
their costs and budgets.
To conclude, the effort a business puts in managing costs and budgets could have an effect the
chances of surviving. If no effort is put in managing/monitoring costs and budgets, small issues will
build eventually till it cannot be solved and there are no chances of the business surviving, this is
because they are in high negative cash flow. However, if a business puts in a small effort in terms of
managing costs and budgets, they may be able to find small issues and solve them before they
worsen, this increases the chance of surviving for a business as problems are issues are solved early
in the process. However there will still be ineffective spending, therefore businesses should manage
their costs and budgets seriously and thoroughly.
D3: evaluate the problems they have identified from unmonitored costs and budgets.
In this assignment I will evaluate the problems that would occur if the costs and budgets are
unmonitored.
The most obvious problem that occurs when budget and costs are not monitored, is that is difficult
to judge how a business is performing. This is because a budget is set as a goal that should be met by
different departments that are part of the business, it is something that should be well planned.
Budgets prevent departments from going overboard on costs which keeps the business safe in terms
of surviving. It is vital for a business to understand how they are performing so they know what
areas to improve on, employees have no motivation to potentially decrease costs as they feel they
have the freedom to purchase with no limit. This is not safe for a business as employees are not
being encouraged to decrease costs, they have been encouraged to spend which can lead to very
high costs.
If budgets are left unmonitored, spending can go out of control and could lead to overspending.
Businesses could lose money and go into debt. Debt is a sum of money that is owned to an individual
or organisation and it builds up because businesses are unable to cover their cost. This could be the
future of a business that does not manage their budgets correctly.
The formula used to calculate profit is the following; Profit = Revenue – costs. Therefore this tells
businesses that a change in costs has an effect on profit. They are inversely proportional, in other
words as costs increase, profits decrease. The financial statement is used to represent budgets and
finance is found in the profit and loss account and balance sheet. These pieces of documents help
businesses estimate their cost and budget. A cash flow forecast helps businesses to calculate their
profit and loss. It is vital to calculate costs as businesses need to calculate costs for future
predictions, if it is not calculated, businesses cannot find out ow much progress it is making – in
terms of reducing costs per trading period. They cannot compare their costs and profits to other
successful businesses and this is essential as costs for competitors may be a reason why they are
more successful. To evaluate this paragraph, if businesses do not calculate their costs and budgets,
they cannot compare themselves to their competitors which is vital in order to survive against other
firms.
If the costs and budgets are not monitored within a business, then unforeseen circumstances may
take place, these circumstances can only be prevented if a costs and budgets are managed. These
circumstances can be very small, however they can get worse and have a long term effect on the
business. The problem will only be identified when the business is no longer able to cover costs and
will end up in debt. This circumstance could have been foreseen if they were initially monitoring
their costs and budgets.
To conclude, the effort a business puts in managing costs and budgets could have an effect the
chances of surviving. If no effort is put in managing/monitoring costs and budgets, small issues will
build eventually till it cannot be solved and there are no chances of the business surviving, this is
because they are in high negative cash flow. However, if a business puts in a small effort in terms of
managing costs and budgets, they may be able to find small issues and solve them before they
worsen, this increases the chance of surviving for a business as problems are issues are solved early
in the process. However there will still be ineffective spending, therefore businesses should manage
their costs and budgets seriously and thoroughly.
