budgeting PQ
M
uch has been written in the past few weeks about the BBC’s loss of the Great British Bake Off to Channel 4. Why did Channel 4 pay some £25m a year for the show’s rights? Why didn’t the BBC bid higher? For the answers to these questions we need to look at the organisations’ respective budgets, and what a budget needs to achieve. Quite simply a budget is a quantitative expression of a plan for a defined period of time. It is safe to assume both the BBC and Channel 4 will have prepared a budget outlining their planned expenditure on programming. In the negotiations to retain this programme, the BBC were some £10m short of the price required by the ‘GBBO’ production company. It is a sizeable sum and clearly the BBC were unable to find that additional amount in their budget without impacting other aspects of the business. To understand why the BBC refused to increase their bid we need to appreciate the objectives of budgeting. A useful way of remembering these is the mnemonic CRUMPET: • Coordination – budgeting encourages managers and executives within a company to coordinate and keep costs manageable throughout the fiscal year. • Responsibility – this is delegated to individual managers within an organisation. • Utilisation – the budget guides the decision-making process to ensure the organisation does not acquire resources in excess of their needs or financial limits. • Motivation – by providing a target, employees may be driven to improve their performance. • Planning – as the budget is a financial plan it forces managers to make better decisions. • Evaluation – a manager’s performance is likely to be compared with the budgets as set, with bonuses and promotions dependent upon the results. • Telling – this is a means by which the leadership team communicate their expectations to their management team.
Can you have your
cake and eat it? Why did the Beeb lose ‘Bake Off’? Caron Betts exlains the budgetary reasons
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If the BBC ‘found’ an additional £10m to fund GBBO it would mean a loss to another show or department. Even for a top hit like GBBO, the manager has a duty to control their own departmental costs, and they are unlikely to exceed their department’s programme budget if it would have a negative impact on the assessment of their personal performance. The ACCA F5 exam not only expects the student to understand how the budgetary system fits within the performance management aspects of a
A QUICK LOOK AT... This case remains the leading authority on the provision currently found in s122(1) (g) of the Insolvency Act 1986, which provides that a petition to wind up a company can be granted if it is “just and equitable” to wind up the company. The defendant company (a carpet dealership) had been formed with the claimant and Mr Nazar (with whom he had run the business for some years as a partnership) as sole directors and shareholders. Soon after the company’s incorporation, Nazar’s son became a director and shareholder, and the Nazars excluded Ebrahimi from the management of the business. Ebrahimi accordingly filed a winding-up petition PQ Magazine November 2016
business, but also how to select and explain appropriate budgetary systems for an organisation. This aspect of budgeting is examined in one of AVADO’s ‘Report to the Board’ features, where students are challenged to apply their learning to a business situation. AVADO launched their groundbreaking, fully online ACCA courses earlier this year which give students complete flexibility to study whenever and wherever suits them. AVADO already has Gold Approved Learning Partner Status from ACCA due to the quality of learning and student support. PQ • Caron Betts is an ACCA tutor at AVADO
Ebrahimi v Westbourne Galleries Ltd. [1973] AC 360
under what is now s122(1)(g). His petition was granted but the company succesfully appealed against this ruling, the Court of Appeal holding that a company could only be wound up on this basis if there had been wholly unreasonable conduct or bad faith on the part of the respondent. Accordingly, Ebrahimi appealed to the House of Lords. His appeal was granted on the basis that, in the words of Lord Wilberforce, the words “just and equitable” ought to be interpreted so as to “give… them full force”. This meant that in a ‘quasi-partnership’ company like Westbourne Galleries, the court were required to have regard to the interests of
the individuals behind the corporate form. In these circumstances, the House of Lords took the view that the company had been formed on the basis of mutual confidence between the ‘quasi-partners’ (Ebrahimi and Nazar), and the breakdown of this, coupled with Ebrahimi’s inability to “take out his stake and go elsewhere” due to its being a private limited company, meant that it was just and equitable to grant the petition. • Ross Fletcher is an AIA Achieve e-tutor. The AIA Achieve team is producing a series of ‘A Quick Look at….’ articles and more can be found on the AIA website: www.aiaworldwide.com/a-quick-look-at. 25