In this report I’m going to be describing the reasons why costs and budgets need to be controlled. Then also analyse the reasons why costs and budgets need to be controlled and explain in detail problems that can arise if they’re left unmonitored and also evaluate how managing resources and controlling budgets can improve the performance of a business. For any company the money that comes in must be more than what goes out, It’s very important for costs to be controlled against budgets so that you don’t overspend and make a loss. The costs that have to be managed are fixed costs & variable costs.

A fixed cost is something that cannot be changed for example renting, salaries, loan payments etc, these cannot be changed so what ever a business is doing they’ve got to make sure the money they make meets up with the fixed costs other wise they would be making losses that would end up giving them a bad reputation and even worse end up having to close down. Variable costs are things such as staff wages, gas bills, electric bills, things that can be controlled without affecting the company in a bad way depending on how disciplined they are.

Mobile phone companies are very interesting as they have an opportunity to make a lot of money depending on how well presented they are and what they can offer for example you have a company like Nokia, they are a very successful Finish company that makes mobile phones, they distribute them to different phone networks such as orange, o2, T-mobile, Vodafone, 3. Now it costs a certain amount of money to make top phones for example the Nokia’s highly successful n97 would cost Nokia i??

500 to make and then the price they sell the phones on to other networks would be higher than what they make them for so they could sell it on for i?? 650 straight away they make a profit of i?? 150. The company doesn’t sell the phones for an even amount as that means there’s no profit to come in, in actual fact they’ll be making a loss as they are paying out for materials to make the phones which would make the job pointless so their basis is covered by the networks who buy the phones of them.

Now the story for phone networks when it comes to that very same phone is very different as they have to package out the right deal to make the money they paid out back and not to forget they have fixed costs such as salaries, rent and then also have the variable costs as in your wages and bills, the actual costs is basically the money paid to nokia for the mobile phones so it’s a costs that doesn’t have any interest towards it as it’s a one off payment.

The way they make the money is done by controlling the actual costs against their budget, this is done by making sure that the money they spent on actual costs is made back, a good way to make sure that actual costs are kept to a reasonable standard is to keep receipts on items spent on the store and also make sure that the money made by the company is going to meet the budget through the phone deals they give out.

Most phone contracts the phone networks give out are 24 months long now the way they make the money depends on how many contracts they manage to sell, the target would be to sell enough contracts to cover the fixed costs & the variable costs, anything below their target is seen as a fail.

This is why the budget must be controlled, now depending on how big the business is the budget for a mobile network company must be monitored on a regular basis by the store manager, this is just to make sure that the store is hitting the target and not making unnecessary losses on damages, so if the damages limit is set to i?? 100 they don’t want to be having damages of i?? 150 as they would have to pull the other i?? 50 from somewhere to cover the losses in some cases it would lead to some prices being put higher so they balance back in check.

Before the business starts off the a budget process is undertaken and thats the process used to prepare a meaningful and useful budget, plans and goals have to be undertaken by programme and finance staff working together, they should consider the objectives, resources needed, cost of resources and then set a realistic target which can be reached, this is when the company will have money given to them by the budget holders who basically bid for funding sufficient to meet the needs of the company and also makes sure the money thats getting provided is being used appropriately.

Budget holders are provided with monthly reports of all expenditure so they are constantly monitoring the company., things such as orders actual costs are always looked at and as long as the company stays within the limit the budget holders will be able to bid for more money for resources e. g computers, software, demo facilities etc.

When Preparing a budget from the start you need to have short term reachable goals so money aint spent unnecessarilly, as long as the company is meeting the targets set ; stays within the limit the cash flow will be in good health. In any company especially companies that are large the best thing to do is to keep reserve cash as it could be needed for emergencies such as a fire, systems crash and needing replacement or maybe an economic meltdown occurs, if there’s no reserves kept it could end up in job losses.