Complete this sentence:

"@TES the teaching department is considered a cost/profit centre because... whereas the Summer programme is considered a cost/profit centre because..."

• Imagine you’re organizing a big birthday party. You have different teams: one for decorations, one for snacks, and one for games. Each team gets its own piggy bank (like a cost or profit center).

  • • ACCOUNTABILITY: The snack team knows they’re responsible for spending their money on chips and soda without wasting it. It’s like each team has to take care of its own piggy bank and show how they’re using it.

    • FINDING WEAKNESSES: If the games aren’t fun and people are bored, you can check the games team's piggy bank to see if they didn’t spend enough on prizes or cool activities. This helps you fix what’s not working.

    • TEAMWORK: By giving each team their own focus and piggy bank, they can work better and not get overwhelmed by everything happening at the party.

    • NO COST CONFUSION: It doesn’t matter if the snack team spends their money on cupcakes or candy; everything is tracked in their piggy bank, so it’s easy to see what they’re spending.

    • BENCHMARKING: If the decorations team uses their money really well and makes the party look amazing, the other teams can learn from them to do better next time.

    • DELEGATION + MOTIVATION: Each team is in charge of their piggy bank and decisions, so they feel more responsible and excited to do a good job.

    • REWARDS: If a team uses their money well and does an awesome job, they can get a gold star or some extra treats as a reward.

By dividing up responsibilities and tracking everything separately, the party runs smoother, and everyone knows what they need to do to make it the best party ever!

• Imagine TES is organizing its budgets for the next academic year. The Headmaster now treats each subject as a cost centre and allocates a budgetary amount accordingly ($X to Math, $X to I & S etc....). Now directly apply 4 of the pros explained in the above analogy, to show why this is a good idea.

• "By organising each subject as a cost centre it immediately creates 'accountability', as the head of subject now has an understanding of what they can afford for the department and will be held personally responsible for not using it frugally and creating more costs. In addition..."

• Imagine a big family with several kids, and each kid is given their own weekly allowance to manage. The parents want to see who can be responsible with their money and who can save or spend wisely. But here's where things get tricky:

  • • SUBJECTIVE ALLOCATION OF COSTS (Sharing Rent & Bills): The parents decide that each kid should also contribute to family expenses, like rent, electricity, and internet bills. But how do they split it? Should the younger kids pay the same as the older kids? What if one kid uses more electricity or internet? It's hard to know what's fair, and some kids might feel they're paying too much for things they don't even use.

    • UNFAIR JUDGING OF PERFORMANCE (Blaming for Things Out of Control): One kid’s allowance might look smaller than another’s because they had to spend more on things they couldn't control — like school supplies getting more expensive. It doesn’t mean they’re bad with money, but it looks that way when comparing their savings to others. The parents might think, “Why did you save less?” when it wasn’t really their fault.

    • TOO MUCH TIME SPENT TRACKING (Counting Every Penny): Imagine if the parents told each kid to write down everything they spend and every chore they do to earn money. It would take so much time to track everything that the kids wouldn’t have much time left to actually do their chores!

    • FEELING TO MUCH PRESSURE (Always Being Watched): If the parents are always watching who spends what, the kids might feel stressed out. It’s like they can’t even enjoy their allowance without worrying about being judged. This could make them feel less motivated to do chores or even cause fights between the kids.

    • IGNORING SOCIAL RESPONSIBILITY (Doing the Right Thing): If the parents say, "You only get money if you save more than your siblings," some kids might try to cut corners. Maybe they don’t help a friend buy lunch because they want to save more for themselves. They could focus too much on money and forget about being kind or doing the right thing.

    • UNNECESSARY COMPETITION (Sibling Rivalry): The kids might start competing to save more or earn more allowance than their siblings. One kid might say, "I'm better because I saved more!" This could cause tension, arguments, and even make them stop helping each other, which isn’t great for the family.

Conclusion:

Running a family this way — where each kid is judged only by how much they save or spend — can create stress, unfair competition, and conflict. Just like in a company with profit and cost centres, it’s not always a true reflection of how responsible or hardworking someone is. Sometimes, teamwork and fairness are more important than just counting money!

• Continuing on our TES example, apply 4 of the possible cons explained in the above analogy, to show why assigning cost centres may create issues.

• "However, by assigning each department as a cost centre, it does create issues, firstly what about costs that are spread over all departments such as electricity usage? How will the cost of this be fairly allocated between centres by the headmaster, as surely Computer Science and DT usage is higher than Business Studies?, additionally..."

• A BUDGET is a FINANCIAL PLAN OF 'EXPECTED' REVENUE AND EXPENDITURE for an organization or a department within an organization, for a given time period.

When constructing a budget there are numerous considerations:

• THE AVAILABILITY OF FINANCE - The greater the financial strength of a business, the greater the budgeted expenditure can be allocated to each budget holder.

• HISTORICAL DATA - Budgets are often constructed based on past trends, such as last year's budgeted figures. If economic forecasts are positive, then budgets may be set at a certain percentage above last year's figures and vice versa.

• ORGANISATIONAL OBJECTIVES - If a business is planning external growth, for example, then budgets need to be raised accordingly as both marketing and production budgets need to be significantly higher.

• BENCHMARKING DATA - Businesses often set their budgets based on approximating the budgets of their nearest competitors. Therefore, if Cadbury budgets for a $2 million marketing campaign, competitors such as Nestle and Mars are likely to follow.

• NEGOTIATIONS - Some budgets are set by discussions between budget holders and the Chief Financial Officer or person in charge of the master budget.

• Imagine you are deciding on the School's budget for the Christmas Bazaar, apply each of the above considerations directly.

"In terms of the availability of finance, thankfully the school has saved a lot of money over the school year which will allow us to spend more on decorations, games, or snacks. In terms of historical spends, last year we spendt $xxxx

• If you have a budget for your educational studies and you end up spending more on a better course with brighter prospects do you think that this adverse variance is necessarily a bad thing? Exaplian you answer.

• THE BENEFITS OF BUDGETING ARE SIMILAR IN NATURE TO THE PROS OF CREATING COST AND PROFIT CENTRES:

  • • • HELPS WITH PLANNING AS IT IS A FORWARD THINKING PROCESS SO ANALYSIS OF FUTURE TRENDS WILL BE IDENTIFIED EARLIER RATHER THAN LATER

      • COORDINATION OF FUNDS IS BETTER ALIGNED TO THE NEEDS OF EACH DEPARTMENT SO THEIR ARE NO MISCOMMUNICATIONS.

      • CONTROL IMPROVES AS MANAGERS ARE FULLY ACCOUNTABLE FOR THE BUDGET THEY ARE ASSIGNED SO HAVE A PERSONAL STAKE IN AVOIDING AN OVERSPEND.

      • MOTIVATIONAL IN NATURE AS LIKE HERZBERG STATES, EXTRA RESPONSIBILTY CAN MTIVATE MANAGERS TO PERFORM. 

• Imagine you have been put in charge of budgeting for the school bazaar next year. Explain how budgeting will be beneficial is terms of the 4 benefits mentioned above:

"As I have been asked to budget for next year's event, it gives me time to sit down and plan and think about all the possible scenarios, issues, problems, that might impact the event such as the fact that the student body is increasing means we will likely need a higher budget, in addition budgeting..." 

• THE DRAWBACKS OF BUDGETING ARE SIMILAR IN NATURE TO THE CONS OF CREATING COST AND PROFIT CENTRES:

• UNREALISTIC TARGETS SET PUTS PRESSURE ON MANAGERS

• CAN LEAD TO 'CUT CORNERS' AND LOW QUALITY (IGNORE CSR) WHICH HURTS THE REPUTATION OF THE FIRM.

• TENDENCY TO OVERSTATE BUDGET REQUIREMENTS SO LESS STRESS.

• NO INCENTIVE TO MAKE A SURPLUS, AS IT IS NOT ADDED THE FOLLOWING YEAR.

• CAN BE INACCURATE IF MADE BY MANAGERS NOT DIRECTLY AWARE OF THE CHALLENGES OF THE DEPARTMENT THEY ARE BUDGETING FOR.

• NOT VERY USEFUL FOR FIRMS WITH VOLATILE SALES.

• BUDGETARY MAKING AND MONITORING IS VERY TIME-CONSUMING.

• CAN CAUSE DEPARTMENTAL CONFLICT, INFIGHTING OVER EXTRA FUNDS

• Imagine you have been put in charge of the Business Studies DP budget for the next year. Explain how the benefits of budgeting are limited using 4 of the drawbacks mentioned above:

"Budgeting is essential but it certainly has its drawbacks which limit its effectiveness, firstly, the added pressure of making sure I can meet all departmental needs using the limited funds is giving me a headache, I mean whta if we can't match the other deparments and go over-budget, will I lose my job?, also..."