Question

Describe three elements that can cause uncertainty within an enterprise's cash budget and provide your rationale for including each element. If you were the CFO of a company, what techniques would you use to cope with this uncertainty? How might your coping strategies differ when managing a large company (1,000+ employees) versus a significantly smaller company (100+ employees)?

Answer 1

Three elements that can cause uncertainty within an enterprise cash budget are as follows-

A. Uncertainty relating to changes in demand and supply pattern of the company-it would lead to uncertainty about the projection of cash flows and it can even lead to Mis projections.

B. Changes in legal compliances can also result into inaccuracy in estimation of the cash flows.

C. Macro environmental factors like political instability and any health related factor like recent covid-19 can also lead to in accuracy related to projections in cash budget.

it can only be faced up through proactive management and better production strategy along with better analysis and always ready with an alternate plan, if the original didn't work out.

While managing a large company's cash budget, it is not generally that flexible to adopt because it will completely change the perspective of the company but while managing a small company it is very easy to change the cash projections so that it can easily be adopted because the number of employees are less.