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

Elements which can cause uncertainty within a enterprise cash budget are as follows-

A. Change in demand pattern in the overall Industry that can lead to change in the overall production which are estimated to be produced within the cash budget.

B. Uneven amount of sales that would be problematic in forecasting the the cash budget in advance

C. Difficulty in projection of the cash flows due to to change in the political scenario and other macro events which has changed the inflation and interest rate into the economy and that have led to complete shrinkage of demand.

if I was a chief financial officer, I would have been more focused at maintenance of a flexible budget that would have incorporated all the changes at their happening in the economy and there would have been discounting of various risk factors in the cash flow statement that would have been discounting of exposure in discounting rate also so that all these factors should be discounted in advance and I would have been a little conservative about my estimation.

Coping strategy will be different for a company which is having a higher amount of employees because it is not flexible in order to adopt the the strategy on a wider scale, because there would be a lot of resistance and their would be a large number of cost and other factors also involved so it would not be leading to employee participation in the larger company so I would be looking for making employees aware about the changes which are needed to be incorporated and keeping them as flexible as I can to incorporate the changes in the cash budget.