Question

if financial statement show that an organization was in trouble, how can an organization use budget monitoring to find where their problems may occur.

what can managers do if the financial statements for the organization show the company is losing money

Answer 1

Usually the troubled areas in a company are:

• Poor management of inventory
• Problem in arrangement of credits
• Growth less than the expectations
• Cash less than the requirement
• Over investments in fixed assets

Importance of budget monitoring in finding the problems:

• Budget monitoring helps in identifying that which product is producing more profits and which products are in loss
• Budget monitoring helps in identifying the areas which need additional resources to accelerate the growth of the company.
• Budget monitoring helps in deciding the work force required and the inventory levels which are sufficient according to market demands.
• It helps to identify the troubled parts and take appropriate actions for improvements

Actions that managers can take when the company is losing money:

• Utilising the resources in the best way to increase the productivity.
• Reduce the high fixed assets investment in the troubled areas to reduce the risk and utilise the investment on a better alternate option.
• Better internal control of the inventory management to reduce the wastage of inventory and increase the productivity.
• Identify the best performing segments and increase the investments accordingly to pace up the growth.
• Take the necessary actions against the poor performing segments, and if required, the manager should shut down the worst troubled areas to prevent further loss of money.