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Introduction
Budgetary preparation is the method of creating a budget and then using it to manage a company’s activity. Budget planning aims to reduce the possibility that an institution’s financial performance would be much worse than intended. The process is critical since it allows the corporation owner to focus on working capital, cost reduction, profit improvement, and financial return. This report will be discussing the base case budget and scenario analysis, as is explained below.
In the current scenario, this is the 2020 – 2021 budget representation, although the pandemic has affected the economy, net profit before tax has been increased by almost 13%. These figures are critical as they are used to plan budgeting so as to improve productivity. The government has been forced to increase revenue to allow it to cater to COVID-19 issues. The pandemic has caused many people to lose their jobs while others have shifted to working online, and the occurrence has negatively affected the economy.
Base Case, Scenario Analysis
Starting from graph 1 (2020 Actuals versus 2021 base case budget), that is a comparison between 2020 actuals versus 2021 base case budget. Net profit has been increased by 11% in the 2021 base case budget. The government has increased tax to collect enough revenue, which will allow it to cater to any eventualities regarding the COVID-19 case. Supporting cost in each category has also been increased by an average of 2%, thus raising revenue rates. Online events are given enormous opportunities, especially information technology (IT) and printing sectors, as more people turn to online services. Travelling has been reduced in 2021 due to issues with lockdowns, forcing the progression of internet activities.
Regarding graph 2 (2021 Scenario Analysis), the scenario analysis has brought three types of processes, including upside, downside, and 2020 actual scenario budget. This analysis has helped to plan the budget for 2021. The upside scenario budget has an increase in total revenue for 7,95% and an increase for 6% in net profit before tax as compared to the downside scenario. The actual 2020 scenario performs even worse than the downside scenario by all of the categories, except total direct costs, as they are equal in all three scenarios. The difference among the three is the different tools used in each analysis where each process produces its own different results.
Third Scenario
Brisbane city, which is in Australia, has also been challenged by the coronavirus. To combat the pandemic, the town has experienced two lockdowns in the span of one year. The Australian government is intending to shut down its borders till next year. This move will impact the country’s economy as the public will continue losing jobs, affecting the budgeting process. As fewer people are able to work physically or online, the total revenue collection has dropped almost by 40%. Thus, the governments will not be able to plan their annual budget appropriately. This might force them to seek additional funds or increase tax. Moreover, some businesses are forced to cut their employees’ salaries by half so as to balance expenditure versus revenue.
India is one of the most populated countries on the planet. Presently, the country is faced with the second wave that has overwhelmed the nation’s advanced health technology. Initially, India was able to control the first face of the pandemic successfully and has been at the forefront of supplying medical equipment, oxygen, and vaccine. Despite the government putting enough measures at curfews and lockdown, the cases have been rising with each day.
To sum up, all of the information above made some impact on the budget structure in the Third scenario. Firstly, the total revenue has risen comparing to the 2021 Case budget. However, support costs rose dramatically more in the percentage form-4,95% in total revenue and 33% in support costs. Nevertheless, the most important implication was spot in the net profit before tax. There is a decrease of 24% in this section, which shows that the business is significantly less profitable in this scenario because even though the revenue has risen, the net profit before tax dramatically decreased. The reason for such a tendency is the increase in the support costs section described above. In addition, all of the profit ratios, such as ROI, ROA, and ROIC would show much worse results for the third scenario in comparison with the 2021 base case. As a result, the business processes and expense structure should be improved to offset the negative effects of support costs increasing.
Recommendations
To ensure a smooth running of budget processing, JK Events should use the monthly and yearly analysis procedures. This will allow the business to control how the dynamics of the budgeting process. Moreover, setting up goals can improve the budget process as businesses can quickly determine future results. Having objectives helps the company to focus on achieving its target. It also encourages the management to follow the needed procedures and avoid unnecessary dealings.
However, the most important actions should be provided in the expense structure, because as can be seen from many graphs, even the revenue growth makes the business less profitable due to the increase in expenses. The business should also consider the weight of certain sections in each case because it helps to focus on profitable activities and sustainably to improve other units in the business structure. Finally, being flexible also can help improve the budgeting process; for instance, the ongoing COVID-19 needs the flexibility to handle the sudden alteration in operating methods. Being able to take appropriate change rapidly is a decent practice and one that could fit within any situation.
Conclusion
Budgets are made to be followed and consulted when revenues are down, or investment in one area exceeds the initial forecast. Both companies, local and national, have a yearly budget to plan for and, ultimately, use as a benchmark of progress. Creating an appropriate budget for meaningful revenue and expenditures is the most effective way to assess a business’s profitability. Therefore, it is clear in this scenario that COVID-19 has highly affected the budgeting process. Travelling has been limited, and people have to operate from home to maintain the economy. Online activities have been increased, such as IT and printing sectors, to support more people and increase revenue. Thus, the analysis scenario has helped the management to monitor the budgeting process easier. With the increase in online events in 2021 than 2020, it is hoped that this year will be a better period in terms of fighting the coronavirus.
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