Budgetary Control In Profitable Organization Accounting Essay

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This paper is based on a case study of a real non-profit organisation, Sight Savers International that aims to prevent and cure blindness in developing countries. Their funding comes from donations from individual and corporations. The paper is structured to discuss the key strategic issues faced by Sight Savers and recommendation of Key Performance Indicators (KPI) to control them. Followed by the differences between profit and non-profit organisations affecting budgetary controls and also Sight Savers supporting the arguments put forward by the Beyond Budgeting Round Table. Finally challenges and problems are outline with an overall conclusion.

Key strategic issues faced by Sight Savers

Non-profitable organisation strategic issues focused on increasing the level of the funds in order to handle people who are going to be benefitted through it and looking at the issues they are bearing and what portion of the people are in most desperate need of being helped. Following are some key strategic issues faced by Sights Savers.

Services SightSavers provide across various region have some impact on their business. A very important issue being neglected on a very large scale is the NTDs (neglected tropical disease), also known, as Trachoma is a kind of parasitic and bacterial infections. Water and sanitary system in among these groups is an important concern too. The water being used is not clear and may create some serious disease. Due to these problems, many people are at risk of blinding trachoma, which need immediate treatments (SightSaver, 2011).

Fundraising and increasing income seems to be one of the challenges for Sight Savers. There are ways that organisations can raise money, through voluntary donations, legacies and government funding. The uncertainty of future income level could put Sight Savers in a bad position especially where competitors such as Oxfam and Save the Children organisations are more developed. It is difficult for a smaller charity to keep donor's loyalty, as they may not be comfortable with the message conveyed. Donors do question their decisions to give a particular organisation. Thus, it is vital for non-profit organisation to convince donor reason they acquire the funds, forcing non-profit organisation to be more accountable. A lifetime of good charity and donor relationship is the key to success. Additionally, donors are able to place restrictions on their donation. However, the higher restricted income Sight Savers have, the less freedom they have to develop their unrestricted sources and grow its name.

Staff retention and hiring appropriate staff are related to human resource issue. In a non-profitable organisation, contributing towards a cause where it does not offer a career ladder motivates people. However, Sight Savers manage to attract good quality of employees to work for a cause. With the developed of new control and planning, staff training should be assigned at different regions or country as different countries have their own system.

Recommended Key performance indicators (KPI).

The key performance indicators are a performance measurement helps in evaluating the success of any particular activity performed. Key performance indicators of non-profit organisation very much focus on goals and objectives. KPI of Sightsavers is based on some of the strategic issues discussed.

Number of affected people: track. Number of treatment provided: Number of children blindness: keep track of affected children with support such as education, making the availability of the special schools for such children.

Total income and sales growth: based on cash flow and the ratios. Efficiency of the programs: it can be measured by calculating the efficiency ratio by dividing the program's service expenses with the total expenses of the non-profit organization. This will help in understanding that how much the particular program has contributed. Operating Ratio: revenue is divided with total expense to shows expenditure occurred in the charitable programmes.

Fundraising income: funds collected from donors, legacies or government grants. Fundraising efficiency ratio: identify fund collected for every dollar spend on fundraising activities. Dividing contribution with fundraising expenses. Contribution to programmes: funds allocated to different sectors from total amount collected. Most amount should be allocated to the real purpose.

Human resources: availability of more skilled paramedical staff catering the needy group. Number of trained workers: outsourcing could be done in case of the lack of availability in certain programme. Availability of staff: organisation must make sure that staffs are easily reachable to local sources. Number of staff allocated to programme: should be a suitable amount where employees do not have to do extra work. Level of employee satisfaction: ratio of fulltime staff shows an impact on employee's satisfaction level. 14

Legislation: taking into account such a big NFP organisation, there must be legal issues that require attention. This may give an ample financial budget for dealing with it effectively.

Actual Return to the Community : there must be a predetermined benchmark that what kind of results must be got through investing a particular amount. In case of unsatisfactory results the budget allocations can be redefined (results2match.com).

Reasons behind selecting the above Key Performance Indicators s

Key Performance Indicators for a non profitable organization must be different from the commercial organizations. Key Performance Indicators s are based on more or less tangible details derived from the mechanics of individual , mostly technical , processes. What I advocated for commercial is business process based Key Performance Indicators 's like e.g. the cost of a business transaction from acquisition to after sales. In a not-for-profit environment you could apply the same if you describe the Key Performance Indicators 's in terms of the things the NPO wants to achieve without making a profit (results2match.com).

The Key Performance Indicators s which are selected above are selected on the basis of the fact that going purely for the income statement or balance sheet approaches in order to select Key Performance Indicators s of discussing the target market which is going to but something tangible doesn't work when talking about some Non profitable organization. The recommendations are made after understanding the concerns and the dynamics of the group as well the sight saver organization which has to take into account such a huge number of people.

Differences between profit and non-profitable organisations

The core deference identified among the two is that the priorities are purely different. The profitable organizations are serious regarding their core concern that is to increase their level of earnings and improving by being cost effective and generate higher profits. Coming to the non-profitable organisation, they are not thinking of these issues and are focused on the fact that how well they are contributing the particular charity in which they are dealing. The differences are definitely unable to neglect.

Budgetary Control in Profitable Organization

Budgetary control is a system of financial control within an organisation. It is often used as a planning and controlling tool to ensure that financial management responsibilities are met. Budgets are prepared in advance and compared with actual performance. Management control is part of the framework by which management ensures that strategies are carried out within their budgets. Managers have responsibility to monitor performance and correct results that is different from the budget. The budget controlling in a profitable organisation is essential and this is really important if the organisation is serious regarding its real purposes and set of plan. The budgetary control in a profitable organization is possible by ensuring that following steps are taken: planning; controlling; communication; evaluating the performance; motivation and feedback (ACCA, 2010).

Budgetary Control in Non-profitable Organisations

A non-profitable organisation is very much similar to a profit organisation, however a non-profitable organisation focuses in providing desirable essentials on an on-going basis. The lack of financial measure such as profitability or shareholder returns makes it difficult in defining strategy. Resources provided are directed towards specific purpose implied or else the organisation will have maximum flexibility to channel the resources. Budgeting is vital in a non-profitable organisation because it ensure there will be cash reserve available to provide services. It is difficult to predict revenue therefore control of expenses is emphasised. The budget process helps ease decision-making and the allocation of resources (Piche, 2009).

Financial metrics are very different from profit organisations. The concept of earnings per share (EPS) and market capitalisation focuses on performance and compensation of the profit organisations, which is not relevant in the non-profit organisations. However there is still the need of financial skills. For instance, cash flow and revenue growth are very much relevant to non-profitable organisations. Funds from the annual giving, campaigns, and capital gifts are financially viability. Financial activities such as annual budget, forecast of revenues and various cost. Monthly reviews aim to achieve targeted cost and revenue while variances against budget are evaluated regularly (Epstein and McFarlan, 2011).

The absence of a clear performance measure and the lack of organisational infrastructure and management make it difficult to determine the effectiveness and efficiency the organisation. Performance measurement in non-profit organisation is as important as it is in the profit organisation. It outlines the funds provided and capital efficiently. The balanced scorecard is a useful tool that measure financial, customer, growth and internal perspectives. Kaplan proposed that with balanced scorecard, non-profitable organisation would be able to enhance their strategy process and a great opportunity to improve management (Kaplan, 2001).

How does Sight Savers support argument of BBRT

Beyond Budgeting Round Table (BBRT) were initiated 10 years ago and the main aim was to help the organisation to adapt to the changing environment and replace the budgeting technique. According to Hope and Fraser (2003) there is more important thing beyond the budgeting performed in an organisation and thus performing budgeting is not the last point of planning and controlling in an organisation. BBRT suggested that firms need more effective strategic management and redesign in the organisation to be more effective in the front line (Hope and Fraser, 2003). Abandoning budget in favour of alternative performance measurement system does not mean abandoning control.

Beyond budgeting core purpose is for making the concern authorities rethink that their control systems are for the releasing of the precious time, energies and also and the motivations. The more important thing is to ensure the key performance indicators are being met in a very effective manner that can be more in the favour than the control. Even more importantly beyond budgeting is a culture of the management where the decentralization in the leadership can abandon the command of the hierarchy and the controlling might give power to the related staff members. Tracking them in such a vastly spread organization is not a easy thing to be done and by taking this in account the company can really be benefitted.

The uncertainty in a charity organisation must be organised, overly detailed control tools such as annual budgeting could be confusing and may need to be replaced. This brings the introduction of beyond budgeting to SSI in 1999. Sight Savers is in favour of the argument put forward by BBRT because beyond budgeting is a more simple and relevant alternative.

Before adopting beyond budgeting Adrian Poffley, finance director of Sight Savers International (SSI) noticed several concerns with the traditional budgeting process. For instances the laborious and detailed process of budgeting which are too time consuming and costly (Sightsavers, 2011). Furthermore the changes in key assumptions makes budget out of date even before the budget year. Unspent money in the current annual year of SSI will be given back to Corporate which result in a lost. The budget system had a dysfunctional "spend it or lose it" mentality motivated by senior staff. The dysfunctional behaviour according to BBRT, destroy the integrity of the entire organisations. Another issue that raised Poffley's concern is the strategic planning and budgeting treated as an annual event, creating a mindset require continuous planning. Besides that Sight Savers focuses on monthly reports rather than charitable activities.

It is believed that there are several important reasons that the beyond budgeting and the principles related are considered to be really important in the non-profitable organizations. BBRT proposed that budgeting system is an important performance evaluator for the competitors and leads to decentralization in the organization system according to which employees will be involved in decision-making process (Hope and Fraser, 2003).

Budgets lack of strategy focus also known as budget gaming, often punish managers for telling the truth and reward for lying. Managers will attempt to reach target which therefore put company at risk (Jensen, 2003).

With beyond budgeting taking place, current CEO Caroline Harper developed a new strategic framework call Strategy Implementation and Monitoring Card (SIM), which is similar to the balanced scorecard concept, that includes strategy map and scorecard (Sight Savers, 2011). The strategy map shows key objectives to focus on the next five years while the scorecard monitor progress of indicators. It is associated with Key Performance Indicators (KPI).

Challenges and problems remain, even after implementing new planning and control systems.

The new control system brought benefits into Sight Savers such as flexibility to get resources and to be able to monitor current performance and future perspectives. Nevertheless some problems still remain. Porter was aware the difficulty to implement the new system in certain area because proper training was not provided on the IT system to deal with quarterly forecasting. Besides that management faces challenge in getting staff to accept being empowered to assist in decision-making process. Partners are forced to be involved in the budgeted expenditures, which result in fewer projects being funded. It is important to boost staff confidence. The incompetent to provide quarterly planning would cause a time consuming effort. Therefore, Sight Savers should implement the new version of technology tool with the help of technical and program management expertise at country level so that decision making will be much easier based on up to date data. This ambitious technology opportunity evolves stakeholder expectations.

Furthermore problem arises in the issue of cost control being maintained, the director of finance Petra Ingram is worried that cost consciousness might not be taken into consideration. Thus, they have to make sure cost effectiveness is encourage across their work with cost benefit to be expected in their programme. Working with International Non Government Organisations partner that do not require setting up country office indicate a cost effective of Sight Savers (Sight Savers, 2011).

Additionally, performance measurement could easily be determined by using their SIM card measure which is equivalent to Kaplan's balanced scorecard. However, benchmarking was not available due to different activities performed and different circumstances. The development of 'value for money' technique enables Sight Savers to review cost effectiveness they trying to achieve. Despite the absence of benchmarking, the use of key performance indicators as a performance target will assist decision makers to allocate their available resources.

Another challenge remain is to ensure that fund provided by partner are spend accordingly and to comply with external pressures of annual reporting. Annual reports being visible to public causes internal pressure to prepare an acceptable report. Therefore a conflict between external pressure and the use of rolling forecast for partner budgeting. Rolling forecast have its danger as it took a frequent detailed planning approach that require continuous monitoring in order to use the resources strategically. With the new planning and control, Poffley is convinced that moving towards beyond budgeting was the right move.

Problem arises in the issue of poor governance and the inability to demonstrate impact. Poor governance refers to the misalignment in an organization result from management lack of focus on strategy and progress. Thus, fail to meet goals for beneficiaries. A systemic review should be commissioned in the governance arrangements of countries affected. Sight Savers find it difficult to demonstrate impact despite the implementation of SIM card that monitor outcomes but still not a whole of impact. These require adjustments such as further research in order to improve impact assessment.


After going through the various important factors and the strategic issues of Sight Savers, it can be concluded that an organisation which is dealing in such a big market have many issues that can not be neglected. Sight Savers is a huge size organization and the concerns in which it is dealing are substantially important. The organization must be focused on the KPIs as the numbers if infected people are rising in a higher proportion than ever. This can become a real issue if it is not considered in a way it deserves. The managements of the organization is found to be really serious in these regards and there is a very finding that they are doing really well the approaches they are carrying are considered to be benchmark by the industry and this tells that how well they are implementing there set of strategic values. The suggested KPIs contribute to the organization and the budgetary control might also take a part in it.