Hey Tutor Toto:
The below assignment is one assignment, but answers will be separate. Your job to comment in 250 words, with atleast two peer reviews, not the ones specified by the sutents, but your own.
There are two students below who have posted on the discussion board their own techniques regarding last week’stopic. The one you worked on. All i need you to do is to write 250words each to make additional comments to what they presented. In one paper your comments will have to mention the specific student you are addressing and you should make comments in addition to what they wrote. in some cases, you may critique them in sperate comments.
Take for example, take student one, and write 250words, 2 peer reviews, and take student 2 and do the same. the two separate comment must each have 250words with additional 2 peer reviews.
the 250words should not include the references. it should actually be the body of each comment for each student. In total, you will be contributing 500words, excluding references. Please see below the discussions from the two students:
From Student: Tajuana O.
Our text describes capitol budgeting as a process of identifying, evaluating, selecting and controlling an organization (Blocher, 2016). Again, we are discussing techniques that coincide into a relationship with strategic allocations of financial resources. One source describes strategic allocations as being the study of a process by which resources are allocated in a business, research on corporate capital allocation to divisions in a multibusiness firm and work that examines factors affecting specific types of resource allocation (Marita & Lee, 2017). The two techniques that I chose to discuss further with this particular relationship are Long-Range Plan in Correlation to Capital Budget and Short-Term Objective Goals in Correlation to Capital Budget.
Long-Range Plan
Our text describes a long-range plan as a plan that identifies actions required during the five to seven-year period covered by the plan to attain the organizations strategic goal (Blocher, 2016). This coincides with capital budgeting with the plan to finance major projects such as purchasing new equipment, construction of a new site/factory, and an addition of a new product (Blocher, 2016). Our text also states that capital budgeting prepares to bring an organizations’ capabilities into line with the needs of its long-range plan and long-term sales forecast (Blocher, 2016). With this technique, it’s clear to show how long-range plan and capital budgeting connect. You need to establish the capital budgeting for the company and map out the long-range plan. One source describes how the Long-Range Plan technique involves four key elements which are: strategic and comprehensive planning, needs assessment, long-term fiscal planning, and a capital improvement plan (Srithogrung, Yusuf, & Kriz, 2019). The source provides a chart which shows the correlation from the long-range plan moving into the idea of capital budgeting. As stated before, Capital budgeting helps to prepare the company for the long-range plan as well as the long-range plan prepping the company with the capital budgeting decision. Both concepts work hand in hand.
Short-Term Objective
The next technique I will discuss is the short-term objective in correlation with capital budgeting. Our text descries a short-term objective as goals for the coming period which can be a month, a quarter, a year or any length of time as established by the organization for their planning process (Blocher, 2016). Our text also describes how this technique is the basis for master budgeting which is the aggregation of all subunit budgets into an integrated plan of action for the budget period (Blocher, 2016). Our text also showcases a flowchart that shows how long-range plan flows into capital budgeting and short-term objectives. Capital budgeting flows into short-term objectives which then proceeds to go forward into master budgeting, controls and operations (Blocher, 2016). We know as stated before how capital budgeting controls decision controls the finances of a company. Short-term objectives coincide with capital budgeting by planning short-term goals for the company that go in correlation with the capital budgeting plan. Whether that may be making sure the company makes a certain amount in revenue for this month or making sure they stay on budget this quarter. This technique relates greatly to the concept of capital budgeting.
Conclusion
Both of the above techniques, long-term range plan and short-term objectives are both two techniques that flow right along with capital budgeting decisions. You can’t really function in one technique successfully without the idea of the other. Knowing your capital budgeting decisions for a company lets you know how to financially plan. When an organization has their short-term and long-term plans in place in reference to their finances, they will surely be on the proper road to success.
Bibliography
Blocher, E. J., Stout, D. E., Jaras, P. E., & Cokins, G. (2016).Cost Management(7thed.) New York, NY. McGraw and Hill.
Marita, C. A., Lee, G. K. (2017).Resource Allocation and Strategy. Vol. 43, No. 8. The Author (s). retrieved from sagepub.com/journalspermission.nav
Srithogrung, A., Yusum, J. E., & Kric, K. (2019). A Systematic Public Capital Management and Budgeting Process. In Srithogrung, A., Yusum, J. E., & Kric, K. (2019).Capital Management and Budgeting in the Public Sector. (pp. 1-22). Hershey, PA: IGI retrieved from digitalcommons@odu.edu
From Student: Jon C.
Monte Carlo Simulations
One way that an organization’s management deals with uncertainty in capital budgeting is through the use of various sensitivity analysis tools. Monte Carlo Simulation (MCS) is the most adaptable and most flexible of these tools. MCS is a variant of scenario analysis, except that it also includes each plausible scenario’s probability of occurrence when calculating its expected financial outcomes (Blocher, Stout, Juras, & Smith, 2019). MCS is “a computerized mathematical technique that provides a range of possible outcomes and their probabilities of occurrence†(Crum & Rayhorn, 2019, p. 29). This process was developed in the 1940s for use on the nuclear weapons development program known as the Manhattan Project and named after Monaco’s Monte Carlo Casino. Although MCS is frequently used in financial analysis and other business decision-making problems, its use is not limited to those areas. Situations in which some or all of the inputs can be best described by probability distributions are well-suited to MCS (Crum & Rayhorn, 2019). Typically, one MCS will include thousands or tens of thousands of iterations and will allow management to view a wide range of plausible scenarios and the predicted likelihood of each scenario’s occurrence. This aids management in capital budgeting by showing a comprehensive prediction of the outcomes of different capital expenditure scenarios. MCS is especially beneficial in risk analysis, as risk variables can be difficult to express in an absolute or linear fashion, but can often be expressed more accurately in a probability distribution (Kaczmarzyk, 2019).
Make-or-Buy and Lease-or-Buy Analysis
Organizations are often faced with the option of producing their own material components or purchasing them from a supplier. This is known as a make-or-buy decision. Similarly, a lease-or-buy decision involves an organization analyzing the decision to either lease required equipment or purchase it outright. Lease-or-buy decisions almost always involve capital expenditures for equipment necessary for production. Make-or-buy and lease-or-buy decisions are organizational sourcing problems and require similar financial analysis regardless of the resource involved (Blocher, Stout, Juras, & Smith, 2019). These decisions are components of the capital budgeting process. Make-or-buy decisions typically involve manufacturing components and so the decision to buy components or services instead of producing them can make for significant reductions in capital expenditures, though resulting in increased variable costs for the product (Woo-Yong, 2018). The decision to outsource services is also a make-or-buy decision. Many organizations utilize buy strategies (outsourcing) to manage various aspects of their supply chain, especially logistics (shipping and delivery) services. Organizations will tend to leverage delivery services unless they have special delivery needs or find it economically viable to handle their logistics in-house (Blocher, Stout, Juras, & Smith, 2019).
References
Blocher, E. J., Stout, D. E., Juras, P. E., & Smith, S. D. (2019). Cost Management: A Strategic Emphasis (8th ed.). New York: McGraw-Hill Education.
Crum, M., & Rayhorn, C. (2019). Using Monte Carlo simulation for pro forma financial statements. Journal of Accounting and Finance, 19(5), 29-40. doi:10.33423/jaf.v19i5.2248
Kaczmarzyk, J. (2019). Several sets of assumptions for the Monte Carlo simulation for a more precise analysis of enterprise risk. Econometrics, 23(4), 80-95. doi:10.15611/eada.2019.4.06
Woo-Yong, P. (2018). Managing hazards of the make-buy decision in the face of radical technological change. Industrial Management & Data Systems, 118(7), 1345-1364. doi:10.1108/IMDS-12-2016-0542
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