Budgeting with the Porfolio Theory

Portfolio theory is a budget approach that involves organizing budget activities into a portfolio and comparing portfolios to maximize its effectiveness. By creating a portfolio, budget activities can be evaluated not only by their own merits but also by way of interaction. The weighted average of the expected returns provides the overall revenue of the portfolio while checking the covariance of activities within the portfolio to show the overall difference or risk of the portfolio.

The purpose of this white paper is to critically evaluate two business management approaches: excess budget and over budget. In addition, we explain the use of empirical evidence and various motivational theories to determine the best way for accounting managers to set budgets.

For organizations, members of the Budget Committee are very responsible because the budget is usually the responsibility of the Budget Committee (MWEGlautier and B. Underrun. (1997) Accounting Theory and Practice, p. 533, 6 edition, UK: PITMAN Press) is important. For example, in the sales budget process, the marketing department deliberately underestimates future sales and as a result may contribute to performance evaluation. However, if you underestimate sales, production will decrease correspondingly, so production can not reach the most efficient state. As another example, some sectors may meet the cost to earn more budget funds, which is useless. Therefore, the budget committee consists of important department managers, and some senior managers should be leaders. (Colin Drury. (2008) Management and Cost Accounting, p 357, 7th edition, China: GENGAGE Learning)

The budget process involves all departments within the organization. Teamwork is necessary to achieve the budget. In other words, the budget helps to coordinate between departments, realizing efficiency and productivity. Indirect budgeting process can improve labor relations. It serves as an adjustment between top management and low leverage in the media and organization. By budget, management can monitor, manage and direct activities within the company. The administrator can compare the budget plan with the actual result and point out the bias. Surveys and corrective measures will be taken. Therefore, management can recognize problems faced by lower layers. You can take early action before the result gets worse