Budgeting and strategy
A Kraft Foods UK case study

Page 0: Introduction

Kraft is the world's second largest food company, employing 110,000 staff in 60 countries. The company originated in Chicago as a wholesale cheese business in 1903. Since then it has experienced continual growth by merging (joining together) with and acquiring (taking over) other businesses. Today it has a range of powerbrands that are household names. For example:Kraft Inc is a public company...
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Page 1: What is a budget?

A budget is a financial plan that sets out, using figures, an organisation's expected future results. For planning purposes, organisations can use many different types of budgets. For example: Income and expenditure budgets. These show how much an organisation expects to receive and to spend in future periods. Production budgets. These set out how much an organisation must produce in coming...
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Page 2: Kraft´s income and expenses budget

A typical budget: relates to a defined time period (usually twelve months) is designed and approved well in advance of the period to which it relates shows expected income and expenditure - income is the amount of money a business receives from its sales. includes all capital expenses likely to be incurred in furthering the organisation's objectives - expenses are the costs incurred in order...
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Page 3: The importance of feedback

The budgeting process is a cycle of ongoing review and monitoring. Every month, Kraft uses variance analysis to identify deviations within the monthly result. A variance is the difference between the budgeted figure and the actual figure. Variances can be favourable or adverse. For example, if actual sales income was greater than budget, this would be a favourable variance. On the other hand...
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Page 4: Constructing an expense budget

Each cost centre budget is seen as part of an overall plan designed to meet company objectives. Constructing cost centres' individual budgets involves detailed consultation about company objectives, marketing objectives and relevant income and expense projections. These can be brought into line and match changes in the external business environment. Using this as a basis it is a reasonably...
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Page 5: Advantages and disadvantages of expense budgeting

Budgeting provides organisations with detailed analysis of future and current proposed spending patterns, enabling much better control (by responding to variances). Performance can be analysed quantitatively (in numbers), making it possible to measure financial success. Measurement of results can serve as a motivational tool for many employees. Budget analysis also makes it possible to identify...
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Page 6: Alternative types of budgeting

There are a number of budgeting types to choose from. Kraft uses a mix of the following. i. Zero based budgeting In a dynamic business it often makes sense to 'start afresh' when developing a budget rather than basing ideas too much on past performance. This is appropriate to Kraft because the organisation is continually seeking to innovate. Each budget is therefore constructed without much...
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Page 7: Conclusion

The world food market is dynamic and highly competitive. To succeed, Kraft recognises the need to build in flexibility that enables it to seize appropriate opportunities into its planning activities. Kraft's budgeting process is based on consensus, and shared understandings. By using rigorous but flexible budgeting arrangements the various components of Kraft are best able to contribute in a...
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