Real World†9.3 and Real World†9.5 both suggest that the figures that appear in budgets seem not actually to occur. Is this feature a problem in trying to control the various aspects of the business through variance analysis?

Data from Real world 9.3

It’s the kind of financial headache that would have driven Phil and Grant Mitchell to angry showdowns in the Queen Vic. An ambitious BBC plan to rebuild the familiar set of EastEnders will cost £27 million more than expected, a report by Whitehall’s spending watchdog has found. The renowned 34-year-old set of an east London square, set in the fictional borough of Walford, was supposed to be reconstructed and expanded for £59 million. But a report released today by the National Audit Office (NAO) has found that work on the plot is forecast to cost the public broadcaster £86 million and will be completed two and a half years later than planned.

Problems with the set in Elstree, Hertfordshire, stemmed from the BBC’s lack of expertise, overoptimism regarding costs and delays in construction, which had led to a 45 per cent budget increase for the project, auditors found. The report found that because of the shabby nature of the set, the BBC delayed plans to film the soap in high definition, which would have exposed its many faults.

Auditors concluded that the BBC could not provide value for money on the project, which is called E20 after Walford’s fictional postcode.

In 2015, the rebuild – using real brickwork to create the set rather than facades – was estimated to cost £59 million, and the project was to be completed by August this year. A budget was then approved for the increased amount of £62 million, and a delay of 26 months forecast in 2016.

Data from Real world 9.4

Budgeting in practice

 

A survey of 41 UK manufacturing businesses found that 40 of the 41 surveyed prepared budgets.

Source: Dugdale, D., Jones, C. and Green, S. (2006) Contemporary Management Accounting Practices in UK Manufacturing, CIMA Research Publication, vol. 1, no. 13.

Another survey of UK businesses, but this time those involved in the food and drink sector, found that virtually all used budgets.

Source: Abdel-Kader, M. and Luther, R. (2004) An Empirical Investigation of the Evolution of Management Accounting Practices, Working paper no. 04/06, University of Essex, October.

A survey of the opinions of senior finance staff at 340 businesses of various sizes and operating in a wide range of industries in North America revealed that 97 per cent of those businesses had a formal budgeting process.

Source: BPM Forum (2008) ‘Perfect how you project’.