Summary Outlining the Priority Resource Budgeting (PRB) Solution
The Gaylord division of Americhem has been using the traditional model of budgeting. A few of the managers believe that this model is not the best when it comes to the management of overhead costs. In recent years, budgeting has been a straightforward process in the department and there is need to adjust to the PRB model to suit the objectives of overhead costs management. The secondary objective was to regulate the amount of expenditure regarded as overhead or additional (Garvin, 2015).
One clear aspect of the PRB model is the ranking of the budgetary allocation based on the importance it has to the division. It is important to note that a majority of the incremental overhead costs result from the dummy departmental activities, which are often outside the main and course and scope of the projects undertaken. Through the ranking of the priorities of the departmental activities, resources will be allocated to the most important activities of the division, which often have a low number of dummy or overhead activities. After an identification of the activities on the critical path of the network, the management has to determine the budgetary allocation per head or per unit in the division.
In an extract of the PRB model, R&D management costs 7.96 dollars per head and the cumulative costs sum up to an approximate 58 dollars. Here, the cost per head is important in the sense that each division can determine whether the overhead costs emanate from the particular unit or the cumulative expensive. The extract also shows the priority ranking of the division with R&D management at rank 65 and other elements follow in the succeeding ranks. Here, the resources will be allocated based on the ranking of each of the elements.
Comparison of the PBR Model with the Traditional Budgeting Model
The PRB and the traditional budgeting models are distinctive. First, the PRB model is an innovative and creative process that enabled the organizations to reassess some of their priorities to make sound, informed, and long-term funding and business decisions. The PRB model is an approach that enables the organizations to assess their fiscal state and financial situations based on the analysis of their prioritized operations. The model allows organizations to determine the various approaches of matching their resources with the organizational and communal priorities under social responsibility. The PRB is a process that engages the employees and the other organizational stakeholders in the process if budgeting. One distinctive and contrasting element of the two budgeting models is that the traditional budgeting model often is time consuming and consumes too much of the management resources.
Nevertheless, despite this contrast, both budgeting models accommodate the need for decentralization. That is, some organizations, such as the financial institutions understand the need and the benefits for the decentralization while maintaining the standard procedures of operations. For this reason, the two models offer the cost centers of budgeting that allow the managers to run operations aimed at meeting the set objectives and parameters. Nevertheless, the traditional model, unlike the PRB model has lower change responsiveness. Most of the business organizations have annual budgeting cycles that make the budgets obsolete often. As such, the use of the traditional model means that the budget reviews take longer than required. For this reason, the time lost during the budget reviews defeat the purpose of the adaptation of the anticipated changes within an organization.
Garvin, D. A. (2015). Americhem: The Gaylord Division (A-1). Harvard Business School.