The Estée Lauder Companies Inc.: Budget Planning and Control

Introduction

The Estée Lauder Companies Inc. is an international manufacturer and distributor of high-end skincare, hair care products, fragrance and makeup (Estée Lauder Companies, 2015). Established in 1946, the company operates in 150 countries with over 25 prestigious brands. In 2014, the company had annual sales of more than $10.9 billion (Estée Lauder Companies, 2015). Since the company has operates in over 150 countries, it requires budget planning and control. One of the reasons why Estée Lauder Inc. should develop and manage a budget is to ensure that it maintains fiscal control over its operations (Tănase, 2013). This is necessary given that the marketing and distribution company has a lot of financial needs. The second reason is to encourage effective ways to deal with financial issues. This is necessary especially when the company needs to expand its operations into new markets. For instance, while expanding to new markets, budgeting can assist Estée Lauder Inc. determine its financial position or whether to fund its expansion or it seek out other sources of funding (Tănase, 2013; Hope & Fraser, 2003).

Positive and Negative Financial Outcomes for Estée Lauder

Positive Outcomes Negative Outcomes
-By creating a financial roadmaps, effective budgeting enable the company enable a company realize its financial goals
-it would enhance the company to operate within its budgets, hence less expenditures
– improper budgeting is to hinder the company from achieving its financial goals
-Results to increased financial expenditures because the company does not operate within its financial means.

High-Level Budget Plan for the Estée Lauder

High-level budget provides an estimate of the total expenditure expected of a company to finance its projects. It also acts as a foundation for allocating funds to support the project. In the case of the Estée Lauder, high-level budget is necessary as it would act as a preliminary estimate for a project. The detailed budget estimate is created during the Plan Stage where more detail about the project are available (Radtke & Anderson, 2012; Hope & Fraser, 2003). This is to be used for the execution of the project. The first consideration is the resources needed, objectives of the high level budget, the timeframe of the project, milestones and deliverables.

The most appropriate budgeting phases in high-level budget plan in the case of the company is forecasting stage. According to Radtke and Anderson (2012), in accounting principles, forecasting in budgeting enables a company to project its expected budget in terms of costs and revenue generated. For instance, through the use of top-down forecasting, the Estée Lauder would focus on current demand and operational conditions converted into revenue predations.

Methods and Techniques for Budget Management by Estée Lauder

For an organization like Estée Lauder, budget management is very important because budgets are bound to change. The two most appropriate methods and techniques for budget management that could be applied to the case are: (1) the incremental approach and (2) the zero-based approach.

The incremental approach

Incremental budgeting according to ACCA (2015) “is the traditional budgeting method whereby the budget is prepared by taking the current period’s budget or actual performance as a base, with incremental amounts then being added for the new budget period” (p. 1). It considers aspects such as inflation and planned increases in sales prices and costs. This is appropriate for the company as it would ensure that any changes are incorporated during the budgeting process. The Zero-based budgeting (ZBB) is a budgeting process that begins from a base of zero (ACCA, 2015). In other words, no actual performances or prior budgets are considered. Zero-based budgeting is used to realize the optimal allocation of resources to most needed areas. It is appropriate for Estée Lauder as it would require the managers to justify all the expenses or activities because a budget could be allocated.

An Action Plan

Objective Action(s) Description Priority Leader Deliverables Deadline
To determine the causes of the budget variances Have a financial meeting to analyze the current budget H Accountants, financial managers and auditors Evaluation and analysis of the company’s budget Sep-15
To determine the financial effect of the misalignment Discuss the effects on the budget misalignment M Accountants and auditors Hold meetings Nov-15
To formulate new budget plan based on new solutions All staff in finance department deliberate on the issue M Accountants and auditors Brainstorm and deliberate on the solutions to an effective budget Dec-15
To implement the budget to ensure All staff in finance and accounting department H Management -Improved the budget variances are solved.
-Effective budgeting for the company
15-Feb

The most appropriate budgeting technique that can be used to resolve the budget and actual discrepancies is through the use of the zero-based approach. This is because the approach ensures that resources are effectively allocated (ACCA, 2015). It also ensures that all the expenses are justified by managers during the budget planning stage. This method addresses all budget variances which may cause financial misalignment.

Conclusion

In conclusion, effective budgeting systems are necessary in the case of Estée Lauder as they enable control and provide a financial path for the company. Both incremental and zero-based approach could be applied in the case of the company. However, in case of financial misalignment, the zero-based approach is most appropriate one.

References

ACCA. (2015). Comparing budgeting techniques. Web.

Estée Lauder Companies. (2015). Estée Lauder Companies. Web.

Hope, J., & Fraser, R. (2003). Beyond budgeting: How managers can break free from the annual performance trap. Boston: Harvard Business School Press.

Radtke, J., & Anderson, R. (2012). What is the point of Planning, Budgeting and Forecasting? Web.

Tănase, G. L. (2013). An overall analysis of participatory budgeting advantages and essential factors for an effective implementation in economic entities. Journal of Eastern Europe Research in Business and Economics.

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BusinessEssay. 2022. "The Estée Lauder Companies Inc.: Budget Planning and Control." November 25, 2022. https://business-essay.com/the-este-lauder-companies-inc-budget-planning-and-control/.

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BusinessEssay. "The Estée Lauder Companies Inc.: Budget Planning and Control." November 25, 2022. https://business-essay.com/the-este-lauder-companies-inc-budget-planning-and-control/.