CIMA P1 Syllabus B. Budgeting - The Concepts Of Feedback - Notes ^{4 / 7}

Feedback

is the process of reporting back control information to management
 
In a business organisation, it is information produced from within the organisation (management control reports) with the purpose of helping management and other employees with control decisions.

• Single loop feedback, normally expressed as feedback. 

  is the feedback relatively small variations between actual and plan.

  This implies that the existing plans will not change.

• Double loop feedback, also known as higher level feedback

  ensures that plans, budgets, organisational structures and the control systems themselves are revised to meet changes in conditions.

The elements in the control cycle

1. Plans and targets are set for the future 

   These could be long-, medium- or short-term plans. 

   Examples include budgets, profit targets and standard costs.

2. Plans are put into operation 

   As a consequence, materials and labour are used, and other expenses are incurred.

3. Actual results are recorded and analysed

4. Information about actual results is fed back to the management concerned, often in the form of accounting reports. 

   This reported information is feedback

5. The feedback is used by management to compare actual results with the plan or targets (what should be or should have been achieved).

6. By comparing actual and planned results, management can then do one of three things, depending on how they see the situation.

Feedforward Control

Is the comparison of forecast results with planned outcomes

• Basically, we will carry out a forecast to correct unfavourable results before they actually happen.

• e.g. We may carry out a forecast for the end of the year based on the first 3 months of operation, and discover material costs are outside the budgeted amount.

  Therefore, we can take action to reduce costs and ensure the budgeted targets are achieved.