Critically evaluate the current systems of performance measurement, management reporting and budgeting at We Build Ltd. and highlight what you consider to be the problems of the system.

Performance Management and control

Project and operational budgets are developed by the employment of a top-down approach within the company. Little input is received in the budgeting process from employees whose performance is based on adherence to said budgetary constraints. Steve believes that this scheme is necessary considering the nature of the unskilled laborers working for We Build Ltd. and the specialised knowledge that is needed to formulate a budget.
Recently, Steve has been finding the budgeting exercise time-consuming and feeling that he is unable to control the variances despite having the figures to show for them as the variances are beyond his control or the analysis is too outdated for corrective action to be taken. He is also concerned about the quality of the work that is carried out by the project managers. A few clients have requested minute adjustments following job completion, stating that the job specifications were not met. Steve wonders if project managers compromise on quality to meet the budget expectations.
Working on the premise that performance measurement is central to management control, you are required to read the above scenario and, assuming a role of a financial controller, prepare a report for Steve Wilson which deals with the following requirements:
1) Critically evaluate the current systems of performance measurement, management reporting and budgeting at We Build Ltd. and highlight what you consider to be the problems of the system.
2) Using the operational budget given in Exhibit 2 of the case study, create a flexible budget using actual activity levels and analyse the variances.
3) Describe in detail how you consider the systems might be improved considering the challenges the company is facing.