Google Inc Budget Analysis

Google, Inc. like any other business will benefit from a plan that will quantify their organizational goals. This plan otherwise called a budget will reflect Google's expectations in matters relating to advertising revenue, cost of revenue, research and development, sales and marketing, general and administrative costs, investment and acquisitions, cash flow, and a myriad of other transactions. As a Pro Forma tool for planning and control, a period is determined, usually a year, at the end of which, Google's management can measure its performance against the budget and plan for future improvement. (Seigel, Dauber, & Shim, 2008, p. 299) Budgets also help communication and cooperation between Google's departments by allowing everyone to keep focused on management's organizational goals.

There are several types of budgets available to Google's management team. Which ones Google uses and benefits the most from, depends on how they wish to manage their money. Google has identified trends in the areas relevant to growth in company revenues. Google's ads on their own websites and Network Member websites account for 97% of their revenue. (Google Inc. June 30, 2011 Quarterly Report, 2011, p. 23) Google will concentrate on AdWord and Adsense for ad revenue. They will continue to invest in systems, data centers, corporate facilities; IT, infrastructure, advertising programs and their employees (Google Inc. June 30, 2011 Quarterly Report, 2011, p. 25) Google will continue to expand their international markets were revenue is strong. (Google Inc. June 30, 2011 Quarterly Report, 2011, p. 25) This will require continued participation in foreign exchange risk management. Hence any budget that can address areas that Google will see volatile growth like revenues and expenses or areas of heavy interest like infrastructure, employees and patent acquisitions, will benefit Google management achieve organizational goals.

MASTER BUDGET

I believe Google's management will benefit most by focusing on a Comprehensive or Master Budget plan made up of individual budgets annunciated in the June 30, 2011 Quarterly Report. (Google Inc. June 30, 2011 Quarterly Report, 2011) A Master budget is a set of Pro Forma financial statements for Google, Inc. (Shim & Siegel, 2010) Google's Operating budget is made up individual budgets including revenue, cost of revenue, research and development, sales and marketing, general and administrative expenses, interest and other income, litigation, stock-based compensation, income taxes, liquidity and capital resources, and acquisition and mergers. Revenue tends to drive these budgets. A master budget will tie all of these budgets together ensuring that organizational goals are connected to department planning. Google has focused "Management's Discussion and Analysis of Financial Condition and Results of Operations" from 10K and 10Q reports on these individual topics. (Google Inc. June 30, 2011 Quarterly Report, 2011, pp. 23-34)

REVENUE BUDGET

Typically, a Master budget will begin with a revenue forecast and proceed through revenue and expense budgets. (Walther, 2010) Table 1 indicates revenue growth rates over the last 10 quarters. Google believes they will not be able to sustain these growth rates. (Google Inc. June 30, 2011 Quarterly Report, 2011, p. 25) A revenue budget allows Google management to determine operational parameters for individual revenue sources as well as other types of budgets like cost of revenue that is included in the Master budget. For example, the future for Google website revenue based on its percentage of total revenues in past quarters will help in making a budget. Management can analyze trends in pay-for-click totals and averages, auction performance, and Network Members performance. Revenue margins from Network member websites is considerably lower than Google's own website. Opportunities to adjust individual budgets based on margins and revenues are possible.

Table 1

Source: 2011 Google, Inc. Financial Tables

COST OF REVENUES BUDGET

Traffic acquisition costs determine Cost of revenues. (Google Inc. June 30, 2011 Quarterly Report, 2011, pp. 28-29) A Cost of revenue budget like a cost of goods budget will focus organizational goals to consider traffic acquisition costs like Adsense reimbursements and revenue share arrangements can be managed Broken down further are costs of revenue that include data centers, systems, corporate facilities, IT, infrastructure and employees. Table 2 refers to cost of revenue growth and percentage of sales. Google expects to see these costs of revenue increase in future periods. (Google Inc. June 30, 2011 Quarterly Report, 2011, pp. 29-30) Google plans to make investments in these areas. (Google Inc. June 30, 2011 Quarterly Report, 2011, p. 25)

Table 2

(Google

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