Controlling a budget.
Budgetary control is at the heart of many managers' jobs. The skills of budgetary control are increasingly valued in organisations, and the ability to control a budget is now considered an important attribute for managers. It helps with monitoring organisational and team performance, gives managers a clear idea of their department's financial position and gives information on which to base action.
The mixture of skills for controlling budgets includes gathering and using information; setting up early warning systems; taking decisions and monitoring results.
This checklist is for all managers who have budgetary responsibility.
National Occupational Standards for Management and Leadership
This checklist has relevance to the following standards:
E: using resources, units 1, 2
Budgetary control is the comparing of actual costs, revenues and performances against those forecast in the set budget, and the authorising of corrective action to stay on budget.
1. Understand the figures
Make sure that you understand how the figures in the budget are made up. You need to be clear about which figures you control and will be held responsible for, and which are out of your control. For instance, if staff costs are higher because you sanctioned too much overtime, you may be held responsible for that budget over-run; but if staff costs are higher because the union negotiated a pay rise that was higher than expected, you are unlikely to be held responsible for the over-run or to have any control over it.
You can only be directly responsible for budgetary elements that you control.
2. Speak to your accounts department
Find out what reports your accounts department can produce for you. This will save you extra work, provide you with accurate figures to work from and help you to keep in touch with accounts personnel--and this is important in itself, because accounts people are usually key organisational stakeholders.
3. Set up a monitoring/early warning system
A monitoring and early-warning system will help you keep track of your costs and income. A paper system (keeping a tally of the costs incurred and checking them at the end of the month) works well enough for small budgets, but bigger ones will require the use of relevant software and information systems, and even small ones will benefit from these, where available.
4. Decide on the appropriate time to monitor your budget
Choose a review time which fits in with the other commitments affecting your organisation or team, such as:
Stick to these review periods. It is important to get the time-scale right: if you over-monitor, you waste time; but if you under-monitor, you won't stay in control of things.
5. Identify variances
Use the information that you collect to identify variances from your original budget--both positive and negative. A negative variance means you have spent more than you planned--so you will need to look hard at the effect this will have on the year's performance, and review your plans. A positive variance will mean you have under-spent.
6. Don't assume a positive variance is a good thing
Analyse any variance--find out why it is happening and what effect it will have on the year's activity. Is it a one-off payment that has not been invoiced (that is, a blip rather than a trend)? Is it a surprising drop in interest rates (and will it continue)? Are you not carrying out the marketing activities you planned? Have you failed to recruit a key member of staff?
7. Tell the right people
If you find you have a problem, get information about it to the right people. For instance talk to:
* your boss
* your company accountant
* your team.
People often won't know there's a problem until you tell them. And you can't take any action until you've told everyone who needs to know about it. But remember, the communication process is two-way, and your team members may also be able to give early warnings of problems. Discuss the variances with your team and find out why they happened. They may have up-to-the-minute information on why things went wrong.
8. Now act
There is a range of options you might take at the end of the monitoring process, depending on the circumstances:
* do nothing if you anticipate that the budget will come back into line - but make sure you can prove this, and review your monitoring period to ensure that what you expect happens
* prepare a forecast (or revise your existing forecast) on where you expect to be, compared to your budget
* suggest corrective action to bring your budget back into line with the original budget. For instance, cut back on costs, try to increase sales, or put in a bid for under-spends elsewhere.
Once you have decided what to do, make sure that all the right people know about your plans, understand them, and have had time to comment, if necessary. Then, be seen to act!
9. Keep monitoring the budget
Monitoring is an on-going process. Don't assume that, because you've put one problem right, there will never be another. Keep monitoring the budget to make sure it stays in line, or doesn't get further out of control.
10. Communicate any changes
If you have needed to change your forecasts, tell all the budget stakeholders--especially if they have to implement related changes.
Managers should avoid:
* acting rashly, without thinking through all the implications
* failing to involve others
* ignoring or concealing any problems--they won't go away.
Get to grips with budgets: how to take the stress out of working with numbers
London: Bloomsbury, 2005
Beyond budgeting: how managers can break free from the annual performance trap, Jeremy Hope
Boston Mass: Harvard Business School Press, 2003
Budgeting for non financial managers: how to master and maintain effective budgets, Iain Maitland
London: Prentice Hall, 2000
Managing budgets, Stephen Brookson
London: Dorling Kindersley, 2000
This is a selection of books available for loan to members from the Management Information Centre. More information at: www.managers.org.uk/mic
Business Link www.businesslink.gov.uk The main site contains a guide on budgeting, under Finance and Grants / Financial Planning / Budgeting and Business Planning
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|Title Annotation:||Checklist 043|
|Publication:||Chartered Management Institute: Checklists: Managing Information and Finance|
|Date:||Jun 1, 2006|
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