Controlling a budget.IntroductionBudgetary 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 Definition Budgetary control is the comparing of actual costs, revenues and performances against those forecast in the set budget, and the authorising of corrective action A corrective action is a change implemented to address a weakness identified in a management system. Normally corrective actions are instigated in response to a customer complaint, abnormal levels if internal nonconformity, nonconformities identified during an internal audit or to stay on budget. Action checklist 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 Stakeholders All parties that have an interest, financial or otherwise, in a firm-stockholders, creditors, bondholders, employees, customers, management, the community, and the government. . 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: * weekly * monthly * quarterly. 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 won't Contraction of will not. won't will not won't will 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 The discrepancy between what a party to a lawsuit alleges will be proved in pleadings and what the party actually proves at trial. In Zoning law, an official permit to use property in a manner that departs from the way in which other property in the same locality 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 don't 1. Contraction of do not. 2. Nonstandard Contraction of does not. n. A statement of what should not be done: a list of the dos and don'ts. assume a positive variance is a good thing Analyse an·a·lyse v. Chiefly British Variant of analyze. analyse or US -lyze Verb [-lysing, -lysed] or -lyzing, any variance--find out why it is happening and what effect it will have on the year's activity. Is it a one-off (1) One at a time. CD-ROM recorders (CD-R drives) are commonly called one-off machines because they write one CD-ROM at a time. (2) Only once. Software that is written to solve a specific problem only one time is sometimes called 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 you've Contraction of you have. you've you have you've have 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 up-to-the-min·ute adj. Constituting or including the very latest information: an up-to-the-minute news bulletin. up-to-the-minute Adjective 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 CIRCUMSTANCES, evidence. The particulars which accompany a fact. 2. The facts proved are either possible or impossible, ordinary and probable, or extraordinary and improbable, recent or ancient; they may have happened near us, or afar off; they are public or : * 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 Adj. 1. on-going - currently happening; "an ongoing economic crisis" ongoing current - occurring in or belonging to the present time; "current events"; "the current topic"; "current negotiations"; "current psychoanalytic theories"; "the ship's current position" 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 rash 1 adj. rash·er, rash·est 1. Characterized by or resulting from ill-considered haste or boldness. See Synonyms at reckless. 2. Archaic Quick in producing a strong or marked effect. , without thinking through all the implications * failing to involve others * ignoring or concealing con·ceal tr.v. con·cealed, con·ceal·ing, con·ceals To keep from being seen, found, observed, or discovered; hide. See Synonyms at hide1. any problems--they won't go away. Additional resources Books 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 Harvard Business School, officially named the Harvard Business School: George F. Baker Foundation, and also known as HBS, is one of the graduate schools of Harvard University. Press, 2003 Budgeting for non financial managers: how to master and maintain effective budgets, Iain Maitland London: Prentice Hall Prentice Hall is a leading educational publisher. It is an imprint of Pearson Education, Inc., based in Upper Saddle River, New Jersey, USA. Prentice Hall publishes print and digital content for the 6-12 and higher education market. History In 1913, law professor Dr. , 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 Internet Internet Publicly accessible computer network connecting many smaller networks from around the world. It grew out of a U.S. Defense Department program called ARPANET (Advanced Research Projects Agency Network), established in 1969 with connections between computers at the resources Business Link www.businesslink.gov.uk The main site contains a guide on budgeting, under Finance and Grants / Financial Planning Financial planning Evaluating the investing and financing options available to a firm. Planning includes attempting to make optimal decisions, projecting the consequences of these decisions for the firm in the form of a financial plan, and then comparing future performance against / Budgeting and Business Planning |
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