MPA 210 Lecture : Planning & Budgeting
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MPA 210 Lecture : Planning & Budgeting
- 1. Planning and Budgeting MPA 207 – PLANNING PROCESS GIOVANNIE R. DUCUSIN
- 2. Planning and Budgeting Planning and Budgeting is an analytical application that helps you set top-down targets and generate a bottom-up budget, which is at the foundation of your organization's operations.
- 3. Planning and Budgeting Planning and Budgeting enables different departments to use compatible tools based on the same assumptions. By delivering a shared business model with role-based access over the internet, every participant can interact with his or her portion of the business plan or budget at any time, from any global location.
- 4. Approaches to Planning All organizations plan; the only difference is their approach. Prior to starting a new strategic planning process it will be necessary to access the past planning approach that has been used within the organization and determine how the organization's cultural may have been affected. Addressing these cultural issues is critical to the success of the current planning process.
- 5. Approaches to Planning Reactive - past oriented Reactive planning is an active attempt to turn back the clock to the past. Inactive - present oriented Inactive planning is an attempt to preserve the present, which is preferable to both the past and the future. While the present may have problems it is better than the past.
- 6. Approaches to Planning Preactive - predict the future Preactive planning is an attempt to predict the future and then to plan for that predicted future. Proactive - create the future Proactive planning involves designing a desired future and then inventing ways to create that future state.
- 7. Budget cycle in government BUDGET PREPARATION BUDGET LEGISLATION BUDGET EXECUTION BUDGET ACCOUNTABILITY
- 8. Budget cycle in government
- 9. Expenditure by class and object Expenditures are obligations that the government incurs that must be paid during or after the year when they were incurred. The term ”expenditure” is more generic than "expense" in that the latter refers to items of expenditure that are current.
- 10. Expenditure by class and object Expenditures are classified in various ways: 1. By expense class and object of expenditures; 2. By sector; 3. By recipient entities; 4. By region
- 11. Expenditure by class and object Expense class refers to the classification of expenditures by the nature or type of obligation. There are four expense classes: (a) Current Operating Expenditures (COE); (b) Capital Outlays (CO); (c) Net Lending; and (d) Debt Amortization.
- 12. Expenditure by class and object Under COE and CO are various objects of expenditures, which specify the types of expense that are incurred by an agency. The usual expense classes for the MOOE are: the intelligence fund (object code 200-19), travel (200-02), utilities such as communication services (200-03), repair and maintenance of government facilities (200-04), supplies and materials (200-07), supplies rents (200-08), water, illumination and power (200-14), gasoline, oil and lubricants (200-23). For CO, the more commonly-used objects of expenditures are land and land improvements (300-04), buildings and structures outlay (300-05), information technology equipment (300-38), and furniture fixtures, equipment and books outlays (300-36).
- 13. Budgeting structure Budget structure refers to the way in which a company's budget is organized. It includes both the overall organization of the budget and the specific formatting of individual budget items.
- 14. Budgeting structure There are two main aspects to consider when it comes to budget structure: ◦Organizational structure and ◦Budgetary line items.
- 15. Budgeting structure Budget structure is important because it can have a significant impact on a business' bottom line. A poorly structured budget can lead to overspending and wastefulness, while a well-structured budget can help a business to save money and be more efficient.
- 16. Budgeting process The budgeting process lets an organization plan and prepare its budgets for a set period. It involves reviewing past budgets, identifying and forecasting revenue for the coming period, and assigning amounts to spend on a company’s various costs.
- 17. 8 key budgeting process steps There is probably no one “right way” to create a business budget. But to guide you through the process, here are eight important steps to follow: ◦Review the previous period ◦Calculate existing revenue ◦Set out fixed costs ◦List variable costs
- 18. 8 key budgeting process steps ◦Forecast extra spending ◦Scrutinize cash flow ◦Make business decisions ◦Communicate it clearly
- 19. Thank you.
Editor's Notes
- It helps management evaluate business alternatives and set financial targets, and it enables the organization to work cooperatively and efficiently through the budgeting iterative process—reevaluating expenses and revenue estimates; changing start and end dates; and modifying objectives.
- You can respond quickly and efficiently to the changing business environment. Through what-if analysis and modeling, you can simulate headcount changes, expense control strategies, and capital investment plans before implementation. Marketing volatility and other deviations from the original plan can be handled proactively, in real time, rather than once a year. Use Planning and Budgeting to: Develop planning targets. Access and analyze historical and current data. Connect strategic objectives with daily processes. Link top-down targets with bottom-up budgets. Integrate and update financial statements as business conditions change. Conduct continuous forecasting. Perform real-time, multidimensional modeling of your planning and budgeting data. Like other PeopleSoft applications, Planning and Budgeting stores data in relational database tables. You can extract, view, analyze, and modify this data and then move it back into the original tables. Understanding the concepts behind this process—and the tools that help you manipulate the data—helps you perform your role in the planning and budgeting process at your organization.
- Reactive - past oriented The past, no matter how bad, is preferable to the present. And definitely better than the future will be. The past is romanticized and there is a desire to return to the "good old days." These people seek to undo the change that has created the present, and they fear the future, which they attempt to prevent. Inactive - present oriented The expectation is that things are as good as they are likely to get and the future will only be worse. Any additional change is likely to be for the worse and should therefore be avoided.
- Preactive - predict the future Technological change is seen as the driving force bringing about the future, which will be better than the present or the past. The planning process will seek to position the organization to take advantage of the change that is happening around them. Proactive - create the future Not only is the future a preferred state, but the organization can actively control the outcome. Planners actively shape the future, rather than just trying to get ahead of events outside of their control. The predicted changes of the preactive planner are seen not as absolute constraints, but as obstacles that can be addressed and overcome.
- Current Operating Expenditures (COE) are amounts budgeted for the purchase of goods and services for normal government operations within the budget year. These cover Personal Services (PS) and Maintenance and Other Operating Expenses (MOOE). PS refer to the provisions for the payment of salaries, wages and other compensation/benefits. They cover permanent, temporary, contractual and casual employees of the government. MOOE refers to recurring expenses to cover day-to-day requirements of agencies to carry out their regular operations. Capital Outlays (CO) are appropriations for goods and services, the benefits of which extend beyond the budget year and which add to the assets of the government. They cover investments in the capital stock of government-owned and controlled corporations and their subsidiaries, as well as loan outlays and investments in public utilities. Net Lending refers to net advances by the National Government for the servicing of government-guaranteed corporate debt. It covers NG loan outlays to government corporations. Debt Amortization refers to the sum of principal repayments for loans payable by regular installments. It also refers to the annual contribution to the debt sinking fund for debts payable only upon maturity.
- Organizational structure refers to the way in which the budget is organized as a whole. This includes the order in which budget items are listed and how they are grouped together. Budgetary line items refer to the specific details of each budget item, such as the name, description, and amount.
- 2. How to Create a Budget Structure There are a few key things to keep in mind when creating a budget structure. First, it's important to ensure that the organizational structure is clear and easy to follow. This will make it easier for people to understand and use the budget. Second, make sure that all budgetary line items are clearly labeled and easy to read. This will help people to quickly find the information they need. Finally, try to keep the overall structure as simple as possible. This will make it easier for people to navigate and use the budget effectively. 3. Why Is a Budget Structure Important? Budget structure is important because it can have a significant impact on a business' bottom line. A poorly structured budget can lead to overspending and wastefulness, while a well-structured budget can help a business to save money and be more efficient. 4. How Can You Create A Strong Budget Structure? There are a few key things to keep in mind when creating a strong budget structure. First, make sure that your overall organization is clear and easy to follow. Second, format individual budget items in a way that makes them easy to understand and compare. Finally, be sure to review your budget regularly to ensure that it remains accurate and up-to-date.
- When done well, the process involves input from senior management, your finance team, and budget managers across the organization. Think of your budget as putting your business plan into action. You’ve set priorities and goals for the company in the coming year, and the budget allocates financial resources to achieving these.
- 1. Review the previous period The starting point should always be to look over the existing information you have to hand. And in this case, the best evidence for how your new budget should play out is the previous one. A few questions to consider: Did you spend more or less than anticipated? Were your assumptions about the industry and your own growth accurate? Were there unexpected hurdles or shortfalls, and what caused these? Was the budget easy to enforce? Did team members follow it? You should do this at a high level for the entire company, and you should also encourage individual budget managers (if you have them) to do the same for their own scopes. Also critical in this step is to consult other team leaders. As we’ll see, the best budgets are collaborative, and you need to know how well the previous budget worked for everyone affected. 2. Calculate existing revenue The most obvious starting point for any budgeting exercise is to figure out how much you have to spend. This will involve other costs, of course, but we’ll come to these next. At the company level, you need to identify income streams. How much money are you making gross? List your core products, their pricing, and the expected volumes for each in the coming year. Naturally, this involves some estimates and won’t be perfect. For startups that aren’t yet profitable (or don’t have paying customers at all), you’ll be spending investor capital or venture debt. So for this stage, you need to identify the “burn rate” you’re comfortable with - how much of the total investment you’re able to commit for each period of time. 3. Set out fixed costs Fixed costs - often called “overheads” - are those over which you have little control. Most importantly, they’re not impacted by your sales - whether the business succeeds or not won’t have any effect on the amount you pay. Fixed costs can include: Rent or mortgage payments for office space Website hosting and servers Employee salaries Insurance Interest on loans Utilities (Such as electricity and internet) Assuming you know your employee headcount for the year, and have your office space and insurance sorted, you can comfortably plan for these costs. As part of this process, it’s worth understanding key payroll terminology so that you don’t let your misconceptions or a lack of experience trip you up, especially when it comes to assessing staffing costs. 4. Add variable costs Variable costs are usually thought of as discretionary expenses. As opposed to fixed costs, these are more fluid and can be tinkered with. Examples of discretionary expenses include: Marketing and advertising Corporate investments and donations Software subscriptions, particularly where they aren’t critical to running the business Travel and client meetings Team perks Office decor and renovations Business tablets, laptops, mobile phones, and other hardware “Discretionary” doesn’t mean that these costs are frivolous or unnecessary. A business won’t grow without marketing, and team perks can be a key contributor to keeping employees happy for longer. But when building a business budget, these costs have to be justified more critically. And when you’re in danger of going over budget, variable costs are usually the first to be cut.
- 5. Forecast additional spending Are there any one-off expenses on the horizon? These can include a serious merger or acquisition, consultant help to prepare for audit, or even a special event or party that doesn’t come around often. If possible, try to set out these irregular expenses separately in your budget. You certainly need to account for them in your spending, but they won’t be a core piece for years to come. You might also consider a “rainy day fund.” Because the only certainty is uncertainty, it pays to have some portion of your budget set aside in case unexpected events occur and you need a safety net. 6. Scrutinize cash flow This is where the budget analysis starts. You should now have a clear record of expected revenue and expenses, and hopefully you even have a record of these for the previous period. Was your spending as expected? Did you have consistent revenue across the last year, or can you spot seasonal effects? “Cash flow” refers to the relationship between money coming in and going out. You want to know that you’re spending money you’ve budgeted for, and that income dips you can update your expenses to match. Look for clear indicators that certain parts of your budget might need extra attention. You want to know the particular aspects of your business that impact the budget most heavily, and be prepared to adjust accordingly. 7. Make business decisions Naturally, you now need to use all of the analysis and preparation you’ve done. And that means forming a clear spending plan for the future. Google Sheets has a great annual budget template, and The Balance has this very simple one. Download these free marketing budget templates. Of course, the hardest part of the whole process is deciding which projects or priorities get funding, and which don’t. This can be stressful, and we’ve included some best practices below to help. Most important is to try to remain consultative throughout - gather input and rely on the expertise of your skilled team members to guide you. You’ll almost certainly make updates and changes throughout the year, so it’s important to rely on the data you have today, and to not get too bogged down. 8. Communicate it clearly The final step is to share the budget with your teams and make sure they know what’s required of them. Chances are you’ll rely on many team leads to handle their own costs, and they need to have the tools and expectations to do this well. Does everyone involved know how much they’re allowed to spend, and on what? And do they also know how to report their spending as they go? If you can’t answer “yes” to both of those, you’ll likely struggle to adequately track and measure the effectiveness of your budget. And then there’s the messaging. For many governments, “budget day” is the biggest day of the year. There’s a reason why political leaders take the messaging so seriously. And while you don’t need to go overboard, it makes sense to get your communication right too.