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McGraw-Hill - Briefcase Books - Budgeting for Managers, SAMOKSZTAŁCENIE, Mcgraw-Hill [Briefcase Books]

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Budgeting:
Why and How
isfy the financial department. Planning and budgeting can
help us lead our team to success. Sometimes, when we write a
plan, we catch errors. It’s a lot better to catch errors in a plan
than to have problems later on in the office or on the shop floor
because you didn’t catch the errors. In fact, it’s been shown that
good planning will typically reduce the costs of a project by
about a factor of 10.
In this chapter, you will learn how to create a simple
expense budget. There’s a lot here, but don’t worry. Every idea
in this chapter will be explained further on in the book in more
detail. Our goal for this chapter is to create a simple success
together: your first budget. Let’s go!
1
Act before there is a problem.
Bring order before there is disorder.
—Lao Tzu
B
udgeting is more than just a job we have to get done to sat-
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2
Budgeting for Managers
Plan
A written document describing what you are going
to do to achieve a goal. It usually includes the steps
involved and a timeline for completion.
Budget
A plan that includes the money you will spend and when you
will spend it. In addition to expenses, a budget can also include
income.
Team
The people who work with or under you to achieve a goal you
all share. It doesn’t matter if your organization calls them a team, a
department, or anything else.What matters is that you will support
and guide these people, all of you will work together, and all of you
will deliver the results the organization wants.
Why Make a Budget? Who Reads Budgets?
There are several good reasons to create a budget and to make
it a good one. The reasons are tied to the people who will read
and use the budget. Each reader will look at the budget in a dif-
ferent way and do something different with it. If you know your
readers, you can make a budget that will impress everyone—
and, more important, show how your group is contributing to
the organization and therefore approve the funds you need to
proceed. If you know how the budget will be used, you will
know how to write it in an easy-to-use way. More important, it
will help you succeed and show that you are a good manager
and that your team is doing a good job. So, let’s take a look at
your audiences and what they will do with your budget.
You and Your Team
You and your team are your first, and most important, audience
for your work plans and your budget. When you read the budg-
et, you want it to make sense. This means that you understand
it, of course, but it means more than that. The budget should be
believable and workable and it should work the way your team
works and be appropriate to your situation.
Your Boss
Your boss is your second audience. Of course, you want the
budget to be correct, clear, and complete for him or her. If your
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Budgeting: Why and How
3
boss checks your work
closely, you don’t want any
errors to show up. If your
boss doesn’t check it
closely, you certainly don’t
want the budget to go fur-
ther upstairs with mistakes
in it. Your boss will also
check the totals of the
budget against available
funds. In some companies
and in many government
agencies, the boss will also
check the budget against
rules and limitations. Some
organizations require that
top managers approve the line-item budget.
Your boss will also seek or approve funds for the budget. In
a company, you may do work for another department, and then
bill that department for the work you do. Or the cost may be
billed to a client, but your boss will need to make sure that you
are planning to spend the right amount of money for that client.
Some of the money may come from restricted funds, such as a
training budget or government grants. Then you can
A Budget That
Works
Nicolai was planning the
budget for supplies for a small manu-
facturing shop.The parts he needed
to buy were cheaper by the caseload
than by the box. But Nicolai’s shop
didn’t have much warehouse space, so
he chose to buy a few boxes at a
time, instead of a whole caseload. He
spent more on the parts, but he was
working within the space he had.The
extra money he spent on the parts
was worth it, because it saved the
cost of renting a larger space to store
the parts.
Line-item budget
A budget where the name of each line
is set, as is the amount of money you can spend on each
item. If you must work with a line-item budget, and it speci-
fies $1,000 for training materials and $500 for office supplies, you can’t
spend $1,100 on training materials and $400 on office supplies.The
authority to move money from one line to another must be granted
at a higher level.
Block budget
The opposite of a line-item budget.You are given a
block of money.You present the details of your plan in line items. But,
later on, if you want to spend more on training and less on office sup-
plies, you are free to do so. As long as you don’t overspend the block
of money before the end of the year, the money is under your control.
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4
Budgeting for Managers
use that money only for
the purpose specified in
the budget. You will have
to track this money care-
fully and you may have to
work with other restric-
tions on the funds, such as using particular types of contracts or
submitting receipts that prove how the money was spent.
Three other audiences for your budget are the financial
department, the accounting department, and, possibly, the
human resources department.
Restricted funds
Money
that you can use, but only
for a specific purpose or
with specific limitations or require-
ments.
The Financial Department
The financial department is responsible for acquiring and plan-
ning for the use of all funds within your company. The budget
you put together becomes part of the whole corporate budget
they create. If your company has an annual report, your plan
and budget will appear as a part of the total financial picture. If
you deliver a clear budget with no errors, you make their work
easier—as well as your own, because you won’t have to correct
it later on. If your team gets its work done well within your
budget, you improve the company’s bottom line and help
ensure success.
The Accounting Department
The accounting department is responsible for managing and
tracking all financial transactions for the company. They will
create
a
ccount codes for each of your line items and assign
them in their computer
system. Every time
money is approved or
spent, they will track that
event and take from the
money allocated in your
budget and show it as
actually spent.
Allocated
Assigned to be
spent for a particular pur-
pose. If your budget is
accepted, this means that the money
has been allocated for the purposes
listed in your budget. Money is usually
allocated for use within a particular
year.
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Budgeting: Why and How
5
The Unexpected Raise
Juanita prepared a departmental budget for a year that
includes a salary for a current team member of $36,000 per
year, or $3,000 per month. It looked fine to her. When human
resources checked it, they noticed that since each employee gets an
annual raise on the anniversary of his or her starting date and this
employee started in August, the 5% raise would make the budget off
by $150 per month for the last five months of the year. With the help
of human resources, Juanita adjusted the salary to $3,150 per month
for August through December and the annual budget for that line item
to $36,750.
The Human Resources Department
If your budget includes money to pay salaries for you or your
team, it will also involve the human resources department,
sometimes called personnel. People in human resources work
closely with accounting and finance with regard to salary and
other employee-related expenses. You should ask them to
check your budget in relation to salaries.
Creating an accurate, workable plan and budget allows your
team to get the money it needs from finance, keep track of it
with accounting and human resources, and succeed. You can
succeed only with a good budget. The success of your team or
department within your budget looks good for your team, for
you, and for your boss. It also helps the bottom line of your
organization.
Eight Steps to Creating a Budget
Now that you know your audience, you’re ready to begin tack-
ling your first budget. As you work through this section, take
your time and make sure that you get a basic understanding of
the ideas. If anything is too complicated right now, don’t worry.
It will show up in more detail in the next 11 chapters.
Choosing Where to Start
There are two basic starting points for a budget. We can look
either at what we did before or at what we are planning to do. In
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