Mcgraw.Hill.Briefcase.Books.Budgeting.For.Managers.pdf

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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!

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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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

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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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

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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