CMA(Part1): Budgeting Concepts

transcript

Budgeting Concepts

Iyad Mourtada, CIA, CMA, CFE, CPLP

Iyad Mourtada, CIA, CMA , CFE, CPLP Openthinkingacademy.com

Budgeting Concepts

• Introduction to Budgeting

• Role of the Budget

• Budget Periods

• Budget Participants

• Cost Standards

• Budget Preparation Tools

An operational plan and control tool that identifies resources and

commitments needed to satisfy goals over a period of time.

International Budget Partnership

Resources

Budget

Budget = Planning Tool

A Written plan.

Anticipating problems (managers are proactive rather than reactive).

Defining the goals in quantitative terms.

Budget = Control Tool

Setting cost guidelines.

Managers will understand the budgeted cost of their departments.

Measures the performance against established goals.

Personal self-evaluation tool.

Avoiding budgetary slack.Iyad Mourtada, CIA, CMA , CFE, CPLP Openthinkingacademy.com

Budget = Motivational Tool

Motivating employees to stay within budget.

Must be seen a realistic budget and not as a restriction.

Some degree of flexibility should be allowed.

Budget = Communication Tool

Communicating the goals.

Making everyone in the organization working toward the goals.

Budget = Coordination Tool

Motivating departments to communicate and coordinate their work to be able to create the budget.

Successful Budgeting

Aligned with corporate strategy.

Used to allocate resources effectively.

Used as planning, communication, coordinating, and motivating tools.

Buy-in at all levels.Iyad Mourtada, CIA, CMA , CFE, CPLP Openthinkingacademy.com

vs. Controllable

CostsNoncontrollable

Controllability

“If you don’t know where you are going, any path will take

you there.”

Mission Statement

Strategic Plan

Long-term ObjectivesCapitalize &Amortize

Capital Investment

Capital Budget

Short-term Objectives Expense

Operating Budget

Current Investments

Budget Periods

Strategic 10-2 years

Intermediate 2-1 year

Operational Less 1year

Strategic Plan

Long-term plans (budgets) Short-term plans (budgets)

Authoritative (top-down budget)

Participative (bottom-up budget)

Budget Participants

Budgetary Slack

Managers can underestimate the amount of income or revenue that will come in over a given amount of time, or overestimate the expenses that are to be paid out over the same time period.

This will create “Budgetary Slack”, which is the excess of amount budgeted over and actual amount needed.

Budgetary Slack

Advantages

• Provides flexibility for operating under unknown circumstances.

• Offsets the costly setups from design changes and/or small lot size orders.

Disadvantages• Decreases the ability to

highlight weaknesses and take timely corrective actions on problem areas.

• Decreases the overall effectiveness of corporate planning.

• It limits the objective evaluation of departmental managers and performance of subordinates by using budgetary information.

Cost Standards

How much an operation or a service should cost?

Types of Standards:

Authoritative vs. Participative

Ideal vs. Reasonably Attainable

Cost Standards

Standard Costs of Direct Material (Quality - Quantity - Price)

Standard Costs of Direct Labor

Sources for Standard Setting:

- Activity Analysis - Historical Data

- Market Expectations and Strategic Decisions

- BenchmarkingIyad Mourtada, CIA, CMA , CFE, CPLP Openthinkingacademy.com

Iyad Mourtada, CMA, CIA, CFE, CPLP, M.A.

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CMA(Part1): Budgeting Concepts

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