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Weekly UpdatesThis checklist is for all managers who have budgetary responsibility. Budgetary control is at the heart of many managers' jobs. The skills of budgetary control are increasingly being valued in organisations. What is more, the ability to control a budget is now seen as an important factor in measuring performance and even as a passport to promotion.
Managers need to use a mix of skills when controlling budgets--gathering and using information; setting up early warning systems; taking decisions and monitoring results--all key management skills.
Management Standards
This checklist has relevance to the MSC National Occupational Standards for Management: Key Role B--Manage Resources.
Definition
Budgetary control is achieved by comparing actual costs, revenues and performances against the set budget. It is necessary to carry out this comparison in order that the manager can, if they need to, take corrective action and make changes to their operational plans as required to keep them on budget.
Advantages of controlling budgets
* It is the only way in which you can monitor an organization/team's financial performance.
* It allows managers to be clear about their department's financial position.
* It gives information on which to base action.
Disadvantages of failing to control a budget
If you fail to control your budget, you will:
* frequently over or underspend--not achieving what you planned
* lack up-to-date information which would explain why the actual results will be at variance with the budget
* demonstrate that your team/department/work is out of control--and that is a bad advertisement both for your company and for yourself.
Action checklist
1. Understand the figures
Make sure 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 higher than expected pay rise you may neither be held responsible for the over-run nor exercise control over it.
You can only control those elements of a budget for which you are directly responsible.
2. Speak to your accounts department
Find out what reports they can produce for you. This will save you extra work, give you accurate figures to work from and help you keep in touch with them--important, as they are a key stakeholder.
3. Set up a monitoring/early warning system
This 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 for small budgets, but both these and larger ones can benefit from the use of all available systems and information.
4. Decide on the appropriate time to monitor your budget
Choose a time which fits in with your organiszation's and team's other commitments, perhaps:
* weekly
* monthly
* quarterly
and then stick to these review periods. It is important to get the time-scale right--over-monitor and you waste time; under-monitor and you won't stay in control of things.
5. Identify variances
Use the information you've collected to identify variances from your original budget--both positive and negative. A negative variance 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 underspent.
6. Don't assume a positive variance is a good thing
Analyse any variance--find out why it is happening and what effect it will have on the year's activity. Is it a one-off payment that has not been invoiced--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 until everyone who needs to know does know, you can't act. But remember that 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 information on why things went wrong.
8. Now act
There is a range of different options, depending on the circumstances:
* do nothing if you anticipate 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 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 underspends elsewhere.
Once you have decided what to do, make sure that all the right people know what your plans are, understand them and have time to comment if necessary. Then, be seen to act.
9. Keep monitoring the budget
Monitoring is an on-going process. Don't assume because you've put a problem right that there will never be another. Keep monitoring the budget and it will help you either to make sure it is back in line or hasn't got even further out of control.
10. Communicate any changes
If you have re-forecast, tell all the budget stakeholders--especially if they have to implement the change.
Dos and don'ts for controlling a budget
Do
* Communicate--upwards, downwards and across.
* Take action in good time.
* Keep monitoring.
Don't
* Act rashly without thinking through the implications.
* Go it alone--always involve others.
* Hide the problem or ignore it--it won't go away.
Useful reading
Books
Related checklist
Drawing up a budget
Thought starters
* Have you set up practical monitoring systems?
* Do your monitoring systems provide you with the information that you can act on to re-gain control?
* Have you collected all the information you can about why things have gone wrong?
* Have you communicated thoroughly?
* Have you planned your action carefully?
Further Information
Checklists are available in the following formats:
* Individual checklists.
* A complete set of 1975 on CD-ROM or in hard copy.
* Checklists with permission to photocopy.
Full details of the range of checklists available can be obtained from:
Lavis Marketing, 73 Lime Walk, Headington, Oxford, OX3 7AD Tel: 0845 702 3736 (local rate call) Fax: + 44 1865 750079 or from Checkpoint on the Chartered Management Institute's website at www.managers.org.uk
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