Post on 23-Jan-2015
description
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
Iyad Mourtada, CIA, CMA , CFE, CPLP Openthinkingacademy.com
An operational plan and control tool that identifies resources and
commitments needed to satisfy goals over a period of time.
Iyad Mourtada, CIA, CMA , CFE, CPLP Openthinkingacademy.com
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International Budget Partnership
Iyad Mourtada, CIA, CMA , CFE, CPLP Openthinkingacademy.com
Resources
Budget
Goals
Iyad Mourtada, CIA, CMA , CFE, CPLP Openthinkingacademy.com
Budget = Planning Tool
A Written plan.
Anticipating problems (managers are proactive rather than reactive).
Defining the goals in quantitative terms.
Iyad Mourtada, CIA, CMA , CFE, CPLP Openthinkingacademy.com
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.
Iyad Mourtada, CIA, CMA , CFE, CPLP Openthinkingacademy.com
Budget = Communication Tool
Communicating the goals.
Making everyone in the organization working toward the goals.
Iyad Mourtada, CIA, CMA , CFE, CPLP Openthinkingacademy.com
Budget = Coordination Tool
Motivating departments to communicate and coordinate their work to be able to create the budget.
Iyad Mourtada, CIA, CMA , CFE, CPLP Openthinkingacademy.com
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
Costs
Controllability
Iyad Mourtada, CIA, CMA , CFE, CPLP Openthinkingacademy.com
“If you don’t know where you are going, any path will take
you there.”
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43
Iyad Mourtada, CIA, CMA , CFE, CPLP Openthinkingacademy.com
Mission Statement
Plan
ning
Strategic Plan
Long-term ObjectivesCapitalize &Amortize
Capital Investment
Capital Budget
Short-term Objectives Expense
Operating Budget
Current Investments
Iyad Mourtada, CIA, CMA , CFE, CPLP Openthinkingacademy.com
Budget Periods
Strategic 10-2 years
Intermediate 2-1 year
Operational Less 1year
Strategic Plan
Long-term plans (budgets) Short-term plans (budgets)
Iyad Mourtada, CIA, CMA , CFE, CPLP Openthinkingacademy.com
Iyad Mourtada, CIA, CMA , CFE, CPLP Openthinkingacademy.com
Authoritative (top-down budget)
Iyad Mourtada, CIA, CMA , CFE, CPLP Openthinkingacademy.com
Participative (bottom-up budget)
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Budget Participants
Iyad Mourtada, CIA, CMA , CFE, CPLP Openthinkingacademy.com
Budgetary Slack
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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.
Iyad Mourtada, CIA, CMA , CFE, CPLP Openthinkingacademy.com
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.
Iyad Mourtada, CIA, CMA , CFE, CPLP Openthinkingacademy.com
Cost Standards
How much an operation or a service should cost?
Types of Standards:
Authoritative vs. Participative
Ideal vs. Reasonably Attainable
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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, CIA, CMA , CFE, CPLP Openthinkingacademy.com
Iyad Mourtada, CIA, CMA , CFE, CPLP Openthinkingacademy.com
Iyad Mourtada, CIA, CMA , CFE, CPLP Openthinkingacademy.com
Iyad Mourtada, CIA, CMA , CFE, CPLP Openthinkingacademy.com
Iyad Mourtada, CIA, CMA , CFE, CPLP Openthinkingacademy.com
Iyad Mourtada, CMA, CIA, CFE, CPLP, M.A.
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