Financial Planning 1

Financial Planning 1Financial Planning 1

Introduction and BudgetingIntroduction and Budgeting

Learning ObjectivesLearning Objectives

Understand the importance of linking Understand the importance of linking planning and budgetingplanning and budgeting

Understand key financial planning terms Understand key financial planning terms and conceptsand concepts

Apply tools and techniques for preparing a Apply tools and techniques for preparing a financial planfinancial plan

DefinitionDefinition

Goal/Objectives

Strategy &Strategic

Interventions

Activities &Subactivities

Financial Plan

A detailed year-by-year estimate of the revenues and expenses entailed by the strategic plan

Financial PlanningFinancial Planning

It represents the planned activities of a It represents the planned activities of a system in terms of moneysystem in terms of money

Financial plans detail the system’s estimate Financial plans detail the system’s estimate of how much each activity will cost for a of how much each activity will cost for a specified time period, usually 3-5 yearsspecified time period, usually 3-5 years

Financial plans detail the expected income Financial plans detail the expected income that will pay for the planned activitiesthat will pay for the planned activities

Financial PlanningFinancial Planning

Helps a program take into account available and potential financial resources for initiatives

Identifies resource allocation issues inherent to the strategic planning process

Implementation and Implementation and Financial PlanFinancial Plan

•Plannedactivities &subactivities•5 years

•Required inputs•Cost of inputs•Projections•Sources of revenue•3-5 Year Plan

•Detailedestimates ofcost & revenue for Year 1

ImplementationPlan

AnnualBudget

Financial Plan

Planning & BudgetingPlanning & Budgeting Planning and budgeting are linked activities:Planning and budgeting are linked activities:

Plans include goals and objectives that are to Plans include goals and objectives that are to be accomplished in a stated time periodbe accomplished in a stated time period

Plans describe activities to accomplish the Plans describe activities to accomplish the goalsgoals

Planning & budgeting are parts of an iterative Planning & budgeting are parts of an iterative processprocess

Initial plans may have to be changed Initial plans may have to be changed depending on whether funds are available to pay depending on whether funds are available to pay for the activitiesfor the activities

Financial Planning Involves…

Identify resourceIdentify resourcerequirementsrequirements

AnalyzeAnalyzecurrent &current &potential potential sources ofsources ofrevenuerevenue

BudgetBudget

Prioritizeresource use

Estimate revenue Estimate revenue & expenses& expenses

Financial Planning & Budgeting Are Important

Define in monetary terms the strategic planDefine in monetary terms the strategic plan Provide a basis for evaluating financial Provide a basis for evaluating financial

performanceperformance Provide a tool for controlling costsProvide a tool for controlling costs Force implementers to think through how Force implementers to think through how

much each activity will costmuch each activity will cost Give implementers information on projected Give implementers information on projected

expenses and the funds needed for planned expenses and the funds needed for planned activitiesactivities

Budgeting: Terms & DefinitionsBudgeting: Terms & Definitions

Expenses:Expenses: All of the costs incurred in operating All of the costs incurred in operating a programa program

The The Operating Budget is composed of is composed of

Expense Budget – – based on converting resource needs identified in the planning process into money estimates

Revenue Budget – based on identifying sources of funding. Examples: service fees, grants, donor funding, government funds


Asset – Asset – anything that has value that helps an anything that has value that helps an organization conduct business. organization conduct business. Examples: Examples: cash, equipment, supplies, etc.cash, equipment, supplies, etc.

Current Assets Current Assets –– assets used within the space assets used within the space of a year, of a year, such as cash and suppliessuch as cash and supplies

Fixed AssetsFixed Assets – assets that have a useful life of – assets that have a useful life of longer than a year, longer than a year, such as land, buildings, and such as land, buildings, and equipmentequipment

Budgeting: Terms & Definitions

Fixed Costs – Fixed Costs – costs that do not vary with the costs that do not vary with the volume of services provided, volume of services provided, such as rent and such as rent and insuranceinsurance

Variable Costs – Variable Costs – costscosts that vary according to that vary according to the volume of service provided or people the volume of service provided or people served. served. Example: medical suppliesExample: medical supplies

Semi-variable or Semi-fixed Semi-variable or Semi-fixed Costs Costs –– costs costs that increase or decrease with volume but not that increase or decrease with volume but not in a directly proportional relationshipin a directly proportional relationship


Cost/Volume Relationships:Cost/Volume Relationships:

Cost CostCost Cost

VolumeVolume VolumeVolume

Fixed Fixed VariableVariable

Budgeting: Terms & Definitions Direct Costs - Direct Costs - costs that are identifiable with a costs that are identifiable with a

specific service. specific service. Example: contraceptives for FP Example: contraceptives for FP servicesservices

Indirect Costs (Overhead Costs)Indirect Costs (Overhead Costs) –– costs not costs not directly linked to a specific service. directly linked to a specific service. Example: Example: utilities, salaries of administrative staffutilities, salaries of administrative staff

Incremental CostsIncremental Costs –– costs of adding or costs of adding or implementing additionalimplementing additional projects or programs projects or programs to existing servicesto existing services


Joint CostsJoint Costs –– resources used for more than one resources used for more than one intervention. Examples: costs of clinic resources, intervention. Examples: costs of clinic resources, salaries, equipment, exam tablesalaries, equipment, exam table

Non-joint CostsNon-joint Costs (Direct Costs)(Direct Costs) –– resources that resources that are directly linked to the service provided such as are directly linked to the service provided such as the cost of contraceptives for FP servicesthe cost of contraceptives for FP services


Allocation of Costs – cAllocation of Costs – costs that are systematically osts that are systematically allocated among products, departments, or allocated among products, departments, or programs. programs. Example: salaries of providers working Example: salaries of providers working on two different programs on the basis of timeon two different programs on the basis of time

Capital Cost – cCapital Cost – costs incurred when acquiring, osts incurred when acquiring, constructing, or renovating fixed assetsconstructing, or renovating fixed assets

Recurrent Costs – Recurrent Costs – costs associated with inputs that costs associated with inputs that will be consumed or replaced in one year or less. will be consumed or replaced in one year or less. Examples: salaries, maintenance, medicinesExamples: salaries, maintenance, medicines

Budget ProcessBudget Process

Who should be involved in the financial Who should be involved in the financial planning and budgeting process?planning and budgeting process?

MOFMOF

MOHMOH

MOPMOP

Other key stakeholdersOther key stakeholders

Financial Planning ProcessFinancial Planning Process

PrepareBudget

for Year 1

Goal &Strategy

ListPlannedActivities

Identify Inputs

QuantifyInputs

CollectCost

Information

Assign Monetary

Values

Identify New Inputs,

Years 2-3

MakeProjections

PrepareFinancial Plan,

3-5 Years

Steps in BudgetingSteps in Budgeting

1.1. Resources (inputs) are specified to Resources (inputs) are specified to accomplish activitiesaccomplish activities

2. Costs (expenses) are assigned to resources 2. Costs (expenses) are assigned to resources

3. Sources of funding (revenues) are 3. Sources of funding (revenues) are estimated to finance the activitiesestimated to finance the activities

4. Compare revenue and expense projections4. Compare revenue and expense projections


1. Resources (inputs) are specified to 1. Resources (inputs) are specified to accomplish activitiesaccomplish activities Staff (type and number)Staff (type and number) Supplies (how many? what kind?)Supplies (how many? what kind?) Equipment (what type?)Equipment (what type?) CommunicationsCommunications Travel (frequency, who travels? etc.)Travel (frequency, who travels? etc.) Other resourcesOther resources


2.2. Costs are assigned to resources Costs are assigned to resources

Use objective sources for estimating costs:Use objective sources for estimating costs: Consult commercial suppliersConsult commercial suppliers

Check the amounts spent the previous year for Check the amounts spent the previous year for similar items (factor in inflation)similar items (factor in inflation)

Contact hotels and transportation sources for costs Contact hotels and transportation sources for costs of travel and per diemof travel and per diem

DO NOT GUESS ABOUT THE COSTSDO NOT GUESS ABOUT THE COSTS


3.3. Sources of funding (revenues) are estimated Sources of funding (revenues) are estimated to finance the activitiesto finance the activities

Government funds? Government funds?

Donor funding available?Donor funding available?

Service fees? Are fees being charged currently? Service fees? Are fees being charged currently?

Grants available?Grants available?


4.4. Compare revenue and expense projectionsCompare revenue and expense projections

If expenses do not equal revenues, activities If expenses do not equal revenues, activities may have to be adjustedmay have to be adjusted

If expenses need to be reduced, a fixed If expenses need to be reduced, a fixed percentage cut across all expense line items percentage cut across all expense line items is not necessarily the most effective remedyis not necessarily the most effective remedy

Fixed costs will have to be paid regardless, Fixed costs will have to be paid regardless, but variable costs can be changedbut variable costs can be changed

Budgeting TipsBudgeting Tips

Salary – Salary – ddetermine annual salary package etermine annual salary package including all fringe benefits including all fringe benefits

Fees – Fees – iinclude budget amounts for infrequent nclude budget amounts for infrequent fees, such as annual audits and staff trainingfees, such as annual audits and staff training

Building Operating Costs – Building Operating Costs – iinclude minor nclude minor repairs, renovation, janitorial services, and repairs, renovation, janitorial services, and maintenancemaintenance

Vehicle Operating Costs –Vehicle Operating Costs – include budget include budget amounts for fuel, maintenance, and repairsamounts for fuel, maintenance, and repairs


Travel and Per Diem Expenses – Travel and Per Diem Expenses – eestimate stimate amounts for airfare, taxis, fuel, mileage, per diem amounts for airfare, taxis, fuel, mileage, per diem and out-of-pocket expensesand out-of-pocket expenses

General Administrative Expenses General Administrative Expenses (Overhead Expenses) – (Overhead Expenses) – iinclude office nclude office equipment rental, maintenance and minor repairs, equipment rental, maintenance and minor repairs, data processing, copying and printing costs, office data processing, copying and printing costs, office supplies, and insurancesupplies, and insurance


Medical Supplies and Expendable Low-cost Medical Supplies and Expendable Low-cost Equipment – Equipment – eestimate, based on the number of stimate, based on the number of clients projected to be served in the budget year, clients projected to be served in the budget year, gloves, contraceptives, infection control suppliesgloves, contraceptives, infection control supplies

Fixed Assets – Fixed Assets – iinclude budget amounts (Capital nclude budget amounts (Capital Budget) for any fixed assets to be purchased in Budget) for any fixed assets to be purchased in the budget period: land, buildings, and equipmentthe budget period: land, buildings, and equipment

Budgeting and Long-range Budgeting and Long-range Financial PlanningFinancial Planning

Prepare detailed budget for Year 1Prepare detailed budget for Year 1

Identify, quantify, and cost new inputs for Identify, quantify, and cost new inputs for Years 2 and 3Years 2 and 3

Make projections Make projections

Adjust for inflationAdjust for inflation

Prepare detailed financial plan Prepare detailed financial plan

Review and revise it periodicallyReview and revise it periodically

Financial MonitoringFinancial Monitoring

Expenditures Compared to Budget ReportExpenditures Compared to Budget Report

Monitors actual expenditures of the Monitors actual expenditures of the program against the planned expensesprogram against the planned expenses

Analyzes the results of the operation with Analyzes the results of the operation with the planned activitiesthe planned activities

Modifies activities to achieve goals and Modifies activities to achieve goals and objectivesobjectives

Financial Planning 1

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