PowerPoint Presentation

Manage Budgets and Financial Plans

BSBFIM501

Australian Institute of RTO ID: 21996 | CRICOS: 02999J 1

Entrepreneurship
 Introduction
This manual is in four elements:

1. Plan financial management

approaches.
2. Implement financial management
approaches.
3. Monitor and control finances.
4. Review and evaluate financial
management processes.
Australian Institute of RTO ID: 21996 | CRICOS: 02999J 2
Entrepreneurship
 Plan Financial
ELEMENT 1:
Management Approaches

Australian Institute of RTO ID: 21996 | CRICOS: 02999J 3

Entrepreneurship
 ELEMENT 1: Plan Financial Management Approaches

Plan Financial Management

Approaches
Access Budget / Financial Plans for the Work
Team
A budget is an estimate of income and expenditure
for a set period of time.
A budget or financial plans are the amount of
income and expenditure a particular team has to complete a
period of time or a project or some other definitive
measure.

Australian Institute of RTO ID: 21996 | CRICOS: 02999J 4

Entrepreneurship
 ELEMENT 1: Plan Financial Management Approaches

These budgets are set by management to ensure that

the objective of the budget is made in a way that
ensures a profit for the organisation when the object is
completed.
The budgeting process establishes a means for
developing and tracking the cost goals for all
contractually authorised work.

Australian Institute of RTO ID: 21996 | CRICOS: 02999J 5

Entrepreneurship
 ELEMENT 1: Plan Financial Management Approaches

When management sets the budget, it is establishing

an earned value management system in that all major
components of a project must be integrated and
baselined.
The cost and schedule performance are measured
against a baseline to help track the progress of the
objective.
Success in business comes down to making a profit -
which brings us to budgets.

Australian Institute of RTO ID: 21996 | CRICOS: 02999J 6

Entrepreneurship
 ELEMENT 1: Plan Financial Management Approaches

Budgets may include any or all of:

Cash Flow Projections
Long-Term Budgets/Plans
Operational Plans
Short-Term Budgets/Plans
Spreadsheet-Based Financial Projections
Targets or Key Performance Indicators for
Production, Productivity, Wastage, Sales, Income and
Expenditure

Australian Institute of RTO ID: 21996 | CRICOS: 02999J 7

Entrepreneurship
 ELEMENT 1: Plan Financial Management Approaches

Teams need access to budget information that relates

to the issues, policies, and programs that are the focus
of an organisation’s work.
The budget gives you a basis for monitoring your
work financially.

Australian Institute of RTO ID: 21996 | CRICOS: 02999J 8

Entrepreneurship
 ELEMENT 1: Plan Financial Management Approaches

Clarify Budget / Financial Plans

Occasionally when a budget is received, there may be
questions or items that are not understood.
Clarification of the detail will be required.

Australian Institute of RTO ID: 21996 | CRICOS: 02999J 9

Entrepreneurship
 ELEMENT 1: Plan Financial Management Approaches

Good practice in budgeting involves:

Clarity Of Purpose
Detailed Planning
Considerable Thought.

Australian Institute of RTO ID: 21996 | CRICOS: 02999J 10

Entrepreneurship
 ELEMENT 1: Plan Financial Management Approaches

Among the questions you should be asking yourselves

are:
“Could we have spent less last year and still achieved
the same results, or better?”
“Have we wasted money in the past? If so, can we
avoid doing so in the future?”

Australian Institute of RTO ID: 21996 | CRICOS: 02999J 11

Entrepreneurship
 ELEMENT 1: Plan Financial Management Approaches

Budgeting is a difficult and responsible job.

Your organisation’s ability to do what it has planned
to do and to survive financially depends on the
budgeting process.

Australian Institute of RTO ID: 21996 | CRICOS: 02999J 12

Entrepreneurship
 ELEMENT 1: Plan Financial Management Approaches

Whoever does the budgeting must:

Understand the values, strategy and plans of the
organisation or project
Understand what it means to be cost effective and
cost efficient
Understand what is involved in generating and
raising income.

Australian Institute of RTO ID: 21996 | CRICOS: 02999J 13

Entrepreneurship
 ELEMENT 1: Plan Financial Management Approaches

If you need clarification, there should be nominated

individuals in your organisation.
Start with your immediate manager and be advised.
Others include those who worked on drawing up the
budget such as the financial managers, accountants or
financial controllers

Australian Institute of RTO ID: 21996 | CRICOS: 02999J 14

Entrepreneurship
 ELEMENT 1: Plan Financial Management Approaches

Negotiate Changes to be Made to the

Budget / Financial Plan
Budget Negotiations and Strategies
Budget negotiations can be contentious because each unit
feels that their budget should be the budget approved in its
entirety.

Australian Institute of RTO ID: 21996 | CRICOS: 02999J 15

Entrepreneurship
 ELEMENT 1: Plan Financial Management Approaches

Each unit manager needs to develop a budget

negotiation strategy to get what they need for the
coming year.
Economic Impact
Extrapolation
Compromise
Common Goal

Australian Institute of RTO ID: 21996 | CRICOS: 02999J 16

Entrepreneurship
 ELEMENT 1: Plan Financial Management Approaches

Prepare Contingency Plans

A contingency plan is a course of action designed to help
an organisation respond effectively to a significant future
event or situation that may or may not happen.
A contingency plan is sometimes referred to as ‘Plan B,’
because it can be also used as an alternative for action if
expected results fail to materialise.

Australian Institute of RTO ID: 21996 | CRICOS: 02999J 17

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 ELEMENT 1: Plan Financial Management Approaches

Contingency Planning:
1. Determine the key risks which have the potential to
occur and which could seriously jeopardise the
project.
2. Prioritise these risks in terms of magnitude.
3. Determine which ones are under you control
and which ones are completely out of your control.
4. Immediately escalate the risks which are out of
your control to your manager for their information and
also knowledge in how these could be mitigated.
5. Start contingency planning on those risks within
your control.

Australian Institute of RTO ID: 21996 | CRICOS: 02999J 18

Entrepreneurship
 ELEMENT 1: Plan Financial Management Approaches

You need to have a detailed contingency plan in place

which is agreed upfront and can be implemented
quickly should it be required.
The ‘plan’ could constitute a plan in your head, an MS
project plan, or to a word document, for example.
The key to contingency planning is that you should
follow a process which you feel comfortable with,
which also allows you to concentrate on what is
important.

Australian Institute of RTO ID: 21996 | CRICOS: 02999J 19

Entrepreneurship
 Implement Financial
ELEMENT 2:
Management Approaches

Australian Institute of RTO ID: 21996 | CRICOS: 02999J 20

Entrepreneurship
 ELEMENT 2: Implement Financial Management Approaches

Communicating Financial Information

Financial reports, which are sent to others in the
organisation need to be carefully tailored to suit the
needs of the organisation’s structure.
What Types of Reports Are There to Send?
Performance reports to track budgets and identify
any variances.
Other reports (budgets, financial statements. etc) are
prepared less frequently and form the basis of
financial analysis. It is important that they are easy
to understand.

Australian Institute of RTO ID: 21996 | CRICOS: 02999J 21

Entrepreneurship
 ELEMENT 2: Implement Financial Management Approaches

Providing Support to the Team

Your team may struggle with managing and working
within budgets and it is your responsibility to provide
support to enable their competency.
There are many duties and roles within the realm of
managing the budget within a team
In terms of financial management within your team,
consult with your HR or finance unit to find out who they
recommend to assist understanding and skill
development of staff.

Australian Institute of RTO ID: 21996 | CRICOS: 02999J 22

Entrepreneurship
 ELEMENT 2: Implement Financial Management Approaches

Determine and Access Resources and

Systems to Manage Financial
Management Processes
Different organisations have varied means of managing the
financial processes of their business. These can include:
Hardware and software
Human, physical or financial resources
Record keeping systems (electronic and paper-
based)
Specialist advice or support.

Australian Institute of RTO ID: 21996 | CRICOS: 02999J 23

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 ELEMENT 2: Implement Financial Management Approaches

Ensuring that the team is aware of and able to use the

processes that are used in your organisation is crucial.
This will take training, practice and support but will be
worth the effort if duties can be spread across the team
and not just vested in one individual.

Australian Institute of RTO ID: 21996 | CRICOS: 02999J 24

Entrepreneurship
 ELEMENT 2: Implement Financial Management Approaches

Setting Budgets
Setting Annual Budgets
Annual budget setting is the process by which longer-
term financial plans are turned into annual financial
allocations.
This should flow naturally from the organisation's longer-
term financial plans.

Australian Institute of RTO ID: 21996 | CRICOS: 02999J 25

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 ELEMENT 2: Implement Financial Management Approaches

When You Need Help

The elements of annual budget setting include:
The budget setting process
Involvement of budget managers
Setting pooled budgets.

Australian Institute of RTO ID: 21996 | CRICOS: 02999J 26

Entrepreneurship
 Monitor and Control
ELEMENT 3:
Finances

Australian Institute of RTO ID: 21996 | CRICOS: 02999J 27

Entrepreneurship
 ELEMENT 3: Monitor and Control Finances

Monitoring Expenditure and Costs

Processes to monitor actual expenditure and control
costs:
Assets
Consumables
Equipment
Expenditure
Income
Stock
Wastage
Australian Institute of RTO ID: 21996 | CRICOS: 02999J 28
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 ELEMENT 3: Monitor and Control Finances

These are all aspects of the budget that the team

may need to know in order to stay compliant.
The method used to manage these is called a
‘Control.’

Australian Institute of RTO ID: 21996 | CRICOS: 02999J 29

Entrepreneurship
 ELEMENT 3: Monitor and Control Finances

Internal Control
Broadly defined as a process affected by an
entity's board of directors, management and other
personnel and designed to provide reasonable
assurance regarding the achievement of objectives in
the following categories.
Effectiveness and efficiency of operations.
Reliability of financial reporting.
Compliance with applicable laws and
regulations.

Australian Institute of RTO ID: 21996 | CRICOS: 02999J 30

Entrepreneurship
 ELEMENT 3: Monitor and Control Finances

Internal Control
These are the elements to consider:
Control Environment

Risk Assessment

Control Activities

Information and Communication

Monitoring

What Internal Control Can Do

What Internal Control Cannot Do.

Australian Institute of RTO ID: 21996 | CRICOS: 02999J 31

Entrepreneurship
 ELEMENT 3: Monitor and Control Finances

Roles and Responsibilities

Everyone has responsibility for internal control:
Management
Board of Directors
Internal Auditors
Other Personnel.
Responsibilities include:
Control Activities
Information Processing
Monitoring.
Australian Institute of RTO ID: 21996 | CRICOS: 02999J 32
Entrepreneurship
 ELEMENT 3: Monitor and Control Finances

Report on Budgets
Accurate and timely financial reports show the
progress and current condition of the business:
Proactive vs Reactive Financial Management
Assistance in Developing Financial Controls
The Balance Sheet
Assets
Liabilities.

Australian Institute of RTO ID: 21996 | CRICOS: 02999J 33

Entrepreneurship
 ELEMENT 3: Monitor and Control Finances

A budget is subject to a number of problems, such as

the ‘use it or lose it’ mentality, whereby managers
spend all funds allocated to their departments on the
grounds that those expenditures form the basis for
their budgets in the following year; not spending all
allocated funds will therefore mean that the budget
will likely be reduced in the following year or
period.

Australian Institute of RTO ID: 21996 | CRICOS: 02999J 34

Entrepreneurship
 ELEMENT 3: Monitor and Control Finances

During an accounting period managers often

compare the budgeted numbers that were prepared at
the beginning of the period to the actual numbers
they are incurring.
This serves two main purposes.
First, managers can correct problems occurring in the
business to make the performance more in line with
the financial goals in the budget.
Second, they can evaluate how realistic and accurate
their predictions were. If their predictions were way
off during the period, they can adjust their next
budget accordingly.

Australian Institute of RTO ID: 21996 | CRICOS: 02999J 35

Entrepreneurship
 ELEMENT 4:Review and Evaluate
Financial Management Processes

Australian Institute of RTO ID: 21996 | CRICOS: 02999J 36

Entrepreneurship
 ELEMENT 4: Review and Evaluate Financial Management Processes

Gathering Information
When gathering information, consider:
Who are the primary audiences?
What are the primary purposes?
What questions must be answered?
What types of information are needed?
From what sources should the information be
collected?

Australian Institute of RTO ID: 21996 | CRICOS: 02999J 37

Entrepreneurship
 ELEMENT 4: Review and Evaluate Financial Management Processes

Gathering Information
What are the best methods to collect the
information?
What context-sensitive considerations must be
made?
What is the best timing for getting the
information?
Who should collect the information?

Australian Institute of RTO ID: 21996 | CRICOS: 02999J 38

Entrepreneurship
 ELEMENT 4: Review and Evaluate Financial Management Processes

Analysing Information
How will you analyse the information?
How will you make interpretations and
conclusions?
How will you report the information?
Should you test your evaluation and assessment
plans?
What ethical considerations must be made?

Australian Institute of RTO ID: 21996 | CRICOS: 02999J 39

Entrepreneurship
 Summary
This is an ongoing, and cyclical process.
It begins by examining what needs to happen and developing
procedures and policies to meet the end needs of the
organisation.
Processes and policies are implemented according to a set plan
to ensure they work and will be beneficial to the organisation
as a whole.
Once implemented, they must be evaluated to ensure they are
working and examined for what can be learned from the
experience.

Australian Institute of RTO ID: 21996 | CRICOS: 02999J 40

Entrepreneurship