Introduction
Budgets should not be viewed as being static...Budgets should
be developed continuously.
Several problems exist
with static budgets;
- They do not allow for modifications
- They do not provide incentives to increase the efficiency
of the organization
- They do not provide for unexpected events.
Here is what one text book has written on budgets.
"Failure to stick reasonably closely to your budget is likely
to cause you considerable problems. If your expenditure begins to exceed the
budget, you will need to look for additional resources. " and
"You may also have problems if you fail to spend the entire
amount budgeted...your future budget allocations may automatically be reduced
based on the assumption that you will be unable to use all the resources you
have requested."
When actual expenditures are different than the budgeted
amount (this hold true for being both under or over budget), the first thing
that must be done is to ask the question why? It may well be that you are doing
better than expected, you have more clients than forecasted, and that this
increase in volume created increase expenditures.
Looking for more resources is almost never a solution and
never a solution long term. If the expenditures were due to inefficient
operations, searching for more resources only compounds the problem. The best
solution, and one that will be long lasting, is to improve operating
efficiencies.
Spending money just to make your budget is always wrong,
wrong, wrong...This indicates that:
- The original budget was incorrectly formulated and that
all future budgets will be incorrectly formulated.
- The budget was created not by analysis of actual needs
but by some other quess-work method.
- Management is unresponsive to change.
- Someone other than the actual person responsible for the
unit is making the decisions.
- The person responsible for the operation of the unit is
not expected to manage.
- There is no incentives to increase the efficiency of the
organization.
It is not always desirable for budget and expenditures
to be closely linked. It is always desirable that budgets and expenditures be
analyzed for any discrepancies.
It is important to keep track of WHY you are making
expenditures, not just how much.
Budget Revision
After a budget/cash flow is
prepared it should not be caste in stone. With detail information, budgets
should be updated “continuously.” Enclosed is a very simple example that has
two months of actual service units against compared with a 12 month budget.
As we can see by using the actual
detail data, we are always able to have a 12-month budget in the future. This
Adjusted Budget is continuously updated each month based on the actual data from
the previous month. Where the current month is March 2000:
|
|
Service
Units Budgeted
1/1/00
|
Service
Units Actual
|
New
Budget
Adjusted
3/1/00
|
|
Jan
2000
|
110
|
120
|
|
|
Feb
2000
|
120
|
130
|
|
|
Mar
2000
|
130
|
|
140
|
|
Apr
2000
|
140
|
|
150
|
|
May
2000
|
150
|
|
160
|
|
June
2000
|
160
|
|
170
|
|
July
2000
|
170
|
|
180
|
|
Aug
2000
|
175
|
|
185
|
|
Sept
2000
|
180
|
|
190
|
|
Oct
2000
|
185
|
|
195
|
|
Nov
2000
|
190
|
|
200
|
|
Dec
2000
|
195
|
|
205
|
|
Jan
2001
|
|
|
210
|
|
Feb
2001
|
|
|
220
|
|
Mar
2001
|
|
|
225
|
Using this example all costs and services can be
updated to reflect a more accurate picture of what is occurring in the
clinics.
At the end of the accounting
period, a new budget has already been prepared based on “current
information.” This method of
budget revision produces a more accurate budget using information that has
been adjusted based on real conditions.
Using this method a Cash Flow
analysis can also be prepared with very accurate results. | 
