MANAGE BUDGETS AND FINANCIAL PLANS FACILITATOR MANUAL WITH SIMULATED ONLINE BUSINESS ASSESSMENT BSBFIM501A

Transcription

1 MANAGE BUDGETS AND FINANCIAL PLANS FACILITATOR MANUAL WITH SIMULATED ONLINE BUSINESS ASSESSMENT BSBFIM501A

2 Precision Group (Australia) Pty Ltd 9 Koppen Tce, Cairns, QLD, info@precisiongroup.com.au Website: BSBFIM501A Manage Budgets and Financial Plans ISBN: Copyright Notice No part of this book may be reproduced in any form or by any means, electronic or mechanical, including photocopying or recording, or by an information retrieval system without written permission from Precision Group (Australia) Pty Ltd. Legal action may be taken against any person who infringes their copyright through unauthorised copying. These terms are subject to the conditions prescribed under the Australian Copyright Act Copying for Educational Purposes The Australian Copyright Act 1968 allows 10% of this book to be copied by any educational institute for educational purposes, provided that the institute (or the body that administers it) has given a remuneration notice to the Copyright Agency Limited (CAL) under the Act. For more information, info@copyright. com.au or visit for other contact details. Disclaimer Precision Group has made a great effort to ensure that this material is free from error or omissions. However, you should conduct your own enquiries and seek professional advice before relying on any fact, statement or matter contained in this book. Precision Group (Australia) Pty Ltd is not responsible for any injury, loss or damage as a result of material included or omitted from this material. Information in this course material is current at the time of publication.

3 Table of Contents 2 Legend 3 Qualification Pathways 4 Qualification Rules 5 Introduction 7 BSBFIM501A/01 Plan Financial Management Approaches Key Points Access budget / financial plans for the work team Clarify budget / financial plans with relevant personnel within the organisation to ensure that documented outcomes are achievable, accurate and comprehensible Negotiate any changes required to be made to budget / financial plans with relevant personnel within the organisation Prepare contingency plans in the event that initial plans need to be varied 23 True or False Quiz 25 BSBFIM501A/02 Implement Financial Management Approaches Key Points Disseminate relevant details of the agreed budget / financial plans to team members Provide support to ensure that team members can competently perform required roles associated with the management of finances Determine and access resources and systems to manage financial management processes within the work team 31 True or False Quiz 33 BSBFIM501A/03 Monitor and Control Finances Key Points Implement processes to monitor actual expenditure and to control costs across the work team Monitor expenditure and costs on an agreed cyclical basis to identify cost variations and expenditure overruns Implement, monitor and modify contingency plans as required to maintain financial objectives Report on budget and expenditure in accordance with organisational protocols 43 True or False Quiz 45 BSBFIM501A/04 Review and Evaluate Financial Management Processes Key Points Collect and collate for analysis, data and information on the effectiveness of financial management processes within the work team Analyse data and information on the effectiveness of financial management processes within the work team and identify, document and recommend any improvements to existing processes Implement and monitor agreed improvements in line with financial objectives of the work team and the organisation 51 True or False Quiz 52 Summary 53 Bibliography 55 Assessment Pack 1

4 Use considered risk taking in your grey area...and others will follow you! Legend This symbol indicates the beginning of new content. The bold title matches the content of the competency and they will help you to find the section to reference for your assessment activities. Activity: Whenever you see this symbol, there is an activity to carry out which has been designed to help reinforce the learning about the topic and take some action. This symbol is used at the end of a section to indicate the summary key points of the previous section. This symbol is used to indicate an answer to the Candidate s questions or notes to assist the Facilitator. 2

5 Qualification Pathways There are always two choices. Two paths to take. One is easy. And its only reward is that it s easy. Source Unknown This unit of competency is provided to meet the requirements of BSB07 Business Services Training Package although can be used in a range of different qualifications. The BSB07 Business Services Training Package does not state how a qualification is to be achieved. Rather, Registered Training Organisations are required to use the qualification rules to ensure the needs of the learner and business customer are met. This is to be achieved through the development of effective learning programs delivered in an order which meets the stated needs of nominated candidates and business customers. 3

6 Qualification Rules You re either part of the solution or part of the problem. Eldridge Cleaver Qualification requirements include core and elective units. The unit mix is determined by specific unit of competency requirements which are stated in the qualification description. Registered Training Organisations then work with learners and business customers to select elective units relevant to the work outcome, local industry requirements and the qualification level. All vocational education qualifications must lead to a work outcome. BSB07 Business Services Training Package qualifications allow for Registered Training Organisations (RTOs) to vary programs to meet: Specific needs of a business or group of businesses. Skill needs of a locality or a particular industry application of business skills. Maximum employability of a group of students or an individual. When packaging a qualification elective units are to be selected from an equivalent level qualification unless otherwise stated. 4

7 Introduction Whether as an individual, or as part of a group, real progress depends on entering whole-heartedly into the process and being motivated to make you a more deeply satisfied human being. Source Unknown This unit of competency is all about being able to manage budgets and financial plans in your work team. It will help you with the skills you need to demonstrate competency for the unit BSBFIM501A Manage Budgets and Financial Plans. This is one of the units that make up Diplomas in Business. This manual is broken up into four distinct sections. They are: 1. Plan financial management approaches. 2. Implement financial management approaches. 3. Monitor and control finances. 4. Review and evaluate financial management processes. At the conclusion of this training you will be asked to complete an Assessment Pack for this unit of competency. The information contained in this resource will assist you to complete this task. You will then have demonstrated your ability to establish, maintain and evaluate the organisation s budgets and financial strategies and processes in your relevant work area. 5

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9 PART 1: Plan Financial Management Approaches Key Points Section 1 Begin by identifying a model for strategic financial planning and the criteria that need to be met to ensure effective financial planning in your organisation. There are four key stages to strategic financial planning: review the past, forecast the future, set strategies and plans and set annual budgets. Strategic financial planning needs to be fully integrated with strategic plans and these plans need to be produced for the longer term. Option appraisal (OA) is a tool to aid decision-making by assessing the advantages and disadvantages of different options that would, potentially, achieve the same objectives and outcomes. 7

10 Key Points Section 1 continued Key to the successful management of budgets is the requirement for the budget holders (managers) to act in partnership with the financial advisers (finance support staff ). Corporate systems generally record the actual levels of organisational spending and income, derived from the associated corporate computer systems that process debtor payments and creditor records. The management of budgets needs to be as flexible as possible if frontline staff are to be able to target resources where they are most effective. Organisations are required to undertake annual closure of accounts to meet legal requirements and ensure accountability is upheld. When financial information is linked to activity levels a view can be taken about the value for money of the use of resources. 8

11 Plan Financial Management Approaches In this first section, we will begin by identifying a model for strategic financial planning and the criteria that need to be met to ensure effective financial planning in your organisation. It emphasises the reflective nature of the planning process, the need for an integrated approach over the medium term and, most importantly, that the organisation s plans and priorities should drive the strategic planning process. The stages to setting up a strategic financial plan and to ensure that your objectives and goals are fully covered include: What Has Happened: Look at your demand and your spending. Look at the cash flows that are being received into your organisation - are the sources of these cash flows changing. Continue to look at and report on your actual financial performance and the end of year position of your organisation. It is important that you attempt to compare your actual results against the specific performance indicators that you expect to achieve. Look at any relevant accountant or auditors reports for any information that may assist your organisation in developing itself. Look to the Future: Identify cash flows in the future and forecast the levels at which they will exist. Determine relevant organisational policies and look at the impact of each on your organisation. Look at income and spending trends and how these will impact on the future. Put in Place New Strategies and Plans for the Future: Examine your overall organisational strategies and plans and put any new ones in place. Ensure that your financial planning takes into account the various strategies already in place within your organisation. Examine the knowledge that your staff have and their skill base to determine whether everything can be done. Use option appraisal. Set clear objectives and goals for buying new assets and purchasing strategies. Involve your stakeholders in financial planning. 9

12 Set Annual Budgets: Make arrangements for setting a budget. Make sure your financial plans drive your budgets. Ensure your budget managers are involved in setting your budgets. Ensure your work meets expected organisational standards for budgeting. Manage contingencies within your budgets. Set budgets for pooled areas of operation. Structure your budgets. Ensure that all your workers and stakeholders work within budgets. Ensure that you look both in the short and the long-term to avoid missing anything important. Linking Finance and Organisational Planning Like all forms of planning, it is important that you ensure that your financial plans are integrated with your overall strategic planning processes. If you only look to the short term when undertaking financial planning, it is highly likely that you will not manage your finances in an effective or safe manner. Change in financial planning needs to occur on a regular basis and this may involve looking to the longer term and linking overall strategy with financial strategy. When looking for methods that deliver the most for your organisation: Look long term Ensure your resources are targeted to your needs Provide best value Plan effectively. If you work to adopt a longer term approach to your financial planning you will find that: You are better able to estimate funding levels. Your budget allocations become more accurate. You can identify trends in demand. You can forecast how your market is likely to change in terms of demographics and this can then work towards a more accurate budget. You can implement change more easily. Change can occur over longer periods of time. Financial consequences of major programs can be planned. You can figure on changes to your human resources. Staffing needs and resources can be more easily redesigned. 10

13 Medium-Term Financial Targets Let s now look at your medium term goals and objectives Begin by identifying where all your flows are likely to come from. Produce a forecasted cash flow statement identifying the major ways in which your cash flows are likely to change. Before you can really start setting financial goals, you need to determine where you stand financially. David Bach 11

14 Look beyond what you know is going to occur and think about what may occur. Identify the level of your spending into the future. Ensure that you consult with your stakeholders about what they believe the major changes are likely to be. Think carefully about the proposed changes to the organisation as a whole and think about how this may impact the organisation s finances into the future. By taking this approach to your planning: You will find that your management is in a better position to deal with any major forms of change such as: Cost cutting Budget cuts Alignment of resources Changes to resource levels. It avoids the need to take quick reactive action when looking at your budgets. Using this approach all changes can be more carefully planned. It allows you to give managers an actual budget to work to, which in turn allows them to better plan the way that they will operate for example if they know their allocation will rise by 3% per year they know what they can afford to change. Option Appraisal We mentioned the idea of Option Appraisal earlier in this section. This tool allows you as a manager to make more effective decisions by looking at the advantages and disadvantages of the various options from which you are able to choose. Option Analysis aims to find the most effective way of allocating resources that are scarce in their nature. For example you never have enough money, so using OA you can look at various options for allocating that money and use this analysis to find which one might be the most effective for your organisation. Budgeting Let s now consider the way that budgets are used within an organisation. Budgets are crucial to managers effectively using their resources. They allow planning to work and plans to be more effective as a whole. However there are some key requirements for effective budgets: 12

15 Management Accountability Management must be accountable for the budgets that they have been set. There should be responsibilities set for all managers throughout the organisation. This may involve: Ensuring levels of responsibility are appropriate given the nature of the manager s level in the organisation. The difference between financial support staff and managers should be identified. It should be clear who is actually responsible for setting and analysing each budget set. Delegation roles should be clearly identified. Levels of delegation should be clear. It must be clear with regards to how the budget has been built in terms of pricing levels and how price changes and inflation may impact on the budget figures provided. To deal with this, you might: Anticipate the type and extent of price changes that might occur within the organisation and allow for these possible price changes when you are setting the budget. This means management becomes responsible for the price changes that may occur and the impact they may have. Price changes are noted as a possible contingency and this is allocated when price changes are actually determined. This means finance staff become responsible for the impact of any pricing level changes that might occur within the budgets being set. Either of these approaches requires that everyone is crystal clear about the accountabilities associated with any price changes that may occur in the future. Price change levels must be agreed on and the allowances that you set must be set in consultation with expert staff members so that the budget itself is an accurate reflection of what may occur. When taking into account possible changes to accountability be sure that: Everyone is aware of the changes and their impact. Any changes in decision making are only made at the very highest level of the budgeting process. If changes are made, original budget holders should not be responsible for any decisions made subsequently. 13

16 Budget Holders The second group of people you need to consider are the actual budget holders. Budget holders contribute to the actual setting of budgets and they provide information that is used in calculating specific budgetary figures. Their responsibilities include: Determining trends and identifying areas where budgets need to change. Reading and responding to budget reports. Analysing budget reports and identifying appropriate actions to take for corrective action. Implementing any such corrective action. If these responses to variances that have been identified in monitoring reports are not able to be appropriately addressed, then this inability needs to be taken to a senior manager so that they can be addressed or at least the overall position can be understood. Budget holders need to work with support staff within the organisation in order to: Analyse data Provide their expertise Identify trends. Finance and Support Staff The final group of staff who are involved in the budget process are the finance and support staff. Their roles include: Setting budgets and ensuring that budget holders are involved in this process. Setting a process in place for monitoring the budgets that have been set, reporting processes, timeframes for processing these changes and ensuring all relevant reports are produced according to these processes. The analysis of any financial data that is produced. Examining how data may impact on budget holders. Ensure advice is provided to assist budget holders. Accountable for the quality of the financial data that they produce. Put in place monitoring and reporting processes for financial decisions made by one staff member or department that may affect another. Accountable for the quality and timeliness of the financial data that is used for budget monitoring purposes. 14

17 Budget Structure Now that we have looked at the responsibilities of those involved in budgeting, let s now look at the actual structure of a budget and how you can ensure that it meets with accountabilities and responsibilities within an organisation. Some key points to consider: Budgets should be grouped together, so that those who undertake similar activities are all grouped together. Reporting lines should be consistent. Budgets that are the responsibility of a senior manager should be grouped together wherever possible. There should be some form of identification that ensures that non-operational budgets have someone responsible for their activity. Operational and non-operational budgets that work on similar areas should be grouped together so that one (1) person becomes responsible for them. 15

18 Monitoring and Reporting Arrangements Monitoring and reporting for your budgets is critical for success. You need to ensure that you put in place: Set timetables for both monitoring and setting up your budgets. Systems for ensuring that the data put into your budgets are both accurate and up to date. Reports are made available to management for analysis in a timely manner. Reporting should be undertaken at least once a month. Accounts need to be closed regularly and the data taken and input into your budgetary processes as quickly as possible. Debtor and creditor management thus needs to be as efficient as possible to ensure that the new year accounts are able to be produced quickly and for them to be as accurate as possible. 16

19 Reporting should occur from the bottom up. Monitoring needs to come from management and work its way down. Reporting should include: Actual expenditure Forecast or budgeted expenditure Any expected changes. The monitoring process needs to be reviewed on a regular basis to ensure any changes that need to be made are accurately reflected in the information that is produced. Such a review should be undertaken alongside overall strategic review processes. Forecasting Commitments and Expenditure Trends Let s now address forecasting. This is critical to the budgeting process as a whole, so ensuring that you get these correct allows your budget to be more accurate. Forecasting is generally the responsibility of the budget holders within the organisation as it is these individuals who will need to provide the information for forecasting to be given. A good forecast always: Ensures that expenses are correctly accounted for. Ensures expenses are coded towards the right budget. Ensures the expense and income is accounted for over the correct length of time. Financial commitments such as loans are entered for the right length of time. Ensures delays are accounted for. Ensures that the level of activity is correctly accounted for within the budget. Flexibility in Managing Budgets Budgets need to be flexible by their very nature. Always remember that a budget is never set in stone, rather it can be adjusted as needs be according to changes that are occurring within the organisation. 17

20 Systems to Support Budget Management Computer-Based Budget Management Systems There are various methods that are used to manage accounting and finance processes within organisation. Computerised systems now tend to be the most common, and have been implemented within most organisations quite effectively. You will find that any such system involves recording and reporting on: Organisational spending Organisational Income Debtor and creditor records Budgets Payment processing functions Contract management Budget management Financial analysis. Such a system should: Work with your other information systems Allow you to automatically compare accounts Maintains and updates budget management information Transfers information between budgets as appropriate Facilitates billing Allows for financial analysis to take place Records your expenditure commitments over time Records actual income and expenditure Makes making payments to creditors as seamless as possible Recording all costs at an individual level rather than grouping transactions together Provide for forecasting Providing all required reports Exporting data to spreadsheets Enabling information to be appropriately shared. 18

21 Closing the Accounts Let s now consider the closing of your accounts. This is generally a requirement from an accounting and legal point of view, which allows you to perform your budget management from the most accurate point onwards. At the point when your accounts are actually closed, you can undertake analysis of your finances from a true viewpoint and ensure that you know your actual financial position. The closure point also allows you to: Have a set point from where decisions can be made Have a set point for measuring performance. The closure point is important in that you can made decisions regarding: How budget managers are to examine their results Whether any under or over spends can be carried forward Whether any underspend needs to be given back Whether overspend needs to be given back at a future date Whether variance between actual and desired performance can be allocated to future projects. When dealing with these variances, ensure that you: Set out your approach, in writing, at the beginning of each period and ensure that everyone is clear about what is expected of them. Ensure that the approach you take to dealing with these situations aligns with your overall financial strategies and approaches. Keep your approach in line with regards to where responsibility lies, do not have responsibility for budgets at an operational level, but responsibility for variances at a strategic level. Ensure that any judgements about managerial performance are in line with any investigation with regards to the reasons for the variance. Ensure that people feel in control of the way that any variance is actually dealt with. Ensure that everyone is aware of what level of variance will make a full investigation occur, people need to know what level of variance is seen as acceptable and what level needs further investigation. Make sure that any such investigation is undertaken from someone outside the process itself. Do not allow managers to undertake their own investigations in their own department. 19

22 Managing Joint or Pooled Budgets Let s now consider the implications of a pooled buget. Ensure that: You are clear about the level of contribution to be contributed by your responsible managers You set the acceptable level of variation You are clear about how variance outcomes will be dealt with and that this is clear in the minds of all staff members Partners in a pooled budget are fully aware of how the budget will be managed Reporting responsibilities are defined Accountabilities are defined Management responsibilities are defined. Let us not be content to wait and see what will happen, but give us the determination to make the right things happen. Peter Marshall 20

23 Activity One - Question One Identify who influences the budget decisions in your workplace. 21

24 Activity One - Question Two What are the most common types of budgets in your workplace? Facilitator s Notes for Activity One Each organisation is likely to be different. The larger the organisation, the larger number of influencers and the smaller the organisation the more centralised the process is likely to be. The Candidates answer will probably include sales / revenue, production, cash, purchases, expenses, and capital. 22

25 Section 1 - True or False Quiz A long-term approach to strategic planning fails to deliver prudent financial management within an organisation. True False A short-term approach will do this. Major change programs have an impact on the human resources being assigned to existing programs. Product or service planning needs to be the main driver for change to achieve strategic priorities. Too frequently, budget heads relating to pay are included in the budget planning. Too frequently, the manager who is directly responsible for the product or service area does not include budget heads. The accountable manager must never indicate their understanding of the agreed budget together with the levels of activity that the budget is intended to reflect. The accountable manager must indicate this. Budgets for a number of managers should be grouped to reflect the reporting arrangements to a more senior manager. The outcomes from budget monitoring need to be occasionally reviewed against the financial plan. The outcomes from budget monitoring need to be regularly reviewed and the strategic significance of this evaluated against the financial plan. It is not difficult to ensure consistency when making comparisons across different organisations. It is difficult to ensure consistency of definitions when making comparisons across different organisations or that all relevant expenditure has been identified. When financial information is linked to activity levels a view can be taken about the value for money of the use of resources. Product or service planning needs to be the main driver for change to achieve strategic priorities, adequately supported by strategic financial and human resource planning. 23