Managing the Budget Essay

Budget Management Analysis

So much connected to the process of budgeting is difficult. It can be difficult to draft a budget which is accurate and which connects to all project needs. Moreover, it can be quite challenging to stay within the guidelines of a budget. However, organizations and projects must be held to that regardless for their present and future success, not to mention their own level of sustainability.

Thus, whenever finance teams draft budgets, there still need to be people on the accounting team who are specifically there just to enforce the budget and to ensure that all members of the team are able to follow the guidelines set forth. Even with these specific professionals involved with the project, there is still a need to engage in concerted steps to ensure that the project remains on budget. Specific measures need to be taken by the accounting and finance team even after the initial budget is drafted. The first is that the budget needs to be continually forecast and re-forecasted. "A project run without frequent budget management and re-forecasting will likely be headed for failure. Why? Because frequent budget oversight prevents the budget from getting too far out of hand. A 10% budget overrun is far easier to correct than a 50% overrun" (Westland, 2011). Thus, this creates a scenario, where it is more and more likely that the project will stay on par with the budget -- as long as the budget is reviewed in a consistent and timely fashion. This type of vigilance can mean the difference between going over budget or staying within the financial restrictions.

Part of the necessity of forecasting and re-forecasting revolves around the fact that budgets are almost inaccurate by definition. Even though technology has evolved at such a rapid pace, most organizations are dependent upon some imperfect spreadsheet model to engage in the process of budgeting and projections and these are extremely imperfect methods (Hunt, 2013). Furthermore, during the entire budgeting process, the data goes through a range of hand-offs, being passed around among professionals, and going through a range of revisions. This constant movement allows the budget to be vulnerable to inaccuracies all over: "Inaccuracies arise due to lack of version control, transposition of numbers, and unallocated numbers ('buckets') with aggregated data not equaling the sum of their parts" (Hunt, 2013). These flaws should not be underestimated as they can cripple the success of a project. The influences that such flaws can have can also undermine the project, causing an absence of confidence in the numbers and the capability of the data and planning to deliver on their objectives (Hunt, 2013). It's also important to realize the professional destruction that this can wage on the entire community of financial analysts and accountants. Every time this community provides a project with data or budgets that turn out to be inaccurate it causes others to lose faith in these professionals.

Another pillar that needs to be regularly assessed and re-assessed is the forecast usage: this is because the people who work on a project generally make an impact on its cost (Westland, 2011). Project managers have the responsibility to constantly check the amount of people who are committed to the project and the project's current and eventual resource list on a regular schedule (Westland, 2011). Such efforts can help safeguard the project and see to it that the funds are adequately used for the rest of the project's life (Westland, 2011). This is yet another strategy that can greatly ensure that a project stays on task.

Communication is absolutely vital in order for the smooth execution of the project as a whole and in keeping all project members informed. "An informed team is an empowered team that takes ownership of the project. By keeping the team informed of the budget status, they will be more likely to watch their project charges and far less likely to charge extra 'gray area' hours to your project" (Westland, 2011). Another aspect of the project to manage is the scope: the proper management of the scope can help ensure that the project continues to run smoothly and efficiently. One thing that can prevent projects from moving forward and on target is the tendency of unplanned work to find its way in to the project's daily tasks: when this occurs the billable hours start to stack up and can spiral out of control (Westland, 2011). Thus, to prevent this from happening, it's really all up to the project manager.The project manager needs to be the one to verify that any tasks which need to be completed that don't fall into the project's scope and original specifications, will be swapped out. Thus, it's really up to the project manager to engage in the highest amount of vigilance (Westland, 2011).

Another way in which variance can be prevented is via transparency, something which goes hand in hand with strong communication. An absence of transparency can cause a lack of accountability: when paid professionals don't have access to viable data that they need in order to do their jobs correctly, morale and faith in the project can suffer. Project leaders and managers can work tirelessly to compile data and numbers that receive no response from senior management, and often don't have access to data for further scrutiny (Hunt, 2013). This can create a scenario where the entire forecasting and budgeting process is viewed from a more jaded perspectives: project managers can start to see this as "just another management request for information" (Hunt, 2013). Such a tendency can undermine the team's ability to work together harmoniously and can give the entire budgeting process a look that isn't serious or meaningful.

Five Expense Results and Variance: Reasons

One major arena of variance that occurred in this regard was in the department of salaries and wages and overtime. For example, salaries and wages were budgeted at $477,000 with the actual expenditure coming out at $486,132, thus creating a variance of $9,132. Similarly, the amount of overtime budgeted for was $4,400 with the actual overtime being paid out was $8,162, thus creating a variance of $3,762. These elements of variance were largely a result of the fact that this project was riddled with poor planning and poor supervision. Such an excess of employee pay generally indicates that extra people were hired in order to fill jobs and tasks that no one had foreseen as being important or needing. The same goes for the amount that had to be paid out in overtime: such variance in that arena indicates that there was poor planning and skewed expectation regarding how much time was going to be needed to complete certain projects. Another category, "travel, meetings-domestic" had $400 budgeted for it, when in reality, none of this money ended up used. Such variance offers a clear snapshot at how chaotic and unexpected much of this project's journey was. The fact that no travel occurred for domestic meetings demonstrates that there was poor organization and that meetings which needed to happen likely did not. Similarly, office supplies were budgeted at $1,400, but ended up costing $1,912, thus with a $512 variance. Such a trend fits in with the fact that extra salaries (and thus people) were needed, thus causing a certain amount of excess use of office supplies. The extra individuals in the office space caused a greater consumption of the supplies needed in order to be productive. In a comparable fashion the amount budgeted for "education/conferences and seminars was originally just at $1,800 but ended up costing $3,000, thus creating a variance of $1,200. Again, all the extra people needed to complete work that was not planned for meant that they have to be trained and met with, thus warranting this extra expense.

Three Benchmarking Techniques

The first bench marking technique would be to juxtapose the current performance against the standard so that the objective can be better placed in context (Azevedo et al., 2010). Once the objective is set, another benchmarking technique to go through midway through the project is to reassess the objective as a whole, and to determine if the goal set is realistic. Another benchmarking technique would be to scrutinize some of the sub-regions of a project team and to look at how their performance is going. Sometimes examining these smaller sub-groups can give one a more accurate temperature read on the project as a whole.

In conclusion, while the process of drafting budgets is riddled with flaws, it is still an important task and one which needs to be executed as strongly as possible in order to ensure the success of the project. Benchmarking techniques and intensive organization can help budgets succeed. More than anything, budgets need to be constantly re-forecasted through the life of a project to ensure their accuracy and the completion of the project.

References

Azevedo, J., Newman, J., & Pungiluppi, J. (2010, March). Benchmarking: A tool to improve the.....