Arts Organisation

Our training and consultancy services are delivered in a unique way which enables non-commercial organisations and their staff, engage with topics such as finance management. We are able to communicate private sector principles to the public and non-profit sectors in a way that makes sense to their particular sector. Arts Organisations often find focussing on financial management difficult as it takes energy away from creativity. However, all organisations have to be run in a way that is both viable and sustainable. We were able to help our client with this in a number of ways which included training the board members, working with the finance officer, and offering advice and input to the financial governance of the organisation. This included working on the way in which financial information is presented to assist with monitoring and control. Introducing concepts such as variances and projections proved very useful.

University

This internationally renowned university has been using our services for over 10 years. To begin with they wanted to develop a finance course for their staff including lecturers, heads of department, and Deans. Given that their focus is on the delivery of education it was always going to be challenging to encourage them to take responsibility for budgets. Time has shown how important these skills now are as the funding of higher education has changed. Universities in the UK have moved to a position where student fees now represent the majority of their funding, and new independent income streams need to be developed. Some of these are commercial in nature and financial skills are now essential for University staff. We have been able to assist in the transition and our budgeting course remains popular. In addition, we provide training on the Bribery Act and Fraud Awareness, along with Cash Handling

Local Authority

We were invited into this London local authority to assist with the training and development of staff across all departments. A comprehensive training needs assessment had been undertaken highlighting a range of areas of skills development. We were invited to develop programmes to meet the training needs in the area of finance. The requirements included training staff in budgeting, budget monitoring and control, as well as using the financial systems. In addition it was recognised that the finance staff supporting managers also required training. Our solution was to develop 4 programmes which included SAP training. As part of the delivery we produced training manuals for the courses and assisted with the development of an in-house user manual for SAP. We have now worked with this authority for 15 years and they continue to be one of our clients. Over this period of time our programs have developed with the changing needs and environment. The participants now use our online assessments as a pre-course benchmark , and all budget holders have access to SAP , and use it in the budgetary control process. This organisation ensures training in this area is available for all new staff and those who wish to refresh their skills by integrating it into their management development courses.

6 Budget Setting Techniques – Explained

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The budget setting process is crucial for effective budgetary control. Budgets should accurately reflect the services being provided. There are several budget setting techniques that can be used for both expenditure and income budgets.

These techniques can be used independently or in combination, depending on the type of budget implemented.

The 6 widely used budget setting techniques are:

  1. Incremental budgeting
  2. Zero based budgeting
  3. Cash limited budgeting
  4. Resource restricted budgeting
  5. Activity based budgeting
  6. Contingency budgeting

1.     Incremental budgeting

The incremental budgeting technique uses historic income and expenditure data as a starting point. This data is usually acquired from the previous year’s budget, accounts, or a combination of the two. The historic data is used as the baseline to formulate the budget for the following year.

The budget can be set by implementing the following procedure:

  • Consider each budget heading separately
  • Add or subtract inflation factor to the historic data
  • Adjust for other known factors such as savings or approved growth

Advantages

  • Simple
  • Quick
  • Accurate – only if there is little change in activity

Disadvantages

  • Historic
  • Doesn’t consider any necessary future changes
  • Assumes the base is accurate
  • Compounds historic errors

 

Incremental budgeting should be used for expenditure that are unlikely to change. For example: when staff is constant, salaries can be budgeted for incrementally. Factors like increase in pay due to a bonus or annual inflation rate can be added.

2.     Zero Based Budgeting

The zero-based budgeting technique is the most recommended and popular technique, as it is linked to the business planning process. A zero-based budget assumes that all budgets are derived from first principles and that the organisation can start the budget anew – with a zero base.

The budget is then based on the objectives to be achieved in the time period, without necessarily referring to the past.

Advantages

  • Proactive and focused on business objective
  • Realistic and accurate
  • Links into business plans

Disadvantages

  • Time consuming
  • Requires clear objectives
  • Many organisations cannot begin with a zero base as they have previous commitments to uphold. This can include existing staff, buildings and contracts, which they are obliged to continue – at least in the short term

 

The advantages of zero based budgeting generally outweigh the disadvantages. Where possible, zero based principles should be adopted, even when an organisation cannot have a complete zero-base budget to begin with.

3.     Cash Limited Budgeting

The cash limited budgeting technique is appropriate when a limit is set on total net expenditure. The manager must determine what can be delivered within this cash limit and create a budget accordingly. This technique can be difficult to implement when the objectives of the business for that time period have been set without considering the cash limit.

The budget can be set by implementing the following procedure:

  • Identify fixed cost, i.e. those that cannot be reduced
  • Spread the balance of the budget across items which are flexible

Advantages

  • Clear parameters on expenditure
  • Quick
  • Provides incentive to increase savings

Disadvantages

  • Services may have to decrease quality, quantity, or both to stay within the cash limit
  • Not necessarily linked to business objectives, which may include a need for change or development
  • Presumes that there is enough flexibility in the budget to operate within the overall cash limit
  • Inflexible – It is not practical for demand led/statutory services

4.     Resource Restricted Budgeting

Resource restricted budgeting is useful when resources to be utilised by the business are restricted. Resource restriction will usually apply to:

  • Staff
  • Equipment
  • Property
  • Finance (cash limited budgetis a form of resource restricted budget)

There are many reasons for restricting resources.

For example: it may be beneficial for the whole organisation to restrict staff numbers. This may be required because recruiting an additional full-time staff is an on-going commitment that the organisation may not be able to fulfil. Hence, restricting staffing resource is a common budget setting approach.

Advantages

  • Clear parameters on expenditure
  • Quick
  • Organisation maintains strong control over its resources

Disadvantages

  • No consideration of the practical impact of restricting resources and the impact on services
  • Not linked to business objectives, which may include a need for change or development
  • Inflexible – It is not practical for demand led/statutory services

5.     Activity Based Budgeting

Activity based budgeting is based on the cost of providing an activity or service. When the budget needs to be reduced or adjusted, each activity will need to be examined. A decision will be required as to which activity should be ceased or reduced.

This method of budgeting is only possible if there are clear divisions between each activity, to indicate clearly where resources are allocated. When resources are shared (such as staff, premises, etc.) implementing the activity-based budget is difficult. Accurate resource allocation methods such as the time charged by staff, allocating square footage, and utility usage, etc. will be required.

Advantages

  • Resources are clearly matched to its service provision
  • Forms a base for unit costing
  • Highlights the most expensive activities

Disadvantages

  • Resource allocation may not be accurate
  • Detailed work needs to be undertaken to isolate each activity and the resources consumed
  • It is not practical for services where a flexible approach is required and/or where resources need to be moved between activities in response to demand

6.     Contingency Budgeting

The contingency budgeting technique uses a broad approach to budgeting. Limited effort is used to establish estimates for each budget heading. A contingency amount is provided to compensate for poor estimates, changes in demand, and insufficient resources.

The contingency budget can be used flexibly across any of the budget headings. The level of the contingency will depend on an estimation of the risk of error within the budget. If it is considered that the budget has been calculated to an accuracy level of 80%, then a 20% contingency may be added to the budget.

Advantages

  • Quick
  • Easy
  • Flexible

Disadvantages

  • Inaccurate – involves a lot of guess work
  • Insufficient thought given to linking service with finance
  • Difficult to monitor

What Next?

It is important to understand the different budgeting factors that need to be considered when setting the budget. These factors are the input element that determined the expenditure and income, and hence the budget. Understanding these factors enables budget holders to think creatively and implement effective control.

Using the correct budget setting techniques is crucial for setting realistic budgets. Learn more about all the important aspects required to set budgets from our book, Managing the Devolved Budget. This publication is a learning resource and contains examples and exercises that enable you to apply your theoretical knowledge in practice.

Going Global with Export Worldwide

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We now feature some of our finance books and courses on the export worldwide platform. This enables our landing pages to be viewed in 20 different languages such that all our customers can engage with our products. Please view our pages and feel free to find our more by contacting us.

 

Making Budgets Work – Free eBook

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Our free eBook is now available to view by following this link.

 

 

Avoiding a serious financial situation

We offer free finance training advice.

Whilst Northamptonshire County Council (NCC) faces a serious financial situation (BBC 6th February 2018), it should have come as no surprise given their recent financial statements. Not only were there deficits arising from operations but also the balance sheet shows liquidity issues. When current assets are less than current liabilities all officers should be concerned about how the bills will be paid. In many organisations, sometimes there is a woeful lack of financial awareness and understanding amongst senior managers, resulting in a “head in the sand” approach to budget management and control.

Budget holders are often not aware of the “big picture” in respect of the financial position of their organisation, and training is often an easy target for budget cuts. The cost benefit of an investment in financial training for all staff that spend an organisation’s money is immeasurable. Council’s such as NCC should, and must ensure that managers are not only competent in the area of their business but also have financial competency as a core skill. These managers are the ones who make the difference in achieving savings and managing finances.

There are many Councils and other publicly funded bodies (the NHS springs to mind) who are on the cusp of a serious financial situation – and some do not even know that they are!! Action must be taken if savings are to be made; service quality improved; and financial viability maintained. We at HB Consulting have been beating the drum for over 25 years identifying that finance is one of the “Essential skills for the public sector”. We hope that many more local authorities, and others, begin to listen.

The training services we offer can really make a difference. Attend one of our finance courses, read our books, or let us tailor the ideal finance training programme for your organisation. Contact: mailto:info@hbpublications.com for a free, no obligation discussion about your requirements.

Winter Newsletter Now Available

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Email info@hbpublications.com for a copy of our Winter Newsletter.

Included is “How to achieve value for money” along with “special offers”.

There are substantial discounts on our books, and anyone requesting a copy of the Newsletter will be able to get a 20% discount by quoting reference “Winter2017”

Online Competency Assessments are an Ideal Tool for Recruitment

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Recruitment can be a very costly exercise, particularly when it relates to management positions. In particular, the public sector has limited resources and cannot afford mistakes. Some candidates appear to be highly qualified, and do well at interview, but do not perform well when appointed. HB Publications and Training International has a competency assessment tool which can be used to identify levels of both skills and knowledge required for the post, and how well the candidate can apply these. Our assessments are online and can therefore be used at any time. They have been used internationally where candidates have been able to take the assessments in advance from any location as part of the short listing process. It provides an objective measure which is very important within the public sector to ensure fairness. HB Publications and Training International has developed content specifically for public sector organisations for the last 25 years, and understands the objectives led approach for non-profit entities. We are therefore able to develop bespoke assessments to measure competency levels required for specific roles according to the job descriptions and organisational requirements. For more information and to discuss using our assessment tool just contact us at info@hbpublications.com

Coaching for Managers

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We are pleased to offer one to one coaching for managers in all aspects of finance, accounting, budgeting, interpretation of accounts, etc. Our role is not only to impart knowledge and skills where required but also to act as a “critical friend” to help as an objective sounding board in decision making. This service is particularly useful for managers who have little or no time to attend formal training sessions. Please contact us for an initial free consultation on 0208 769 1585, or email us at info@hbpublications.com reference COACHING

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