Depending on what you get out of it, a paid app may be worth the cost. Not a fan of apps? A spreadsheet is another valuable money-tracking tool. You can find a variety of free budget templates online, and NerdWallet also offers an online budget worksheet. Richard H. Serlin, adjunct professor of personal finance at the University of Arizona, recommends Quicken Premier, which lets you import your bank transactions and monitor your investments.
How to Plan, Create, Use Budgets. Budget Variance Analysis Steps.
As you track, be ready to make adjustments. At NerdWallet, we strive to help you make financial decisions with confidence. To do this, many or all of the products featured here are from our partners. Carefully designed formats for preparing the budget and reporting budget performance will highlight actual versus planned levels of activities. The budget committee should also decide about the frequency of submitting reports on actual performance; primarily this depends upon how critical is a particular activity. The department or cost centre should be required to submit a detailed budget, indicating establishment expenses and other expenses Figure 3.
Establishment expenses would generally include salaries, wages and other staff-related costs. Each cost centre would indicate both plan and non-plan expenditure: non-plan expenditure is incurred on ongoing activities and programmes and is generally recurring, while plan expenditure is on new activities and programmes.
Total plan expenditure is what is spent on capital and revenue items. Details of plan expenditure for new activities and programmes are discussed in the next session. Once departmental budgets are obtained, the information can be conformed and collated to provide the basis for the institute budget. Figure 3 Dimensions of the overall budget Control Planning is a process of stating what we want to achieve, and trying to achieve what has been planned.
Future outcomes are controlled on the basis of what has been achieved in past. Control is possible only if we have established criteria against which the actual accomplishments can be compared. The indices developed for the purpose of evaluating planned tasks and actual accomplishments Session 1 of this module provide important insights into achievement efficiency of planning.
However, a detailed investigation of the outcome of these indices is required. To ensure that plans are achieved requires that activities and operations of the organization are coordinated in such a manner that the achievement of plans is given more emphasis.
Any departure from the planned figure is treated as serious, and a detailed examination of factors causing such deviation is undertaken. Emphasizing what can be achieved can be an outcome of changed circumstances which have made such achievements possible now.
Variance analysis Planning and control are future-oriented activities. However, past achievements cannot be altogether ignored, because it is on the basis of past achievements that one draws expectations about the future. This is known as variance analysis. The objective is to strengthen the control process in the future by eliminating negative elements and encouraging positive ones. The analysis draws attention to weaknesses of operations in the past and forces management to make a concentrated effort to minimize them. In situations where variance is favourable, insights into capitalizing positive aspects of activities are provided.
For looking into the reasons for variance, we have to primarily investigate two dimensions. One is the prices paid for various items purchased by the organization, and the other is the quantities of the items used. The actual price and actual quantities used are compared with the budgeted prices and budgeted quantities to assess the variance: first, that arising from price variation, and, second, that from usage.
The following expressions can be used in evaluating total variance. Positive variance in both would imply that the actual price or actual quantity is less than that originally budgeted, and hence the variance would be favourable. In contrast, negative variance implies that the actual state of affairs exceeds the budgeted figures, and hence the variance is unfavourable. The sum of the two variances would be the total variance. The aim of breaking the total variance into two components is to separate the influence of changes in prices from changes in quantities used. When analysing variance, two points are important.
The first is that change in the scale of activities and operations has an effect on variance.
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Suppose that a research organization has a research project and plans to employ 10 people temporarily to cultivate 50 plots of land. For a variety of reasons, the project actually employs 18 people and cultivates plots. The actual value is likely to be greater because of a change in the scale of activity. This should not be seen as negative variance. Variance has to be adjusted for a change of scale.
Similarly, quantity variances may not be because of inefficient use of resources. The second point to note is that it is very important to separate the influence of rising prices from price variance. A comparison of prices with the base period price may help the analysis. After including these two adjustments if necessary, one can look into the factors responsible for variance. One practical difficulty which management may face in doing such an analysis is the existence of a large variety of costs and associated variances.
It may not be possible to keep track of all variances, both small and large. It would be useful to analyse the variances of those items which involve big sums or have relatively large variances.
Understanding How to Manage Budgets
Management could design the classification system based on grouping all the various costs into A, B or C categories. This is called A-B-C analysis.
Class A would include all high-value items. Variances for this class must be investigated in detail. Only large variances would be investigated in the other two categories. Internal and external auditing The basic objective of any control system is to provide information about how well things are going and to indicate how better results might be achieved.
There will always be an unending search for the best. Each control system should provide feedback about less costly or more efficient ways of working. The organization cannot allow all activities to take place without following general rules, procedures and policies.
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To make the control system more effective, the organization draws up in advance, policies and procedures which guide and govern decisions and their implementation. These procedures and policies are generally adopted to promote efficient operation and conserve scarce resources. It is very important for management to see that all actions comply with the agreed procedures and policies.
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Sometimes donor agencies also force the organization to follow a broad set of rules to guide and govern decisions regarding use of funds. Auditing is a systematic process of evaluating transactions to determine an organization's compliance with prescribed policies and procedures.
The objective of auditing is to minimize the likelihood of fraud, misappropriation, waste or inefficiency. The audit procedure should ensure that activities are performed efficiently. The audit report should indicate whether the organization is moving towards the desired goals. The audit process is conducted by a competent and independent authority, which systematically examines the financial records and other information.
The audit process - broadly speaking - has four elements: financial, compliance, operational and programme audits. These are considered below.