¶ … budget management analysis, it generally looks at how budgets can be effectively managed so as to be in line with the forecast that was earlier made. The first section of the easy spells out different strategies that can be applied to effectively manage budgets. The second section looks at budget variance and how they arise and what strategies can be used to remove them. The last section of the study will indicate three bench marking techniques that can be used to improve the accuracy in future forecast.
Strategies to manage budget within forecasts
Budget as a financial plan is based on expected future activities and is used to control that activity and hence it is possible to make a number of forecast of the financial outcome under different assumptions and the forecast which best meets the firm's or individual objective and is within its capabilities is chosen as the budget. The individual or company's management must then convert the budget into a plan which must be put into action. For individual we term our budget as simply personal budget while companies or business organizations budget have varying budgets that include; the sales, production, general and administrative, cash and the master budget.
The first strategy on how to manage budgets within forecast after they have being agreed upon is to appoint a manager who will be responsible to ensure that the whole organizations maintain their spending within the estimated budget, he or she will also act as coordinator among different departments to ensure that each and every department of the organization limit their expense to the budget.
The second strategy of which is echoed by New York's mayor Mr. Bloomberg who is also a business leader is to always allocate more funds than the budgeted funds, this small proportion left is to cover for emergencies and unexpected expenses, this in a way makes the budget flexible and assures the business of liquidity even in harsh economic times that were unexpected.
Adopting policies and principles...
These policies should also govern how budget balances and the minimum reserves are to be used.
According to studies conducted by Burrows and Syme (2000, 226-241), they suggests that; for individuals to strategically manage their budget within their own personal spending forecast first they have to be financially disciplined. Secondly they have to save a big portion of their income than the portion they intend to budget on or if this is not sufficient they should opt for an emergency fund so as to avoid interfering with their budgets.
Edwards and Mellet (1991, 443-445) who is also a financial advisor is quoted in his writing as suggesting that "individuals should adopt short-term saving strategies so as to manage their budgets effectively, such savings could be used on major expenses that have been planned well ahead like going for a safari.
Comparison of expense results with budget expectations
Using the financial statements of Stevens hospital, the essay will look at five expenses results with the budget expectations that the hospital had earlier set in the month of July the year 2010, the arising cost variance will be explained and also an appropriate strategy will be mentioned that could have been applied to keep results aligned with the expectations.
Operating expenses expense result (actual) Budgeted Variance
Salaries and wages 6,829,000 6,890,000 60
Employee benefits 1,738,000 1,583,000 -155
Supplies 2,596,000 2,656,000 61
Purchased services and Prof fees 1,317,000 1,417,000 99
Insurance, utilities, repairs and rent 785,000 803,000 19
Total operating expense 14,016,000 14,081,000 65
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According to these financial statements there was a budget variance in…
