SITXFIN009

Manage finances within a budget

Introduction

Chapter 1: Allocate budget resources

Chapter 2: Monitor financial activities

against budget

Chapter 3: Identify and evaluate options

for improved budget performance

Chapter 4: Complete financial and

statistical reports
 •1.1. Allocate funds according to budget and agreed priorities.
Chapter •1.2. Discuss changes to income and expenditure priorities with
relevant colleagues prior to implementation.

1: Allocate •1.3. Consult with and inform relevant personnel about resource
decisions.

budget •1.4. Promote awareness of the importance of budget control.

•1.5. Maintain detailed records of resource allocation according to
resources organisational control systems.
 1.1. Allocate funds according to budget and agreed priorities

Need for budget

A budget helps the business to cut costs and increase profits
• Tracking business growth: By setting specific targets for
in the following ways:
sales, profits, cash inflow and outflow, as well as other
financial analytics, a business ensures effective tracking of its
• Effective decision-making: Managers or
growth over a certain period. Companies can follow a
successful growth pattern by prioritising the areas that supervisors who manage their department's
require improvements. finances or the whole organisation can make
effective financial decisions effortlessly.
• Reducing unnecessary costs and increasing profitability:
Companies can allocate funds along with cost-cutting as their • Improved profitability of the business: Effective
priority. The budget can be distributed to the overall business management of finances helps the managerial
departments and operational areas to minimise expenditure. personnel use the financial resources efficiently.
Furthermore, reduced overall expenditure leads to an Increased productivity facilitates large profits.
increase in the business's profit margin.
• Economic stability: Financial imbalances that
• Improving poorly performing areas: Businesses can also
arise naturally or as a result of significant adverse
identify certain areas that require improvement. Once these
and unforeseen events are dissipated when a
areas are identified, they can be improved by proper
financial plan is in a range of stability.
budgeting. Additional focus can be provided to these areas,
and funds can be allocated accordingly.
 Types of budget
• Cash: Cash budget is the process of determining the total cash flows, i.e., inflow and outflow of the organisation. A cash budget
allocates a certain amount of cash set aside for carrying out the routine operations of the business. A cash budget is formulated to
avoid a cash shortage at any specific point in time.
• Departmental: Departmental budget comprises the budget resources or funds allocated to each department of the organisation,
such as sales, marketing, customer service or accounting. It can also be defined as the financial plan associated with each
organisational department that lays down its spending requirements during a financial year.
• Project: The project budget determines the funds required for the project from its beginning till the point of its wrap-up. It is the
combined cost of all the operations, tasks and objectives that are needed to be accomplished by the project.
• Purchasing: A company's purchasing budget estimates the cost of all the materials required to be purchased during the regular
course of business. These materials can include raw materials, office equipment and stationery items.
• Sales: A sales budget strives to estimate the total revenue earned by a business during a particular time duration. A sales budget is
an effective tool that allows organisations to use and manage their resources as per the predicted sales and revenue.
• Wages: Wage budget is defined as the amount or reserve of funds set aside for an organisation's specific time to pay salaries or
wages to its employees.
• Master: A master budget is the overall combined budget of the organisation. It includes all the other budgets set by the company's
management.
• Estimated revenue is the amount forecasted or expected by the
management to be earned in a specific duration. Estimation of revenue
can be done with the help of sales forecast and estimated cost of goods
sold or services provided by the business. The sales can be effectively
forecasted by analysing past sales patterns and business performance.
• Overheads/Operating expenses: Overheads are the ongoing expenses
incurred by the business in its day-to-day operations. These expenses are
incurred for carrying out the routine activities of the company, such as
salaries, insurance, maintenance and legal actions. Overheads are broadly
categorised into two types:
•
Components
Fixed costs: Fixed costs do not differ with the sales or production
level changes. Examples include salaries, rent and repayments.
• Variable costs: Variable costs vary as per the volume and level of
production and sales of goods and services within the business.
Examples include the cost of raw materials, electricity bills and
casual labour wages.
and format of
• Cash flow: It refers to the movement of cash from inside of the business to
outside (known as outflow) and its movement from outside of the
company to inside (known as inflow). Refer to KE 2.1 to read more about
a budget
the cash flow budget.
• Profit: Profit is the concluding or final part of the budget. It is estimated or
derived by subtracting the estimated costs from the forecasted revenue.
• Variance: It is a term often used in financial management and budgeting.
It is used when the actual costs are either higher or lower than the
estimated costs. An unfavourable variance indicates an excess of actual
costs over the estimated costs, whereas a positive conflict indicates a
reduction in actual costs as compared to the estimated costs.
 Allocating funds
An organisation requires several resources essential for its survival. Funds are one of the resources needed by the
organisation to ensure the smooth functioning and running of its operations without any financial challenges.

Funds can be allocated by following the steps explained below:

• Identification of requirements: The foremost step in the fund allocation process is determining the spending requirements of the
specific project, activity or department. Different types of business areas bear different financial or monetary needs. For instance,
the funding requirement of the sales department will be greater than that of the planning department.
• Determination of resource needs: Resource requirements should also be considered while allocating the funds. Staff
requirements may differ from department to department. Similarly, different operations may require different types of
equipment.
• Assessing budget: The estimated budget plays a significant role in the funds allocation process of the company. It is the maximum
monetary bar set for significant activities and departments of the organisation. Hence, the funds must be allocated accordingly.
• Assessing the company's goals and priorities: Fund allocation cannot be done before evaluating the goals and priorities of the
company. A company may have specific financial goals or priorities from the estimated or proposed budget to be implemented.
These priorities or goals may include increasing sales by 30% or reducing overheads by 10%. Funds should be allocated in such a
way that ensures the accomplishment of the agreed goals or priorities.
 Need for changes to priorities​

Changes in the external environment: The external

environment for every kind of business is dynamic and
unpredictable. Changes can happen frequently, and
1.2. Discuss business management may be required to address
those changes and take relevant actions promptly.
changes to income
and expenditure Changes in the internal environment: Changes may
priorities with also occur within the organisation, i.e., the internal
environment. These changes are generally
relevant colleagues implemented after a consultation. Internal changes
also affect the budget allocation to different areas of
prior to the organisation.
implementation

The income and expenditure priorities changes can be

discussed with the relevant colleagues in a meeting or group
discussion. For instance, if there is a technology upgradation
that affects the budget allocation to equipment and
maintenance, the same should be discussed with the managers
and relevant staff members through a group discussion.
 1.3. Consult with and inform relevant personnel about resource decisions

Ways of consulting and informing relevant personnel about

resource decisions
• Verbal
In this type of communication, the information is shared using speaking. Face-to-face
meetings are the most popular and common way to share information. The daily,
Need for consulting and informing relevant emergency and discussion meetings are some prime examples.
personnel about resource decisions Non-verbal
The conclusions of the consultation should also be Communicating and exchanging messages without speaking is known as non-verbal
informed to the relevant personnel. Timely informing communication. This type of communication is not relevant to the consultation
the appropriate managers or supervisors about the regarding budget and resource allocation.
budget and resource decisions taken as a result of the
consultation is essential as they are the ones who • Written
implement the decisions and plan the activities or
Any written message that two or more people send is considered written
operations of their specific team within the allocated
communication. This communication conveys information to others by writing or typing
budget.
the content in the appropriate formats. Popular written formats of presenting and
informing budget and resource decisions include reports, emails, messages, memos and
notices.
• Visual
Multimedia combines text, graphics, video, and links that allow users to interact, create,
and communicate. The recipients are more likely to be engaged when information is
conveyed via an audio-visual mode, as in presentations that are usually made using MS
PowerPoint application.
 Budgetary control refers to the management of income earned, and the expenditure
incurred by each area or department of the organisation. Each department or area's
actual revenue and spending are regularly monitored and compared to the estimated
income and expenditure. It is done to determine whether the planned budget assists

1.4. Promote the organisation and each department or area in operating to its fullest potential and
performing as per the expectations.
This practice is vital for accomplishing the following:
awareness of •Decision-making using relevant data: In budget control, the managers regularly
monitor and track the revenue earned and expenses incurred by the organisation due to

the importance
their respective teams or departments. The data recorded in this process is analysed
and evaluated by the managers.
•Allocation accuracy: Budget and other resources for the different operational areas or
of budget departments are divided based on the historical data and trends identified during the
past years. However, some departments may be underperforming or exploiting their
funds and other allocated resources. The practice of budget control helps the overall

control management of the company to keep the departments in check for wastage or
exploitation of funds or other resources.
•Optimum utilisation of funds and other resources: In order to implement budgetary
controls, the managers make sure that the funds are used optimally, maximising the
productivity of their departments. Optimum allocation of funds in each department
also facilitates proper utilisation of other resources without waste.
 Types of budgetary controls
• Operational budgetary control: It is used to monitor and control the sales and operating
expenses of the organisation. It synchronises routine operations or activities of every department
as per the allocated budget. Furthermore, it ensures adherence to the financial plan.
• Cash flow budgetary control: It is a control used to check whether the actual flow of cash is in
accordance with the planned cash flow. It ensures that the company meets the requirements of its
working capital at any given point of time. An adequate level of cash is maintained to fulfil urgent
or contingency financial needs, such as repayment of loans.
• Capex budgetary control: Capex budgetary control monitors and controls the capital
expenditures of a company, including the purchase or expansion of machinery, property, and
equipment. It assists corporations in estimating and controlling capital expenditure directly
involving significant investments.
 Ways of promoting awareness of
budget control
• Budget auditing and reporting: The managers should be asked to prepare
monthly or annual budget reports that predict the future financial decisions of
their respective teams or departments. When the managers prepare the budget
reports, they take the current and future financial circumstances as well as other
requirements of the department into consideration.
• Encouraging communication: The managers should communicate with the
relevant stakeholders regarding the budget goals and plans. They can explain the
financial trends and reports to them in simpler terms. Open and supportive
communication allows the managers to explain their concerns regarding their
departments' financial status and seek advice from colleagues or stakeholders.
• Rewards and recognition: The department that effectively utilises its funds and
other resources and increases the business's profitability must be recognised and
rewarded for its efforts.
 1.5. Maintain detailed records of resource allocation according to
organisational control systems
The records of the resource or budget allocation act as evidence for future circumstances. It helps to avoid conflicts within the
department or among different departments. Records of resource allocation are also maintained to refer to them for future
purposes. These records might be referred to for preparing the budget for next year or determining the spending pattern of the
organisation as well as each department.

Process of creating and using resource allocation records

• Create: Management can use online tools such as Centage, Scoro and Adaptive Planning, to allocate funds and keep the allocated budget's digital
records. Furthermore, they can be used to generate and maintain other budgeting insights, such as revenue comparison, income-to-expenditure ratio
or deviation due to actual and forecasted income and expenditure differences.
• Use: Resource allocation records can be used for many purposes by the managers and the management, such as checking the current budget
weightage of each department, determining the department with the highest or lowest spending, or analysing the overall financial impact of the
budget allocation on the business.
• Retain: The records created and stored online are easily accessible with just a few clicks. Moreover, they are easy to communicate and share with
various concerned individuals. Physical records can be kept in files and folders to retain them.
• Appraise: The records are administered or checked daily, weekly or monthly to ensure that they are updated with the latest information. The
information in the documents should be credible and accurate and reflect the funds and other resources available with the departments or
organisational areas.
• Dispose of: If the records aren't accurate or no longer serve the company's needs, they are discarded. Records can become useless if they are altered
by somebody who doesn't have the verification to do so, they don't mirror the most recent operations or activities associated with different divisions,
or the current operating framework isn't productive for the organisation and requires improvement.
 • Refer to Self Study guide 1.1 to 1.5
Self-assessment • Refer to Class activities book Q. 1-5
 Chapter 2: Monitor financial
activities against budget
2.1. Identify and use relevant financial records to check actual income
and expenditure against budget.
2.2. Ensure accuracy of reference records for monitoring purposes.
2.3. Identify and report deviations according to significance of
deviation.
2.4. Investigate appropriate options for more effective management of
deviations.
2.5. Advise relevant colleagues of budget status in relation to targets.
2.1. Identify and use relevant financial records to check actual income and expenditure
against budget

Importance of organisational financial records

•Record-keeping can assist the management in monitoring the progress of the business. Records can indicate
the performance of various products and services offered by a company in the market.
•Accurate and up-to-date records also assist the relevant department in preparing the financial statements at the
end of the year, including income statement, balance sheet and cash flow statement.
•Records also help the business identify the primary source of income. Keeping records can make it easier to
distinguish between taxable gain and income that is not taxable.
•Additionally, record keeping can assist the organisation in preventing and locating any fraud connected to the
corporation's expenditures and transactions.
•Companies benefit from adhering to various international laws when they follow effective record-keeping
procedures.
•Keeping records can help identify areas that need improvement, and certain decisions can be made to improve
those areas.
 • Bank deposit documentation
Banks provide a deposit slip to the customers at the time of depositing funds in the account. It is
a small slip that is provided in the physical form. This slip acts as evidence or confirmation that
the bank has received the payment from the depositor. A company uses deposit slips to ensure
that all the amounts submitted to the accounts are properly recorded and documented.
• Bank statement
A bank statement is a list of all the transactions done by the business through or to its bank
account. It includes information on various types of transactions such as deposits, withdrawals,
transfers, interests and charges. It is an effective record that can be used by the business to track
Types of its revenue or expenses and reconcile its statements with those of the bank.
• Business activity statements (BAS)
relevant The Australian taxation office issues a taxation form to all businesses registered under the Goods
and Services Tax (GST). It is called BAS (Bank activity statement). It summarises the businesses'
financial activities associated with GST for a specific period. BAS also reports the businesses’ PAYG
withholding and fringe benefits tax duties. PAYG refers to the amount of tax withheld from the
employees' pay as part of the Australian businesses' taxation obligations.
records • Credit card transaction statements
A credit card statement is summarised list of all the transactions done by the business or its
representatives via credit card. A credit card statement lists the transaction history, outstanding
balance, minimum payment amount and its due date, available credit, repayment, interest and
fees.
• Invoices
An invoice is a time-stamped commercial statement or document that records and authorises a
transaction between a buyer and a seller. It lists the items the buyer and seller bought and sold,
respectively. The seller generally issues an invoice to the buyer. It is used to maintain the
purchases or sales records in either paper-based or digital forms. Invoices are a vital tool for
accounting and preparing financial statements.
 2.2. Ensure accuracy of reference records for monitoring purposes

Process of ensuring the accuracy of reference records

Need to ensure the accuracy of reference records
• Transparency: True and accurate financial records are Auditing is the core process of financial management for every
required to maintain financial transparency within the organisation. It is the process of examining financial records to
organisation. The assets and liabilities of the organisation ensure that they are accurate and are developed as per the
should also be stated at their existing values to avoid the statutory guidelines. An internal team of auditors can inspect
wrong valuation of the shareholders' fund and working capital financial records. Alternatively, they can also be investigated by
requirements. external auditors. Auditing ensures that the financial records are
• Tax liability: Accurate financial records are also required to credible, accurate and reliable. Auditors inspect the documents
determine correct tax liability. The company needs to pay for errors or omissions against the other relevant records such
taxes to the government to avoid legal penalties or claims. as balance sheet, income statement or cash flow
Moreover, inaccurate records can also lead to over-estimation statement. Additionally, the proper allocation of funds is also
of the tax liability. checked by them. Tax evasion or overpayment is also
determined through the process of auditing.
• Mitigation of errors: The accuracy of financial statements or
documents must be checked to identify and correct any
errors. These errors can cost the business huge amounts if not
updated on time.
2.3. Identify and report deviations according to significance of deviation

Need for determining and reporting deviations

Identifying the impact of the

Taking corrective measures:
financial decisions: The financial
The managers can determine
decisions, such as investments,
additional financial requirements Increasing productivity and
purchases, sales, loans etc.,
for improving the gaps, such as profitability: Comparing actual
impact the overall financial
technology upgradation, staff revenue and expenditure against
stability of the business. The
training and development or the budget can also assist the
impact can be either positive or
increased quality of product or leaders or managers in
negative. It can be identified and
service. The plan can be increasing the productivity of the
analysed with the help of a
implemented after consultation team or departments.
comparison between the actual
with relevant managerial staff
income and expenditure against
members and stakeholders.
the budget.
 • Create the financial records: The foremost step of monitoring the actual financial
activities against the budget. As explained above, different financial records are created
for various purposes. The records can be created in physical and digital forms.
• Determine actual position: Using the financial records, the actual financial situation of
the organisation is determined. The managers must examine and analyse the financial
records to establish the actual financial state. The records can be evaluated to identify the

Process of
financial circumstances such as bank balances, cash at hand, payment dues, amounts
receivable and profit/loss earned by the organisation and each department.
• Compare the actual with the budget: The figures obtained from financial statements or

identifying records analysis are matched against the budgeted figures. Any surplus or shortage should
be marked as a positive and negative deviation, respectively.
• Report the deviation: The conclusions obtained from the deviation analysis should be
and reporting compiled into a single report. This report shall be forwarded to the higher management.
The information should contain the figures of deviation, their respective reasons and
suggestive corrective measures. The administration can consult with the concerned

deviations manager(s) to formulate and implement the action plan to reverse the negative deviation.
If the divergence is positive, the management can plan to improve further the financial
performance of the respective area or department.
• Formulate and implement corrective measures: The budget should be controlled by
formulated corrective measures to fill the gaps between actual and planned financial
conditions. Specific reasons behind the variance require little to no disciplinary action,
such as delays in entering data. However, variations that occur due to unforeseen changes,
such as a decrease in consumer demand, require immediate corrective action.
 2.4. Investigate appropriate options for more effective management of deviations

Budget deviations are either positive or negative. However, both should be managed effectively to implement budget control and increase
the business's profitability. The management should strive to comprehend the reason for that advantageous variation. Knowing about
activities and decisions that result in a better financial impact than expected is always beneficial. If the variance is negative, it becomes
even more essential to investigate the reasons. Subsequently, the managers can consult with the management and their peers to
determine how the negative deviation can be handled without affecting the business's overall productivity. Corrective actions are
necessary to avoid a reduction in profitability or unforeseen financial losses.

• Identify reasons for deviation: The budget controllers must determine the causes or reasons for deviation. The negative variation could occur
due to several reasons, such as errors in financial records, delays in entering crucial financial information, poor budget estimation or unforeseen
changes in the internal or external environment.
• Modify budget: The budget should be increased or decreased per variance/deviation. The budget modification should align with the
information or conclusions derived from the variation analysis.
• Implement cost-cutting measures: The manager can also discuss them in the department with their team and suggest them to higher
management. The financial strain on the department or organisation can be reduced by implementing strategies that eliminate unnecessary
costs.
• Develop strategies to increase revenue: Strategies that increase revenue and align with the expectations of the current budget must be
implemented to fill the gap between planned revenue and actual revenue. The company can cut costs on irrelevant practices and allocate idle
funds to implement strategies such as marketing and innovation to boost the revenue and profitability of the business.
 2.5. Advise relevant colleagues of budget status
in relation to targets
A company's and its workforce's productivity is directly affected by budget management. The
adverse consequence of deviating from the estimated budget and dealing with the negative impact
of wrong financial decisions, errors, delays or unpredictable changes in the internal and external
environment can significantly reduce the organisation's efficiency and resources, including human
and financial resources.
An effective leader must influence others positively and productively. Positivity and productiveness
can be attained by actively listening and building consensus among the team members, focussing
on understanding their motivations and encouraging them to share their opinions. Managers or
leaders should bear a positive mindset and attitude. They should not only look after their team but
also advise other colleagues who are having issues managing their finances against the budget.
They can consult them and find the causes associated with the financial strain. They should
attentively and patiently listen to the problems of other people. Afterwards, they can advise them
using their knowledge, experience and skills.
 Refer to Self Study guide 2.1 to
2.5
Self-
assessment
Refer to Class activities book Q.
6-10
 3.1. Assess existing costs and
3.2. Discuss desired budget
resources and proactively
outcomes with relevant
Chapter 3: identify areas for
improvement.
colleagues.

Identify and
evaluate 3.3. Undertake appropriate 3.4. Define and
options for research to investigate new
approaches to budget
communicate the benefits
and disadvantages of new

improved management. approaches.

budget
performance 3.5. Take account of impacts
on customer service levels
3.6. Present clear and logical
recommendations for
and colleagues in developing
budget management.
new approaches.
3.1. Assess Need for assessing existing costs and resources
A manager needs to assess the existing costs and resources of the
existing costs department or the operational area before recommending techniques to
improve financial performance. As required, assessing existing costs and
and resources is necessary for determining the financial status of that
department or the whole organisation. Existing costs and resources
resources assist the manager/leader in determining the department's overall
spending and the resources available to manage its activities and related
and expenses.
Process of assessing existing costs and resources
proactively It is also essential to ensure that there is no wastage of resources,
identify areas including funds. The funds and other resources should be utilised
optimally. The utilisation should be such that it doesn't leave room for
for any under or over-utilisation. Besides, the evaluation of costs and
resources is also required to ensure that the funds allocated to the

improvement department are being used for fulfilling the priorities of the department
or organisation. Any expenditure that doesn't fall within the scope of the
organisational priorities should be re-evaluated to ensure that the funds
are utilised for the organisation's benefit and growth.
 • Ensuring resource availability: The examination assists the managers in
identifying the resources that are allocated to ineffective tasks or
expenses that are no longer required to be incurred. It helps the
Importance of managerial personnel to cut down additional costs and allocate the
under-utilised resources to the activities that can be efficiently performed

identifying
using them.
• Financial reporting: A manager must also report on their department's
financial status and submit it to the higher management. It can include
areas of •
areas where the economic performance doesn't match expectations.
Increasing profitability: By identifying and improving the weak areas of
improvement the financial management of a department, the manager strives to
manage the department's finances against the budget effectively. It helps
them to avoid taking unproductive financial decisions and, instead, focus
on increasing profitability.
 • Preventing wastage: The manager's principal focus should be on preventing
wastage. Strategies can be formulated to avoid the wastage of funds and other
Ways of resources. The company's or department's purchasing strategy, customer behaviour
and technology usage, can be considered to ensure that funds and other resources

identifying •
are used for productive activities.
Organisational goals: Organisational goals, including financial objectives, are the

areas of driving force of a department's financial decisions and activities. Therefore, funds and
other resources must be utilised for the tasks aligned with the company's main goals.

improvement • Human resources: Members' efficiency ultimately affects the financial situation of
the team or department. Hence, the manager should enhance their efficiency and
performance to impact the resource and funds allocation positively.
• Technology: The budget should be developed and maintained using the latest
technology. The latest budget management systems and software have many
features that help create a relevant, accurate and effective budget.
The following are reputed accounting software programs used to manage budgets:
• MYOB: MYOB is a popular accounting online platform used by businesses t store their accounts and access them at any time. It
also allows real-time tracking of business progress and activities. It performs the following functions:
• It helps in effective budget management by removing the need for manual analysis or maintaining spreadsheets.
Moreover, it calculates cash flow, profits/gains or tax requirements for the business.
• It keeps track of account payables or receivables of the business. It facilitates easy payment procedures on invoices via
credit cards and debit cards.
• It automatically calculates GST and PAYG requirements. It also provides reports on business activity statements.
• Xero: It is a free accounting software in Australia. It also facilitates the online recording and maintenance of financial data. It
includes various applications and features that are helpful for budget creation and management. Furthermore, businesses can
import their bank transactions into the tool and send invoices. It performs the following functions:
• It also assists with determining payroll requirements and filing returns following ATO (Australian Taxation Office)
provisions.
• It has a dashboard that provides real-time updates on business performance.
• It allows conversion among different currencies. It generates reports on routine transactions via charts, graphs and
diagrams.
• Reckon One: It is a cloud-based online software. It helps to monitor the daily revenue and expenditure of the corporation. It
assists the management with all financial matters, including cash flow and taxes. It facilitates customised invoices and payment
options. Collaboration and customer support are additional features of this software. It performs the following functions:
• It provides data security based on industry regulations and standards. The data is stored as per Australian laws.
• It provides automated bank feeds once the company connects its bank accounts to it.
• The software is also compatible with smartphones, laptops and tablets.
 3.2. Discuss desired budget outcomes with relevant colleagues

The organisation's management strives to streamline all the financial activities of the departments towards the desired budget
outcomes. All the company's financial programs are also aligned to assist the concerned departments in achieving the budget
priorities or goals. The expected budget outcomes can be achieved if they are communicated and discussed among the relevant
colleagues.
• Importance of discussing the desired budget outcomes with relevant colleagues
The following points highlight the need for discussing budget outcomes with relevant colleagues:
• Establishing roles and responsibilities: Discussions are necessary for establishing the roles and responsibilities of each
department and its manager towards the attainment of budget outcomes. Each department must be provided with a set of
duties and tasks associated with financial management. Financial activities required to contribute to the shared goals must
also be discussed.
• Establishing a schedule: Meetings and group discussions are also required to set a schedule for budget management of all
the departments sharing the desired outcome. The schedule can contain budget checkpoints, assessment of funds and other
resources, financial analysis reporting and timelines for completing each task.
• Establishing small goals: Accomplishing the desired budget outcomes can be facilitated by setting smaller goals or
objectives. These objectives can be improving customer service quality, diversifying the customer base and increasing the
marketing level of the product or service. Concerned department managers or employees should establish them and monitor
their accomplishments through regular meetings or discussions.
3.3.
• Research is required to carry out any minor to significant organisational task. It is
Undertake needed for making decisions, formulating policies and procedures, performing
management functions, performing business operations, enhancing business

appropriate efficiency and any other job required by a business. Similarly, it is also necessary
to investigate new approaches to budget management. Information can be
found in the form of facts, numbers, words, pictures, audio, document or any
research to other form of media. Investigating or identifying new approaches to budget
management is essential for ensuring the effective utilisation of funds and

investigate
resources that maximises the business's profitability. New and innovative
approaches are required to exceed the estimated projections of profits or budget
outcomes.
new
•
approaches to There are many innovative approaches to budget management. However, there
are four major types of effective and innovative budgeting methods that are
commonly used for the purpose of budgeting. These are ZBB (Zero-based
budget budgeting), Traditional budgeting, Incremental budgeting and ABB(Activity-
based budgeting).

management
 3.4. Define and communicate the benefits and disadvantages of new
approaches
Benefits and disadvantages of new approaches

• Zero-based budgeting: In this type of budgeting, the managers allocate the budget for
various activities as per their expected benefits. Little to no consideration is taken of the
budget of the previous year. It allows the manager to allocate the funds strategically to
achieve organisational goals. The costs are grouped and measured against the
expectations. Following are the advantages and disadvantages of ZBB:
Advantages:
• It allows the manager to identify and discontinue inefficient and unproductive operations.
• It is a flexible approach that allows opportunities to improvise and modify the budget
allocation as per the changes.
• It allows the effective utilisation of idle resources or funds.
Disadvantages:
• This technique is time-consuming and requires a lot of data-intensive research and
analysis.
• It is focused on short-term benefits and provides little consideration for effective financial
management in the long run.
• It is more suitable for higher management instead of department managers.
 • Traditional budgeting: It depends on the same year's finances to carry out the
budgeting of the current year. In this method, the manager considers the
previous year's budget and then adds or subtracts the inflation rate, market
condition or consumer demand. Following are the advantages and
disadvantages of traditional budgeting:

Benefits and Advantages:

• It is a simple method that doesn't require much time and effort.

disadvantages • It is a reference-based method and allows easy management of finances and

related activities.

of new • It is suited for the lower levels of management since it allows decentralisation.
Everyone can access the previous year's budget to formulate the current budget.

approaches
Disadvantages:
• It is a manual task and bears the chance of errors or fraud.
• It doesn't leave much space for the alignment of spending with the goal-oriented
strategy of the department.
• It doesn't encourage creativity or innovation and is more suitable for
departments with less dynamic operations.
 • Activity-based budgeting: It is a unique method of budgeting based
on financial activities. Data associated with the cost drivers of the
department is taken as the primary factor for allocating the budget.
Cost drivers refer to those activities of a department that triggers a
cost. Variance analysis is also given importance in order to implement
budget-controlling initiatives. Following are the advantages and
Benefits and disadvantages of ABB:
Advantages:
disadvantages • It focuses on the overhead costs that largely contribute to operating
expenses.
of new • It allows the identification of causes of variable costs. It helps the
approaches manager determine which activity triggers what cost and how much it
benefits the organisation against the price.
Disadvantages:
• It requires significant time and effort to identify the cost drivers.
• It is not easy to set individual roles and responsibilities within the
team.
3.5. Take account of impacts on customer
service levels and colleagues in developing new
approaches
Importance of considering service levels to develop innovative approaches
• Consistent monitoring of the business efficiency and service levels helps to compare the
organisation's actual performance against the desired performance and outcomes.
• It assists in identifying any gaps in the business operations or the areas that are less efficient or
productive compared to others.
• It further aids the management or relevant managers in devising plans and strategies to improve
the efficiency and productivity of those areas.
• It ensures optimum utilisation of all the primary physical, financial, technical, and human
resources.
• Reports on business monitoring can help the company in improving its management processes.
• It provides an opportunity for the organisation to raise its service levels by increasing the
efficiency of employees and other resources, which provides a competitive advantage.
• Participating in business observing cycles can likewise assist a company with operating in a way
that minimises costs.
 • Administration: The primary way to monitor an organisation's efficiency and
service levels is to track its performance on a real-time basis. They assist
management in determining whether the company is moving toward growth or has

Ways to •
stagnated.
Analysis: Analysis refers to thoroughly examining the organisation's various
operations. In this digital era, business operations analysis can be easily performed
monitor using online tools and software. Moreover, analytical tools can also help to track
performance and provide instant metrics or data that reflect the actual scenario of
the organisation.

service-levels • Market research on service standards: Market research includes comparing the
business's sales to the revenue generated by the competitors. Market research
helps the organisation ascertain its target audience, how it can appeal to that
audience, and the kinds of offers it makes to attract that audience.
 Need for consulting with colleagues to develop innovative approaches

Importance of completing internal records

Review, also known as feedback, is an easy and effective way to determine an organisation's budget after considering
the service levels. Reviews can be obtained from the individuals directly associated with the company or get the
company's products and services, i.e., employees. Employees can provide feedback regarding the workflow and
internal functioning of the business.
• The organisation's management can identify and track budget and resource requirements associated with the
organisation's efficiency and service levels over time through consultation. As a result, it:
• Provides feedback on the proposed budgeting technique
• Evaluates implementations and actions
• Identifies and tracks organisation's operational needs, expectations, perceptions, and attitudes associated with
funds and financial activities.
3.6. Present clear and logical recommendations for budget
management

Financial reporting refers to the overall evaluation of the financial

status of a company. It also includes each department's economic
situation, including costs incurred, income earned and resources
available with and utilised by the department. Therefore, the
department manager needs to identify the areas of improvement and
make a consolidated financial report. The management can use the
report to consult ways of improving the poorly performing areas of
the department with the respective manager. This way, they can
determine the report and recommendations to manage the budget
requirements. The relevant experts can then audit the statements.
Consequently, when the estimated budget decisions or requirements
are matched with the actual ones, the management can identify gaps
as well as their, as reported by the managers. Additionally, they can
read and understand the suggestions to fulfil the deviations of the
budget in a clear, concise and logical manner.
 Self-
assessment
REFER TO SELF REFER TO CLASS
STUDY GUIDE 3.1 TO 3.6 ACTIVITIES BOOK Q. 11-15
Chapter 4: Complete financial and
statistical reports

4.1. COMPLETE FINANCIAL AND 4.2. PREPARE AND PRESENT CLEAR AND
STATISTICAL REPORTS WITHIN CONCISE INFORMATION TO ENABLE
DESIGNATED TIMELINES. INFORMED DECISION MAKING.
 4.1. Complete financial and statistical reports within designated timelines
Use of financial and statistical reports

A corporation uses financial and statistical reports to organise and arrange its financial activities and their impact
on the organisation in written or digital form. These reports contain all the crucial financial information
associated with the company, including the expenses, revenue, profit/loss, assets, liabilities, capital and available
balances in business accounts.

Statistical reports usually

Financial reports are used to
collect data regarding and
comply with the statutory
present it in a visually-effective
requirements, close the
way. The tools used to make
accounts and obtain the
statistical reports can include
organisation's actual financial
diagrams, charts, graphs, or
position.
tables.
 Contents of financial and statistical reports
Financial reports Statistical reports

The financial reports generally contain the following: • Mean: Mean, also called average, is a prevalent
method of identifying a typical pattern or trend
• Income: Income refers to the revenue a business earns by selling
in the financial aspects of the business. It can be
its products or services. However, the term can also include the
calculated by adding all the figures and dividing
money the business receives through its activities. For instance,
the sum by the total number of observations.
money received as interest from the bank is a type of business
income. • Standard deviation: It measures the deviation
• Expenditure: Expenditure is a payment done by the business in of data figures from the mean or the whole data
cash or cash equivalent. However, it can also include other set. It evaluates the spread of each data figure
expenses incurred by the business for carrying out its operations around the mean.
or activities. For instance, payment done to the supplier for
receiving delivery of goods is an expenditure for the business. • Regression: In this type of analysis, two data
sets are taken. One is the dependent variable,
• Assets: Assets can include tangible or intangible resources and the other is the independent variable. A
owned or controlled by the company that can benefit the relation between the two is established by
organisation financially. Machinery, cash, and goodwill are all determining the effect of the independent
examples of business assets. variable on the dependent variable. This
• Liabilities: A liability is defined as a financial obligation for the relationship is termed cause and effect analysis.
business. The company must pay to fulfil the obligation within
the due time. Examples include loans, accounts payables and
accrued expenses.
• Capital: Capital refers to the economic strength of a business in
terms of its financial assets. Capital can include stocks,
investments, equipment, as well as cash.
 Financial reports are usually in a tabular format with two or more
columns. In the case of two columns, both sides are tallied

Formats of against each other. The balance is recorded on the side with a
shorter total. In the income statement, the balance is recorded as
net profit or loss depending on the surplus or shortage of income.
financial Furthermore, the excess of assets over liabilities determines the
owner's equity in the case of the balance sheet.

and
Statistical reports can be prepared in different formats
statistical depending on the data sets. Graphs, diagrams, charts, etc., are
practical tools that present information in an easy-to-
reports comprehend manner. Furthermore, they facilitate quick analysis
and conclusion. It also accelerates the process of decision-
making.
• The Commercial account activity: Commercial accounts are the bank accounts used by the
business for carrying out and recording activities performed by the company due to its
operations or actions.
• Commission earnings: These are a type of income a business receives as a commission.
Commission refers to the payment received for carrying out specific activities for or on behalf of
another entity.
• Covers and financial return: Covers refer to business initiatives to reduce investors' exposure.
These actions limit liability or obligation and reduce the financial strain on the organisation. The
financial return is the amount earned from or lost due to the investments of the business over a
Factors for
specific time period. consideration
• Transactions: A transaction is a completed procedure between two people or entities of buying
in the
and selling goods, services or other assets in return for monetary compensation. Transactions
are recorded daily, weekly and monthly.
preparation
• Occupancy rates: Occupancy rate refers to the ratio of rental units occupied to the total number
of available rental units. It is expressed as a percentage. It is the percentage of space efficiently of financial
used by the business.
• Sales performance: Sales performance determines the efficiency of the organisation's sales and statistical
team. It includes the determination of the sales carried out by the business during a period.
reports
• Stock levels: Stock levels are the primary requirement of materials or inventory to carry out the
routine activities of the business, including production, sales and customer service.
• Wastage: Wastage refers to the loss of resources or inventory due to abnormalities, including
fire, theft and improper handling.
• Yield: Yield is similar to return. However, it doesn't include capital gains in its calculation.
Moreover, ROI can express the amount earned or lost in the investment, but the yield shows
only income generated from it.
 4.2. Prepare and present clear and concise information to enable informed
decision making
Procedures and cycles for financial reporting

• Obtaining data and information: Attain a brief understanding of the financial information and data to be obtained. After that,
identify suitable sources of information. Common examples of relevant financial information associated with the
recommendations of budget management are ineffective or poorly performing areas, causes of their poor performance, impact
on their performance on overall economic performance and modifications in budget allocation strategy to improve the financial
performance.
• Analysing the data and information: Analysis refers to thoroughly examining the organisation's various operations. In this digital
era, business operations analysis can be easily performed using online tools and software. Analytics software can be used to
gather information from a variety of sources and then use that information to analyse the performance. They typically focuses on
a specific aspect of the business, such as tracking cash flow or finance, workforce skills and expertise and inventory management.
• Presenting the information: Reports are traditional yet one of the most prominent modes of sharing financial information with
relevant stakeholders or staff members. These can be financial project summary reports, balance sheets, cash flow statements,
financial plans, income statements, annual or interim audit reports and many more. Financial reports are prepared based on raw
and unorganised financial data.
• Communicating the financial information: Reports and presentations can be shared or communicated with the management via
face-to-face or virtual meetings and emails. However, physical sessions help in clear-cut communication and avoid any confusion.
Furthermore, they ensure good discussion and the generation of relevant conclusions. On the other hand, emails are easy to use,
save money and time and ensure that the same information is reached by multiple persons simultaneously.
Refer to Self Study guide 4.1 to 4.2

Self-
assessment
Refer to Class activities book Q. 16-
20