ORGANIZATION’s FINANCE and BUDGETING

 Being a techie, I always felt understanding finance is supremely impossible. However, some help from experts over last few days made it possible to understand basic finance and budget and purpose behind Enterprise Performance Management.

As an individual, we do this planning and budgeting regularly. We plan some long term goal e.g. buy a home after 5 years.

Then plan annual savings around the long term plan.

Then allocate part of earnings to savings, to monthly expenses etc. 

An attempt to summarise the finance and budget.

1.   POLICY OF ORGANIZATION

Every Organization must prepare and maintain an annual budget, approved by the Board, to guide operations of the Organization for the year. Budgets and budgetary control are important operational control tools used by the Organization to achieve its strategic objectives.

2.   OBJECTIVE AND PURPOSE

To describe the systems and procedures to be followed in the preparation of budgets. The key objectives are as follows:

·       Planning - To assist Management in developing realistic financial plans and establish if the Organization has the resources required to accomplish the planned activities.

·       Funds mobilisation - To mobilise resources by showing projects, sources, results to be achieved, and the surplus or deficit, to form the basis of the Board's approval of funds.

·       Cost control/activity implementation - To control actual implementation costs against budgeted expenditure and enforce discipline in the management of funds.

·       Monitoring and evaluation - To evaluate the level of success at the end of the year.

·       Goal congruence - To ensure harmony and synergy in the achievement of the Organization 's set goals and targets.

3.   ANNUAL BUDGET

The Organization will prepare and have in place a long-term strategic plan approved by the Board (mainly 5-year plans).

The Organization will break its long-term strategic plans in to annual activities by translating the plans in to annual budgets. The annual budget will be approved prior to the year in which it relates to. The Budget year will always coincide with the Organization’s financial year.

The Budget will be consistent with the approved strategic plan. There will be a responsibility/activity based budgeting system for each department/cost centre.

After the budget has been approved by the Board, it will be the responsibility of Head of Division (HOD) to administer/ implement his/her budget properly.

The annual budget will be broken into monthly budgets to facilitate comparison of actual results with the budget.

A monthly management report showing the Organization and departments performance, will be produced by Finance and made available at the end of the twentieth working day of the following month, comprising of:

·       Income statement with budget and prior year comparatives for the Organization - For the month

·       Income statement with budget and prior year comparatives for the Organization - Cumulative for the year to the reporting month

·       Income statement with budget and prior year comparatives for each department - For the month

·       Income statement with budget and prior year comparatives for each department - Cumulative for the year to the reporting month

·       Statement of financial position with budget and prior year comparatives for the Organization

The Executive committee of organization will hold a meeting to review the Organization’s performance (per the report) and respective unit managers/heads will provide explanations for variances and recommend corrective measures where necessary to management. The report will also be used by HOD's to control their expenditures and to identify possible overruns before they occur.

Budget overruns will not be allowed and this will be enforced by the CFO. In cases where they occur, there will be prepared a supplementary budget to be approved by the Board or a high level authorisation by the CEO will be obtained before the related expenditure is incurred as stipulated in the Authorities Manual (AM).

Each department will prepare work programme and budget proposals and submit to Finance  (CFO) / Management Accountant by second week of October for consolidation. The specific budget guidelines will be issued by Finance in the second week of August in line with the strategic plan. These guidelines will give an overall view on the priorities and the objectives to be achieved in the budget year. 

The Organization will adopt a zero budgeting approach that requires the HOD's (Budget Holders) to develop plans of activities in line with the strategic plan and justify allocation of resources.

The HOD‘s will develop goals and targets in form of Key Performance Indicators (KPIs) to be achieved in the concerned budget year. The targets should be provided in an easily understood and measurable framework adopting a Triple Bottom Line (“TBL”) approach and should include:

·       Financial KPIs: These will include the traditional profit measurement metrics of revenues, expense, and Income.

·       Social KPIs: These will include measuring metrics such as governance, fair operating procedures, and labour practices (for example proportion of women in the workforce, average wage rate per category of employees, and number of leave days taken per employee). These KPIs will be largely guided by the Organization’s HR policy.

·       Environment KPIs: These will include tracking of variables such as electricity usage, water usage, and fuel usage. The Organization’s  Corporate Social responsibility policy provides a guiding framework for these environment KPIs

The Capital Expenditure (CE) budget will be co-ordinated by Chief Human Resources and  Administration or delegated authority and it follows similar timeframe.

We will next understand about details of this budget approval process in organization.