Strategic Planning, Effective Budgeting and Cost Control

By the end of the course, participants will be able to:

• Defend the importance of linking an organization's budget with its strategic plan
• Demonstrate how the budget relates to the key financial statements: balance sheet, income statement, and cash flow
• Prepare the key elements of an operating and capital budget and evaluate the different budgeting approaches used
• Apply cost control tools, analyze management variance reports and take proper corrective action
• Calculate different capital budgeting evaluation techniques as included in a capital expenditure proposal
• Utilize cost-volume-profit analysis in making budgeting decisions

All managers, supervisors and analysts who prepare or use management budgets.

Planning and the functions of management

• The critical functions of management
• Aligning the budget with the strategy of the organization
• Road map to strategy
• Budget as a planning tool
• Control: the missing link
• Planning pitfalls
• The key financial statements
  • The accounting system
  • The income statement
  • The balance sheet
  • The cash flow statement

Budgeting: process and approaches

• The advantages of budgeting
• The budget process
• Rolling budgets
• The master budget
• Operating and capital budgets
• The budgeted financial statements
• Approaches to budgeting:
  • Incremental budgeting
  • Zero based budgeting
  • Flexible budgeting
  • Kaizen budgeting and continuous improvement
  • Activity based budgeting
• Tools of forecasting
• Direct and indirect costs
• Characteristics of an effective budget
• Problems in budgeting

Cost control

• Budget as a control tool
• The control process
• Characteristics of an effective control system
• Responsibility reporting
• Variance analysis: identifying the components of variance
• Variance analysis: taking the corrective action

Capital expenditure budgeting and analysis

• Time value of money
• Simple versus compound interest
• Identifying and analyzing cash flows
• The discount rate: using cost of capital
• Net Present Value (NPV)
• Internal Rate of Return (IRR)
• Profitability Index (PI)
• Pay-Back Period (PBP)
• Accounting Rate of Return (ARR)
• Approval for Expenditure (AFE)
• Sensitivity and risk analysis

Cost-Volume-Profit analysis (CVP)

• Identifying the fixed costs and variable costs
• Computing breakeven point in units
• Computing breakeven point in sales
• Assumptions of CVP analysis
• Using CVP in budgeting decisions