|
Dataface, Inc. |
|
Software and services without fluff or bit-twiddling! |
|
Costing & Budgeting—Our Advice |
|
Dataface, Inc. |
|
Software and services without fluff or bit-twiddling! |
|
LOOK AT THE ENTIRE ORGANIZATION The needs of operational managers are not the same as those of top management:
Freshness of information is extremely important and is often lacking at lower levels of management, for various reasons, including restrictions on access to information, lack of detail, difficulty of ad hoc reporting, and split responsibility between operational units and corporate financial controllers.
OPERATIONAL FLEXIBILITY Mid-level functional management needs to be able to reallocate budgets to handle unexpected situations, but within guidelines, and with visibility and accountability. A computer system has to be responsive to what is happening in the real world without needing to revise a whole enterprise-level budget.
Managers and supervisors need to see the drill-down to their own areas of responsibility but often need to see the information for their peers to put their work in context.
ENCUMBRANCES Recording what is actually spent is not enough. It is essential to provide a method for encumbrances and pre-encumbrances. An encumbrance is a purchase order or equivalent commitment. A pre-encumbrance is a proposed expenditure which is in the approval process. Recognizing expenditures in the pipeline is particularly important at the end of the fiscal period to prevent multiple claims on the same dollars.
CAPTURE DATA ACCURATELY As in data warehousing, it is essential to capture data at the atomic level. Transactions should be stamped with not only a dollar amount and an account code but also all appropriate budget categories. There are frequently at least two budget categories – the job or activity to be charged, the funding source, and in the case of labor costs, the employee’s payroll home.
Detailed capture of costs provides proper justification for the following period’s budget requests. The computer system should be able to learn from the past.
DON’T FORGET REVENUES A cost tracking system must also be capable of allocating revenue to jobs or activities. The revenue may come from external or internal sources. Many organizations have difficulty knowing who owes money on a particular activity. Electronic payments are an increasing source of uncertainty and erroneous categorization.
INTERNAL TRANSACTIONS Internal billing procedures within a limited scope may be achieved by journal entries but in many cases a formal internal billing procedure is necessary. This entails the creation of accrual accounts to monitor expected receipts from other parts of the organization.
A cost tracking system needs access to at least a limited vendor file, and ideally a customer file also.
GRANT ACCOUNTING Certain organizations, such as municipalities and non-profits, need to justify expenditure to grant-making institutions, which is difficult enough, but not sufficient. To show the true costs of participating in a grant program, non-reimbursable items need to be included in the grant accounting, to take account of matching contributions, particularly in the form of labor costs. General funds often hide items that could be billed to grant programs, and management is often unaware of hidden costs that may make the grant program less desirable than it superficially appears. |
||||||||||||||||||||||||
