Student Workbook

Manage budgets and
financial plans
BSBFIM501A
Student Workbook
Student Workbook
BSBFIM501A Manage budgets and

financial plans
2nd Edition 2010
Part of a suite of support materials for the
BSB07 Business Services Training Package
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Published by: Innovation and Business

Industry Skills Council Ltd
Level 11
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www.ibsa.org.au
ISBN: 978-1-921749-05-6
Stock code: FIM501ACL
First published: July 2009

Print version: 2.0
Release date: February 2010
Printed by: XL Colour Printing
2832 Bruce St
Kensington VIC 3031
Table of Contents
Getting Started ........................................................................................................ 1
About the Student Workbook ........................................................................... 1
Features of the Training Program .................................................................... 1
Structure of the Training Program ................................................................... 2
Introduction ............................................................................................................. 3
About the theme/scenario ............................................................................... 3
What skills will you need? ................................................................................ 3
Information and budgets .................................................................................. 4
The role of management and the management cycle.................................... 6
Section summary .............................................................................................. 7
Further reading.................................................................................................. 7
Section 1 Plan Financial Management Approaches ......................................... 8
What skills will you need? ................................................................................ 9
Planning and control ......................................................................................... 9
Planning, production and selling/administration processes and costs ...... 11
What are financial plans? ............................................................................... 14
Cost accounting............................................................................................... 24
Section summary ............................................................................................ 26
Further reading................................................................................................ 26
Section checklist ............................................................................................. 26
Section 2 Risk Management and Contingency Planning ................................ 27
What skills will you need? .............................................................................. 27
What is risk? .................................................................................................... 27
How do we help minimise the risk? ............................................................... 29
Five steps for risk management matrix ......................................................... 29
Contingency planning ..................................................................................... 32
What to include in the contingency plan ....................................................... 33
Section summary ............................................................................................ 36
Further reading................................................................................................ 36
Section 3 Implement Financial Management Approaches............................. 37
Source data ..................................................................................................... 38
Setting clear objectives .................................................................................. 43
Section summary ............................................................................................ 45

Further reading................................................................................................ 45
Section 4 Develop Systems to Manage Budgets and Finances ..................... 46
Processes to monitor expenditure and control cost budgets ...................... 47
Job costing ....................................................................................................... 47
Cost classifications ......................................................................................... 49
What do we do with budget variances?......................................................... 54
Closing the accounts....................................................................................... 57
Government regulations regarding reporting ................................................ 57
Section summary ............................................................................................ 63
Further reading................................................................................................ 63
Section 5 Review and Evaluate Financial Management Processes .............. 64
Financial management processes ................................................................. 65
Ageing summaries .......................................................................................... 65
Analysing the data........................................................................................... 70
The importance of review and evaluation ..................................................... 71
Selecting, evaluating and reviewing ideas .................................................... 73
Evaluation grid ................................................................................................ 75
Continuous improvement ............................................................................... 76
Section summary ............................................................................................ 77
Further reading................................................................................................ 77
Appendices ............................................................................................................ 78
Appendix 1: Sample cash flow statement ..................................................... 78
Appendix 2: Sample operational plan ........................................................... 79
Appendix 3: Sample of financial projections ................................................. 81
Student Workbook
Getting Started
Getting Started
This unit addresses the skills and knowledge required to develop systems to
manage budgets and finances. It applies to individuals employed at a managerial
level in a range of environments who need skills to create financial plans and
monitor financial performance and business outcomes. In their work role they are
most likely to be responsible for negotiating with others to work towards the
companys financial goals.
About the Student Workbook

This Student Workbook is designed to assist the learner with activities around the
use of budgets and financial plans and performance monitoring. It does not cover
basic budgeting skills. This guide uses different scenarios as the focus of the
activities to enable learners to get a feel for the requirements of different
companies and provide authentic learning activities.
Features of the Training Program

The key features of this program are:
Student Workbook (SW) self-paced learning activities to help you to

understand key concepts and terms. The Student Workbook is broken
down into several sections.
Facilitator-led sessions (FLS) challenging and interesting learning

activities that can be completed in the classroom or by distance learning
that will help you consolidate and apply what you have learned in the
Student Workbook.
Assessment Tasks summative assessments where you can apply your

new skills and knowledge to solve authentic workplace tasks and
problems.
BSBFIM501A Manage budgets and financial plans

Page 1 of 82
Getting Started
Student Workbook
Structure of the Training Program

This training program introduces you to the performance outcomes, skills and
knowledge required to conduct market research. Specifically, you will develop the
skills and knowledge in the following topic areas:
1. Plan financial management approaches
2. Risk management and contingency planning
3. Implement financial management approaches
4. Develop systems to manage budgets and finances
5. Review and evaluate financial management processes.
Note: the Student Workbook sections and session numbers are listed next to the
topics above.
You facilitator may choose to combine or split sessions. For example, in some
cases, this training program may be delivered in two or three sessions, or in
others, as many as eight sessions.
Page 2 of 82

Student Workbook
Introduction
Introduction
This section is an overview of what is involved with budgets and the management
cycle.
About the theme/scenario

Throughout the workbook you will be referred back to the following scenario:
Scenario: Dollys Delight Doll house manufacturer
Dollys Delight Pty Ltd Manufacturing Company builds and sells dolls houses to
retail companies. The company employs 70 people in the manufacturing side of
the business and 16 people in the administration side of the business.
The company was a sole proprietorship which has recently become a publicly
listed company and which has been running now for ten years.
The company was initially funded by Eden Black, and had been struggling
financially for the past four years. After a recent reshuffle of staff and a few
changes in management, the business has now become stable again and is
beginning to make a profit.
The company has decided to outsource what it can and has moved some of the
aspects of the business to contractors and outside organisations. This has
included sections of the business such as the basic bookkeeping and payroll,
the delivery of its goods to outside businesses, website design and update
now allocated to a contractor who works from home and gets sent projects as
required.
The company made a net income last year of $130,000 and aims to increase
this by 20% in the following year. Its retained earnings were $15,000 with the
rest of its income being paid in dividends to shareholders.
The company took out a long term loan last year of $600,000, on which they
have chosen to only repay the yearly interest of $60,000, and reduce the
principle in increasing amounts of ten thousand dollars where the schedule of
repayments are as follows:
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
30,000 40,000 50,000 60,000 70,000 80,000 90,000 90,000 90,000
What skills will you need?

In order to work effectively with managing budgets and financial plans, you must
be able to:
look at information and budgets
learn about the role of management.

Page 3 of 82
Introduction
Student Workbook
Information and budgets

Planning and organising your work is an important skill that will help you stay
ahead of the challenges you are likely to meet in your job. When working with an
organisation it is important to know what to plan for, how to access the relevant
data and what the priorities of the organisation are.
In this subject we will cover how to use and analyse budget data, where the
source information for the budget comes from, how to use the budget to see
where the business is going, how to plan for and work through problems the
organisation may face and finally, we will work through how to evaluate the
information and what we have learnt.
Information is a critical business resource. Accurate and timely data is vital for
planning for future business success. Budgets are used and analysed to assist
with the planning and control of finances. In order to effectively control finances,
you need to know what information to look at and where the relevant information
is coming from.
In the past a manager would focus solely on controlling the costs of a business.
We now know that reports and outcomes for various scenarios are important for
quality assurance as well as for assessing cost. An example of this would be when
analysing the wellbeing of patients when leaving a hospital before relating the
cost. A customer service business may increase the cost to improve customer
service of the company, in order increase client number, thus creating more
income.
When looking at costs and how to plan for them, the tool of greatest importance is
the budget.
Some of the budgets important for the future planning of Dollys Delights Pty Ltd
Manufacturing Firm are shown below.
Sales Budget
Product
Sales volume
Selling price per

unit ($)
Budgeted sales
revenue ($)
Doll houses
170,000
50
8,500,000
Doll furniture
1,000,000
9,000,000
Total
Page 4 of 82
17,500,000

Student Workbook
Introduction
Production Budget
Budgeted sales (units)
Doll houses
Doll furniture
170,000
1,000,000
Required ending finished 3,000

goods inventory
16,000
Finished goods required
173,000
1,016,000
Less beginning finished

goods inventory
1,000
7,000
Required production
172,000
1,009,00
Direct Material Budget

Material
Total used on
houses
(Litres)
Total used on
furniture
(Litres)
Direct
materials cost
(Litres)
($)
320,000
2,700,000
2.80
8,456,000
280,000
1,700,000
1.70
3,366,000
Total
600,000
4,400,000
11,822,00
The above examples show how one budget flows onto the next. The various
departments would then use this information to view how their actual
performance is going and to work on sticking to the budget and analyse any
excessive expenses. The financial controller would then gather the information
and assess it by comparing it with the actual data for the period.

Page 5 of 82
Introduction
Student Workbook
The role of management and the management cycle

As a manger we need to work with our staff to assess and prioritise our goals. Our
role is varied and sometimes we need to work with our team and delegate duties
to ensure the many tasks we need to complete throughout the day are completed.
A managers role can be grouped into five functional areas: planning, organising,
staffing, leading and monitoring. In this unit as we discuss how we manage
budgets and financial plans, we will formulate a process that delivers outcomes
by ensuring we have systems in place in accordance with the Management cycle.
Model of the management cycle
Planning requires the formation of goals and objectives followed by

decisions on appropriate action to achieve these goals.
Organising is a coordination function involving people, materials,

equipment, machines, time, money and other resources.
Staffing covers all activities needed to attract, recruit and retain individuals
in the company.
Leading is providing support, guidance and motivation to ensure other

employees work towards achieving the plan.
Monitoring ensures that a manager knows what is happening in all areas

of their responsibility.
Page 6 of 82

Student Workbook
Introduction
Learning activity: Management cycle

Use the management cycle model and brainstorm three managerial activities
associated with each of the stages within the cycle. For example:
Planning: objective and goal setting
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Organising: prioritising
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Monitoring: performance appraisals
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Staffing: recruitment and selection
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Section summary
You should now have a clearer idea of what a budget looks like and how the
information from one budget may be useful for another department. You should
also have an understanding of the roles a manager fulfils and how the five
functions of the management cycle clarifies the mangers role.
Further reading
Bear, A, Blythe, P and Flanders, D 2005, Introduction to budgeting. 4th edn,

Thomson, Melbourne, pp. 110.

Page 7 of 82
Section 1 Plan Financial Management Approaches
Student Workbook
Section 1 Plan Financial Management

Approaches
This section introduces the methods of planning and control as part of the cost
allocation process, as well as looking at budgets in more detail and the use of
financial plans. We look at how to communicate the information from the budgets
and data and effective ways to pass on information and using correct negotiation
skills in the process.
Scenario: Management roles
One of the critical problems with the Dollys Delight initially was that there were
too many middle managers with unclarified roles. Their roles would overlap and
the essential daily tasks would get passed around and often not completed.
Another problem with too many middle managers was that the staff were not
sure to whom they should report, and certain important information would get
lost along the way before reaching the relevant manager by which time it would
be too late to implement procedures to prevent the identified problems.
After the reshuffle, the following people have retained their management
positions and their role is beside their name:
Eden Black
CEO
Janet Belchar
Managing Director
Michael Smith
Financial Controller
Amanda McKae
Operations Manager
Jose Hernanz
Senior Accountant
Dora Brown
Marketing Manager
Piers Marshall
Sales Manager
Maureen Moss
Production Manager
Mike Wilkins
HR Manager
Eden Blacks reshuffle of staff has made the business a lot more efficient as well
as allowing managers to take responsibility for things they are able to control in
their department.
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Student Workbook

In order to work effectively with budgets and financial plans, you must be able to:
clarify budget/financial plans with relevant personnel within the
organisation to ensure it is documented
look at budgets for a way to measure cost
access budget/financial plans for the work team
look at the stakeholders of an organisation and determine who is
responsible for providing certain financial reports
negotiate any changes required to be made to budget/financial plans
with relevant personnel within the organisation
understand the basics of costing methods
disseminate relevant details of the agreed budget/financial plans to
team members.
Planning and control

Planning and control are two key components of the basic managerial
responsibilities that the management accounting system assists greatly.
Planning involves formulating the firms objectives and includes the

detailed description of the steps needed to meet these objectives.
Planning involves activities like:
o sales price and volume forecasting
o determining the profitability of products
o determining funds needed for research and development
o undertaking capital upgrades
o utilisation of technology to enhance business prospects.
Control involves the continuous assessment of actual performance with a

budget or standard.
Planning
Control
Figure 1 Key part of managerial role.

Page 9 of 82
Student Workbook
Key tasks of management accounting

Management accounting is involved with the following tasks:
providing key strategic information that helps managers with their decision
making
determining the firms critical success factor
implementing benchmarks that will enhance operational efficiency.
Management accounting in service organisations

While the concepts of cost management found a natural home in the
manufacturing sector, these days it is widely accepted across all fields including
financial services.
The key difference between the service and manufacturing organisations is that
with the service industry most services are consumed as they are produced.
Services cannot be held as inventory like the manufacturing firm can.
Service industries tend to be more labour intensive than the manufacturing one.
Learning activity: One of each
Planning and control are two key elements in management function. From your
experience, identify and describe at least one activity that you have done or
witnessed for each area.
Planning
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Control
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Planning, production and selling/administration processes and costs

When looking at a manufacturing company like Dollys Delight, it is useful to
assign costs to a process in the company. If we look at the processes in a flow
chart, we can visualise where the costs are in the line and how they flow along.
PlanningProcesses
ResearchandDevelopment
Designandprocesses
SupplyofProduct
ProductionandManufacture
Manufacturing
Production
SellingandAdmin
Marketing
Distribution
CustomerService
From the diagram above we can identify the costs involved in production and how
they flow from the one process to the next. It is important to assign the costs to
the process so that we can work on identifying where the costs have come from.
Planning and process costs: These costs identify the initial stages of the
production process and include things such as the development of a new product
and its design, as well as working on the processes that will be involved with the
manufacture.
Production and manufacture costs: The direct costs involved with the
manufacture of the product for sale. It involves everything from the assembly, to
the equipment used and the direct materials involved with the production.
Selling and administration costs: The costs in this area involve all the final costs
involved with getting the product into the market and the distribution of the final
item. It involves all the office and administration costs as well.
Budget examples
A budgeted income statement summary for Dollys Manufacturing is shown below,
as well as the production and sales budgets that were shown earlier:

Page 11 of 82
Student Workbook
Budgeted income statement

Sales
17,500,000
Less cost of goods sold
(11,822,000)
Less other expenses
(3,498,000)
Gross profit
2,180,000
Less general selling and administration

expenses
(1,780,000)
Net profit
400,000
Sales Budget
Product
Sales volume
Selling price per

unit ($)
Budgeted sales
revenue ($)
Doll houses
170,000
50
8,500,000
Doll furniture
1,000,000
9,000,000
Total
17,500,000
Production Budget
Doll houses
Doll furniture
Budgeted sales (units)
170,000
1,000,000
Required ending finished

goods inventory
3,000
16,000
Finished goods required
173,000
1,016,000
Less beginning finished

goods inventory
1,000
7,000
Required production
172,000
1,009,00
Direct Material Budget

Material
Total used on
houses (Litres)
Total used on
furniture
(Litres)
Direct
materials cost
(Litres)
($)
320,000
2,700,000
2.80
8,456,000
280,000
1,700,000
1.70
3,366,000
Total
600,000
4,400,000
Page 12 of 82
11,822,00

Student Workbook
Learning activity: Assigning the budget

Using the above budgets for Dollys Delight, can you assign the budget to the
manager that would be responsible for its preparation (the Dollys Delight
Managers and their roles are listed below)? Can you also list some of the major
costs involved with the manufacture of the dolls houses that you have identified
using the budgets?
Name
Position
Eden Black
CEO
Janet Belchar
Managing Director
Michael Smith
Amanda McKae
Operations Manager
Jose Hernanz
Senior Accountant
Dora Brown
Marketing Manager
Piers Marshall
Sales Manager
Maureen Moss
Production Manager
Mike Wilkins
HR Manager
Relevant budget
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Page 13 of 82
Student Workbook
What are financial plans?

Just as we manage our personal finances, organisations must ensure that they
achieve their financial goals through financial planning and budgeting. Whether
its the original start-up or the ongoing operational costs of the business, all
finances should be planned well into the future.
Devising a budget lets you plan for how your organisation will spend its money, as
well as giving you an idea of what you will do with the money you earn. It allows
you to examine whether your product or service appeals to the masses or caters
for a niche market. The reasons products and services succeed are varied, and it
is important to plan what you hope to achieve from your business, and how you
hope to achieve this financially.
Financial plans should include:
funds required to start the entity
anticipated funding/profits over the next one, two and three years
use of funding/profits
a timeline for funding/profits.
The financial aspect of any business is where all the earnings and expenses are
brought together and future results are planned for and anticipated. It forms the
basis of both planning and decision making. All of these elements of your initial
financial plan should coincide with the goals and visions of the business as stated
in the overall business plan or mission, including the financing necessary to cover
operations, marketing, and promotion. As a manager, you will also be responsible
for the activities of your department and for helping keep to budget, as well as
providing the data for the budget estimates for your department.
To assist us in the management of our financial plans we will need to develop:
projected profit statements
projected cash flow budgets
projected revenue
job/product costing
short term budgets/plans
spreadsheet-based financial projections
projected statement of financial position (balance sheet)
targets or key performance indicators (KPIS) for production, productivity,

wastage, sales, income and expenditure.
With this sort of preparation organisations can plan their activities, meet their
financial obligations and maximise their profits. The concept is very similar to
household budgeting but on a much larger scale.
If we fail to plan, we plan to fail!
Ralph Waldo Emerson
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What are budgets?

Budgets are simply an organisations plan expressed in financial terms.
They are used as expected outcomes for an organisation, most often used in
predicting profits and costs for a particular period. Some examples of what
budgets are used for are:
cash flow projections
long-term budgets or plans
operational plans
short-term budgets or plans
spreadsheet-based financial projections
targets or key performance indicators for:

production
sales
productivity
income
waste
expenditure.
Learning activity: Internet research

Search the internet for different types and examples of financial planning tools
and resources. As part of your research, select five tools or resources and
prepare a written summary below of the tools purpose for the five selected.
Note: the following sites have some useful information:
<http://www.jaxworks.com>
<http://www.businesslink.gov.uk/bdotg/action/layer?topicId=
1074416511>
<http://www.civicus.org/new/media/Budgeting.pdf>
<http://www.financialplan.about.com/msubbudg.htm>.
Tool/resource no. 1
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Tool/resource no. 2
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Page 15 of 82
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Tool/resource no. 3
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Tool/resource no. 4
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Tool/resource no. 5
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Communicating the budgets and financial plans
When using budgets/financial plans, it is imperative that what is put in the
plan/budget is communicated to all team members effectively. There are many
terms used when talking about finance and budgets and there is no point
explaining things to your team if they do not understand the concepts or terms
involved. Defining budget/finance terms may be necessary in order to be
meaningful to the work team. Training should be made available to those who
need it, as well as giving them the knowledge to be able to read and interpret the
budgets and plans. Feedback for team members is also crucial in ensuring the
terms and ideas were expressed clearly and understood.
Developing budgets and financial plans
Budgets are generally developed in accordance with the organisations strategic
plan. The strategic plan is usually a five year in-depth plan looking to the future
aims and goals of the organisation.
In larger organisations numerous people are involved in the development of
budgets and financial plans. The larger the organisation, the more complex it can
be. The information used for a budget is usually collated and then sent to the
managers from the various departments. Therefore many people need to be
involved in setting up plans so that the plan includes all components of the
organisation.
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Student Workbook
The following people may be involved:
Financial manager the manager in charge of the financial systems and

processes put in place at a business, and responsible for providing support
in these areas to his or her co-workers and peers.
Accountant An accountant is the person who keeps track of the

organisations money. The Accountant will use this information to generate
financial reports to show how the organisation is performing financially at a
specific point in time.
Financial controller The financial controller has a say in where the money
will go in the business, as well as being involved in all monetary aspects of
the business.
Production manager A production managers role can be varied. It can

involve working on processes to increase production and reduce costs, as
well as ensuring that the daily production processes are adhered to, and
timelines are met.
Supervisor A supervisor is a person who is in control of a department in

an organisation. They will have a budget allocated to them, and their
primary role is to keep their department moving along smoothly and that
the daily requirements of their department are met.
Just from looking at the previous descriptions you may be able to see that some of
the roles may overlap, and that the information they provide about the business
may be important for different departments and outside parties.
However, it is still important to involve all these job roles because the people in
them have varied:
expertise
understanding of finance
understanding of production or manufacturing costs
understanding of labour costs
understanding of taxation laws
understanding of accounting principles
understanding of advertising and marketing costs.
Potential budget problems and difficulties

Smaller businesses often use less formal methods when using a budget than the
larger organisations do. Some of the problems faced by the larger organisations
are:
Getting everyone working on the goals together. It is difficult to motivate

the employees towards achieving common goals for the organisation.
The way the budget is determined can also be a problem. If the budget is
decided by senior management with little input or feedback from the
employees it affects, then it might seem unfair to the various departments
and resentment may result. If departmental managers are given the task
to set their own budgets, then we may also have the problem of overestimation to pad out their budgets.

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Student Workbook
Some remedies to these problems would be:
Continuous feedback for employees and managers.
A reward system for departments who consistently achieve budget targets.
All employees are expected to work together to achieve budgetary targets,

and therefore they are also accountable for outcomes they can control.
Access to budgets and financial plans

It is vital for a business to allow all stakeholders access to the budgeting and
financial plans development and ongoing management.
Why would it be important to disclose financial plans to all stakeholders?
The more your team knows about how the organisation is performing the
easier it is for them to manage performance that might affect the budget.
Your team is more likely to conform and understand restrictions and

limitations.
Providing access to funds when needed (e.g. petty cash).
By the same token, your team may not need access to all financial documents
(e.g. profit and loss statements), but they may need to be provided with:
department budgets
sales budgets
waste costs
production schedules
wage budgets, etc.
One of major costs of any business is the cost of labour. A simple business such
as a biscuit producing factory would have employee or outsourcing costs of some
or all of the following:
production manager
marketing manager
factory workers
payroll staff
administration staff
delivery staff
a design team (for packaging of the product)
sales team.
There are probably many other employee costs which could be added to the list,
and as you can see, for such a simple process there are many continuing labour
costs incurred from factors removed from the actual production process.
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Student Workbook
Prioritise your stakeholders

Learning activity: Your stakeholders
Think about an organisation you are familiar with, or in which you work.
Think about the people who have, or need access to, the organisations budgets
and financial plans. These people are your stakeholders.
Write the position title of the stakeholder in the left-hand column, and in the
right describe the valuable information or expertise they have to contribute to
the financial planning process.
Position Title
What information or expertise do they

have?

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You may now have a long list of people and organisations that need to be
informed of your plans. Some of these may have the power either to block or
advance your interests. Some may be interested in what you are doing, others
may not care.
Map out your stakeholders on a power/interest grid as shown in the figures
below, and classify them by their power over your plans and their interest in your
plans.
Power/interest grids for stakeholder prioritisation
For example, your boss is likely to have high power and influence over your
projects and high interest. Your family may have high interest, but are unlikely to
have power over it.
Someones position on the grid shows you the actions you have to take with them:
High power, interested people: these are the people you must fully engage
with, and make the greatest efforts to satisfy.
High power, less interested people: put enough work in with these people
to keep them satisfied, but not so much that they become bored with your
message.
Low power, interested people: keep these people adequately informed,

and talk to them to ensure that no major issues are arising. These people
can often be very helpful with the detail of your project.
Low power, less interested people: again, monitor these people, but do not
bore them with excessive communication.
Negotiating budgets and financial plans

You may have the opportunity to submit requests for funding or equipment or
participate in the planning of the budget. If you do have the opportunity to take
part in the budgeting process you will often find that input will be required from
other people. This can become quite a debate as other teams and team members
may have conflicting views when it comes to the way they want the organisations
money spent.
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Tips for conflict resolution and negotiation

Negotiation skills help you resolve situations where what you want conflicts with
what someone else wants. The aim of negotiation is to explore the situation to
find a solution that is acceptable to both parties.
There are different styles of negotiation, depending on circumstances. Where you
do not expect to deal with people ever again and you do not need their goodwill, it
may be appropriate to play hardball, seeking to win a negotiation while the other
person loses out. Many people go through this when they buy or sell a house
this is why purchasing a house can be such a confrontational and unpleasant
experience.
Similarly, where there is a great deal at stake in a negotiation (for example, in
large sales negotiations) it may be appropriate to prepare in detail and use a
certain amount of subtle gamesmanship to gain advantage.
Both of these are usually ineffective approaches for resolving disputes with
people you have an ongoing relationship with: if one person plays hardball, this
puts the other person at a disadvantage. This may lead to reprisals later, or failed
negotiations.
Similarly, using tricks and manipulation during a negotiation can severely
undermine trust and damage teamwork. While a manipulative person may not be
caught out if negotiation is infrequent, this is not the case when people work
together on a frequent basis. Honesty and openness are the best policies in this
case.
Preparing for a successful negotiation
Depending on the scale of the disagreement, varied levels of preparation will be
appropriate for conducting a successful negotiation.
For small disagreements, excessive preparation can be counter-productive
because it takes time that is better used elsewhere. It can also be seen as
manipulative because just as it strengthens your position, it can weaken the other
persons. Sometimes though, negotiation is just a better use of resources
between two parties.
If a major disagreement needs to be resolved, however, it can be worth preparing
thoroughly. Think through the following points before you start negotiating.
Goals What do you want to get out of the negotiation? What do you
expect the other person to want?
Trades What do you and the other person have that you can trade? What
do you each have that the other might want? What might you each be
prepared to give away?
Alternatives If you dont reach agreement with the other person, what
alternatives do you have? Are these good or bad? How much does it matter
if you do not reach agreement? Does failure to reach an agreement cut you
out of future opportunities? What alternatives might the other person
have?
Relationships What is the history of the relationship? Could or should

this history impact on the negotiation? Will there be any hidden issues that
may influence the negotiation? How will you handle these?

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Expected outcomes What outcome will people be expecting from this

negotiation? What has the outcome been in the past, and what precedents
have been set?
The consequences What are the consequences for you of winning or

losing this negotiation? What are the consequences for the other person?
Power Who has what power in the relationship? Who controls resources?
Who stands to lose the most if agreement isnt reached? What power does
the other person have to deliver what you hope for?
Possible solutions Based on all of the considerations, what possible

compromises might be reached?
Style is critical
For a negotiation to be winwin, both parties should feel positive about the
situation when the negotiation is concluded. This helps maintain a good working
relationship afterwards. A polite and rational approach should govern the style of
the negotiation histrionics and displays of emotion are clearly inappropriate.
They only undermine the rational basis of the negotiation and bring a
manipulative aspect to them.
Despite this, emotion can be an important part of negotiations because peoples
emotional needs are often triggered in such situations and must be met fairly. If
emotion is not discussed when it arises, the agreement reached can be
unsatisfactory and temporary. Be as detached as possible when discussing your
own emotions perhaps discuss them as if they belong to someone else.
Negotiating successfully
The negotiation itself is a careful exploration of your position and the other
persons position, with the goal of finding a mutually acceptable compromise that
gives you both as much of what you want as possible.
Peoples positions are rarely as fundamentally opposed as they may initially
appear the other person may quite often have very different goals from the ones
you expect!
In an ideal situation, you will find that the other person wants what you are
prepared to trade, and that you are prepared to give what the other person wants.
If this is not the case and one person must give way, then it is fair for this person
to try to negotiate some form of compensation for doing so. The scale of this
compensation will often depend on many of the factors discussed above.
Ultimately, both sides should feel comfortable with the final solution if the
agreement is to be considered winwin.
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Learning activity: Dollys Delight Role Responsibilities

As stated earlier, Dollys Delights Pty Ltd recently had a major change in staff
management. To help with clarification of their roles, can you look at the
management staff listed below and work out who would be responsible for
specific processes involved in the setting of wage and expense budgets?
Name
Position
Eden Black
CEO
Janet Belchar
Managing Director
Michael Smith
Amanda McKae
Operations Manager
Jose Hernanz
Senior Accountant
Dora Brown
Marketing Manager
Piers Marshall
Sales Manager
Maureen Moss
Production Manager
Mike Wilkins
HR Manager
Role in setting wage and

expense budgets
Learning activity: Setting wage and expense budgets

Read the scenario of Dollys Delight company and answer the following
questions:
1. Who would be responsible for developing and documenting the budget?
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
2. Who would the person developing the budgets need to consult and why?
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________

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3. Why is it important for a number of people to have input into the budget
process?
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
4. Who would have the final say over the financial plans?
___________________________________________________________________
___________________________________________________________________
5. If a company employee wanted additional money to replace old equipment,
whom should he approach?
___________________________________________________________________
___________________________________________________________________
Cost accounting
Cost accounting is an approach to evaluating the overall costs that are associated
with conducting business and classifies all costs as either fixed or variable in
relation to changes in the volume of units produced. Costing is where the cost of
an object produced is determined using the actual costs for the direct costs and a
predetermined rate for the allocation of indirect costs. Managers use cost
accounting to support decision-making. It is recognised as a form of management
accounting, because its primary use is for internal managers rather than outside
users.
Typically, you will need to use data from the past year or reporting period, since
that is the only way to have accurate numbers to accompany a budget. It is
important to note that the past years expenditures can be affected by unusual
circumstances and any variances like this must be carefully accounted for. Data
can come from a range of sources, but typically these are:
inventory, materials and finished product records
consumables records
records of purchases and associated costs
sales information
labour utilisation records
materials used
payroll records
manufacturing and general overhead costs.
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When it comes to measuring how well company resources are being utilised, cost
accounting helps to provide the data relevant to the current situation. By
identifying production costs and further defining the cost of production by three or
more successive business cycles, it is possible to note any trends that indicate a
rise in production costs without any appreciable changes or increase in
production of goods and services. By using this approach, it is possible to identify
the reason for the change, and take steps to contain the situation before bottom
line profits are impacted to a greater degree.
Principles of cost accounting
When performing cost accounting, there are several important principles that you
should keep in mind:
accounting for costs rather that outlays
accounting for hidden costs and externalities
accounting for overheads and indirect costs
accounting for past and future outlays
accounting for costs according to the lifecycle of the product.
Absorption Vs Variable costing
Absorption costing method provides for the absorption of all manufacturing

overheads (whether fixed or variable) into units of production.
Variable costing method treats fixed costs as a period cost and charges
them to the operations of a period in which they are incurred, rather than
to the individual product or service.
Learning activity: What would your get?

You have been given access to two sets of records (1) Unit sales results for the
last 3 months and (2) the sales staff hours of work and total wages and salary
paid for the same period. Describe 2 unit costs that you could develop from this
information.
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________

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Section summary
You should now have a clear idea of what is involved when working with budgets
and financial plans, as well as how to develop them and communicate the
expected outcomes to staff. You should be able to work out who the stakeholders
of an organisation are and their interest in your sector. You should also be able to
understand the methods involved with negotiation and some of the basic
principles of cost accounting.
Further reading
Langfield-Smith, K, Thorne, H, Hilton, R 2006 Management accounting:

information for managing and creating value, 4th edn, McGraw-Hill,
Sydney, pp. 4057.

Section checklist
Before you proceed to the next section, make sure that you are able to:
clarify budget/financial plans with relevant personnel within the
organisation to ensure it is documented
look at budgets for a way to measure cost
access budget/financial plans for the work team
look at the stakeholders of an organisation and determine who is
responsible for providing certain financial reports
negotiate any changes required to be made to budget/financial plans
with relevant personnel within the organisation
understand the basics of costing methods
disseminate relevant details of the agreed budget/financial plans to
team members.
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Section 2 Risk Management and Contingency Planning
Section 2 Risk Management and

Contingency Planning
This section involves the processes regarding the minimisation and identification
of risk in the workplace. It shows us ways to classify a risk and offers a technique
to put a contingency plan into place.
Scenario: Planning for increased production costs
Dollys Delight recently learnt that wage prices for its factory workers was to
increase in line with new award rates with the industry.
They worked hard to implement a contingency plan for this particular problem,
and put this plan in place once the increase occurred.
This allowed for minimum impact on the business financially.

In order to work effectively and manage information of an organisation, you must
be able to:
prepare contingency plans in the event that initial plans need to be
varied
implement, monitor and modify contingency plans as required to
maintain financial objectives.
What is risk?
Risk is the potential impact (positive or negative) to an organisation or some
characteristic of value that may arise from some present process or from some
future event. In everyday usage, risk is often used synonymously with
probability of a loss or threat.
The risks associated with one business may not be applicable for another for
example the rising value of the dollar should have a positive affect for importers
with their goods now costing a lot less to bring in, but for exporters many previous
buyers will now go somewhere cheaper. You need to assess risk independently for
all organisations, and have appropriate plans in place to help address these
possible threats.
In professional risk assessments, risk combines the probability of an event
occurring with the impact that event would have. Generally, risk management is
the process of measuring, or assessing, risk and then developing strategies to
manage the risk.
In general, the strategies employed include:
transferring the risk to another party
avoiding the risk

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adapting the product to the new circumstances
reducing the negative effect of the risk
accepting some or all of the consequences of a particular risk.
Traditional risk management focuses on risks stemming from physical or legal

causes (e.g. natural disasters or fires, accidents, death, and lawsuits). Financial
risk management, on the other hand, focuses on risks that can be managed using
traded financial instruments. This would include looking at things like the various
reports for asset liquidity in case there was a need for quick cash to cover
expenses, or looking for ways to reduce loans and repayments that might blow out
to unpayable proportions in a few years if not managed correctly, e.g. funds set
aside when possible.
Regardless of the type of risk management, all large corporations have risk
management teams and small groups and companies practice informal, if not
formal, risk management.
In ideal risk management, a prioritisation process is followed whereby the risks
with the greatest loss and the greatest probability of occurring are handled first,
and risks with lower probability of occurrence and lower loss are handled later.
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In practice the process can be very difficult, and balancing between risks with a
high probability of occurrence but lower loss versus a risk with high loss but lower
probability of occurrence can often be mismanaged.
Risk management may also pose some problems when it comes to effective
allocation of resources. Resources spent on risk management could be instead
spent on more profitable activities. Again, ideal risk management spends the least
amount of resources in the process while reducing the negative effects of risks as
much as possible.
Identifying risks
Risks may include:
commercial and legal relationships
economic circumstances and scenarios
human behaviour
natural events
political circumstances
technology and technological issues
management activities and controls
seasonal peaks and troughs in supply and demand.
How do we help minimise the risk?

You need to involve people from all areas of the organisation, and listen to their
concerns when issues arise. Outside parties with a larger financial interest in the
organisation must have their concerns addressed immediately and any extra input
listened to, if not actioned. If there is a potential external stakeholder/investor
who is continuously problematic, then there is obvious cause for a plan to be put
in place as soon as possible to cover the loss of the investor/stakeholder.
Reports need to be timely and accurate, as well as frequently assessed internally
to look for any discrepancies. The information needs to be clear, and departments
notified of changes that occur which affect them directly.
The organisation needs to work together as a whole and ensure that all
employees are aware of the organisations policies and standard processes
regarding risk minimisation and awareness and that appropriate support teams or
structures are in place to assist in meeting risk minimisation targets.
One procedure an organisation will use when identifying its risks and deciding
how to prioritise the risk and its consequences, is using the five step risk
management table.
Five steps for risk management matrix

Procedures should be put in place when preparing for your operation that
addresses risk management. Essentially procedures should be written to inform
how risks will be managed. This simple five step risk problem-solving process can
assist greatly:

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1. Identify Hazards
2. Assess the risk of an incident with a simple process of multiplying the
Likelihood by the Consequence in a matrix as below, for example:
The Consequence/Probability Matrix Risk Score
Consequence
Catastrophic
X
Likelihood
loss
Major
loss
Moderate
Ioss
(10)
(8)
(5)
Minor loss
(4)
Almost
Certain (10)
100
80
50
40
Likely (8)
80
64
40
32
Possible(6)
60
48
30
Unlikely (5)
50
40
Rare (3)
30
24
Insignifica
nt
(3)
30
24
24
18
25
20
15
15
12
3. Rate the priority of addressing the hazard against this table:

EXTREME RISK (50 or above): Immediate action required. PRIORITY
HIGH RISK (30 to 49): Management attention needed. Hazards must

be considered as NOT adequately controlled.
MODERATE RISK (20 to 29): Hazards must be examined against

current standards to determine whether the hazard is adequately or
not adequately controlled.
LOW RISK (0 to 19): Manage by routine procedures.
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4. Apply management of the Hazard according to a hierarchy described below

Hierarchy of control
Best
control
Remove the hazard completely

remove risk of electrocution by using compressed air driven tools.
Separate people from the hazard

guards on power tools
use effective barriers and edge protection
enclose noisy machinery.
Use an engineered control
use Earth leakage device (safety switch) on electrical power source
use a machine to lift heavy objects
use scaffolding rather than ladders to reduce risk of falls.
Change work practices
train in lifting techniques
tag out procedures for unserviceable machinery.
Worst
control
Provide personal protection (PPE)

hearing protection, eye protection, etc.
NOTE: PPE (provide personal protection) should be the last barrier to protect
people. It is temporary until a better control can be put in place. The main
drawback of PPE is that they dont eliminate, reduce or isolate the hazard. Safety
equipment is only a thin line of defence between the employee and the unsafe
condition. It is far better to eliminate, minimise or segregate the hazard and thus
remove the need for such equipment

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5. Re-assess the risk until it is moderate or low.

Learning activity: The consequence/probability matrix
Read through the following possible scenarios that could occur with Dollys
Delight. Using the table above, work out the risk score for each scenario:
1. There has been a strike organised for the production workers to occur next
week if negotiations for a pay increase fail :
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
2. There has been a problem with the current supplier and although there is
current negotiations with another supplier it looks like production will fall
short of the orders for the next month:
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
A contingency plan is one way which businesses plan for these future risks and it
is a way for businesses to have strategies in place to deal with already identified
possible risks.
Contingency planning
In order to reduce the impact of risks associated with the way we operate it is
always a good idea to develop contingency plans. This is action we plan for just in
case or making a plan B. An everyday example of this would be when having an
outdoor barbecue. The contingency plan would include an alternative venue in
case of rain, and a different way to cook the food because the barbecue is not
practical indoors. Our risk management system may hint that there is a problem
looming that is deemed to be serious enough to warrant contingency action. In
many cases the contingency action would be guided by the contingency plan to
develop as part of the planning process.
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What to include in the contingency plan

What business you are planning for will dictate what you will include in the
contingency plan. For example:
A restaurant might have an agreement with a competitor for them to store

perishables in each others fridges/freezers in case of breakdown or power
failure.
Finding cheaper or inferior raw materials to help reduce costs and sales
price or when struggling to meet demand.
Being able to rent equipment at short notice in case of equipment failure

or when extra equipment may be needed and.
Contracting or outsourcing particular tasks or functions.
There is also a need to monitor and alter the businesss contingency plan as
required. As the circumstances surrounding businesses are always changing, the
contingency plan will need continuous review and updating. It needs to be an
ongoing investment by the business. Through continual review we will be able to:
perform activities required to construct plans
train and retrain employees
develop and revise policies and standards as the department changes
exercise strategies, procedures, team and resources requirements
re-exercise unattained exercise objectives
report on-going continuity planning to senior management
research processes and technologies to improve resumption and recovery

efficiency
perform contingency plan maintenance activities.
Learning activity: Contingency planning

In your small groups refer back to the Dollys Delight Manufacturing Company
scenario. Brainstorm anything which could go wrong or impact on Dollys Delight
Manufacturing Company. List what you have come up with on some flipchart
paper.

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Example: Risk management

The table below is an example of a contingency plan that an entity might use in
the event that they have to absorb award or wage increases. It addresses the
issue of risk management in that it develops strategies to manage future
financial risk to the company.
Contingency Plan
Company name: Proactive Pty Ltd
Name of person developing the plan: Barney Rubble General Manager
Who was consulted as part of this plan?
Name
Position
Charlie Robson
Operations Manager
Julie Grooves
Human Resource Manager
Rick Towers
Financial Management
Risk identified: New award for manufacturing employees to be implemented in

six months time 60% of workforce current date 15 January 201X
Strategies/activities to minimise the risk
By when
By whom
Evaluate total cost of new award rates with current

rosters.
31/01/0X
JG/CR
Analyse new award for savings provisions with adjusted

rostering.
15/02/0X
JG
Analyse budgets for savings that can be assigned to

capital expenditure.
15/02/0X
RT
Meet with union and employee representatives to

discuss implications of award.
28/02/0X
BR
Identify employment opportunities to up-skill 10% of

manufacturing workforce.
15/03/0X
JG
Identify areas of automation to reduce manufacturing

workforce.
15/03/0X
CR
Communicate changes and opportunities to the

manufacturing workforce.
31/03/0X
JG/CR
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Learning activity: Contingency planning

Using the above example, use one of the risks identified by your group to work
on strategies intended to minimise risk and complete a contingency plan table
using the template below.
Contingency Plan
Company name:
Name of person developing the plan:
Who was consulted as part of this plan?
Name
Position
Risk identified:
Strategies/activities to minimise the risk

By when
By whom
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Section summary
After reading this section, you should be able to identify risks as they might occur
in everyday business. You should now have a clear idea of what is involved when
creating and implementing a contingency plan, and have learnt ways to minimise
risk using these methods.
Further reading
Daft, R and Samson, D 2009 Fundamentals of Management, 3rd edn,

Cengage Learning, Melbourne, pp. 5356.
Section checklist
prepare contingency plans in the event that initial plans need to be
varied
implement, monitor and modify contingency plans as required to
maintain financial objectives.
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Section 3 Implement Financial Management Approaches
Section 3 Implement Financial

Management Approaches
This section is about working out where to source data for the financial plans and
budgets as well as looking at effective coaching/mentoring methods and setting
clear objectives.
Scenario: Working on an objective
Due to the increase in wage costs, Dollys Delight held a meeting to see if it was
feasible to increase sales, increase profit margins or work on reducing costs.
They worked together and implemented the SMART method to achieve the goal
of increasing profit margins by increasing the cost to purchasers by a minimal
amount, and to also have the sales team target new buyers while cementing
contracts for a longer period with current buyers.
They thought that this would be the best plan due to continued future growth
with this objective.

In order to work effectively when managing budgets and financial plans, you must
be able to:
look at the source data for the budgets and financial plans
provide support to ensure that team members can competently perform
required roles associated with the management of finances
use effective coaching and mentoring methods to pass on relevant
information and by using the SMART method be able to set clear objectives.
Managing budgets and finances will often require you to delegate fragments of
your budget to selected employees. Periodic monitoring, support mechanisms and
mentoring are just a few of the responsibilities you will need to demonstrate to
ensure how your overall budget is being managed.
Some of the functions you may choose to delegate to others may be:
banking you may choose to keep this function to the same person as it is
usually done on a daily basis
debt collection
ensuring security, accuracy and currency of financial operations
invoicing clients, customers and consumers
maintaining journals, ledgers and other record keeping systems
maintaining petty cash system
purchasing and procurement
wages and salaries payments and record keeping.

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It is important that before handing over any of the above tasks, that staff are
aware of exactly what is expected of them, and have knowledge of the processes
involved in being able to do the task effectively.
A staff member needs to know what is required of them so that they can go about
their job effectively whilst knowing that they are fulfilling their job requirements.
For example, maintaining a petty cash system with petty cash vouchers:
Petty cash vouchers should have supporting documentation (e.g. till receipts)
stapled to them and filed.
Each month the money spent out of the petty cash should be put back in.
It is best for one person to control the petty cash to minimise risk of money
being unaccounted for or going missing (A petty cash register may be used if this
is not possible).
A computerised ledger account will record any balances and record any
transactions.
Knowing what is required of them makes members of the team also responsible
for things when they go wrong. Delegating tasks can also help employees feel
more certain of their roles.
Feedback is an important tool for both the manager and the team-member. A
work appraisal is one way that you can validate an employee and inform them of
their strengths, while offering support (such as training sessions), to assist
employee development.
Source data
Creating accurate, relevant and achievable budgets is best achieved by gaining
access to the right source data. Accounting officers keep the most useful data to
help formulate a budget, but so will the production supervisor, sales supervisor,
payroll manager and stores manager. By contacting these people, and assembling
the appropriate paperwork and numbers, a best practice budget is within reach.
Types of source data
Inventory, materials, finished goods records these would be kept with the
production manager and will get your the volumes to set your variable
costs by.
Consumables records a stores officer would hold these records. They are
records that cover what has been consumed in the production process.
Purchasing records and materials used buyers would be the people most
likely to hold these records. They would cover incoming stock and raw
material required for the production place.
Sales information would be kept by both the accounts department and

the sales department. It would be records of past sales identified by
invoices or report summaries.
Payroll and labour utilisation will provide all the information needed to
calculate the direct labour and the wages and salaries overheads.
Service charge-out rates would be set by the accountant and deal with
the fees charged on invoices for work done in service type enterprises.
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Data storage
Common recording and storage methods for data would be in pre-printed

books, on forms specially developed to capture data or electronically in
databases, spreadsheets or computerised accounting programs.
Gathering data occurs as a normal part of the operations of a business.

Accounts departments gather information and hold it for many years due
to requirements set by the Australian Taxation Office and the Australian
Securities and Investment Commission.
Data security and backup

Ways the organisations can manage data security are:
Limit access to the data through system security, managing onsite user
password protected access.
Have organisational policy that deal with data storage, especially on mobile
devices.
Maintain secure backup copies of data offsite and back up regularly.
Record ethics
Conflicts of interest A conflict of interest is a situation in which financial

or other personal considerations have the potential to compromise or bias
professional judgment and objectivity. It is important that conflicts of
interest do not impede your ability to objectively set up realistic and
achievable budgets.
Disclosure Deals with the obligation to make known information that

would potentially bias you in one way or another. Disclosure is to explain
your reasons for wanting the information and what you intend to do with
the information once you have collected it.
Confidentially is ensuring that information is accessible only to those

authorised to have access and is protected throughout its lifecycle.
Confidentiality is an important principle in business because it functions to
impose a boundary on the amount of personal information and data that
can be disclosed without consent.
Influences on organisational data storage

Influences or process within an organisation that affect data storage are:
the organisations existing business information systems and

technological environment
the organisations corporate culture
the existing documentation outlining your organisations prioritised

requirements (often contained in policy and procedure docs)
personnel available with strategic planning skills and understanding of

risk and feasibility issues
personnel with an understanding of corporate governance (e.g. legal and

audit specialists).

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Learning activity: Make it safe.

Describe a process that would safeguard all the data contained on the head
office server from a corrupt hard disk
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
Mentoring and coaching
From time to time it may be necessary to conduct some one-on-one coaching to
ensure your staff have the skills and knowledge they need to best keep abreast of
relevant financial results, plans and reporting processes. Coaching is defined as
the process of equipping people with the tools, knowledge, and opportunities they
need to fully develop themselves to be effective in their commitment to
themselves, and their work.
You should seek alternative support approaches when addressing:
low motivation
poor discipline
poor equipment
inadequate supervision
poor attitude
inadequate support
laziness
ineptitude.
These issues may be resolved using a mentoring system, or other support.

Coaching should be focused on improving work performance through training
support.
When coaching somebody in a new technique or procedure, it is important to
follow a certain method in order to ensure the important information is passed
along. The flow chart below shows a coaching model used by managers:
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Effective coaching model observer feedback
Managers of organisations need to ensure that their staff have the adequate
skills and knowledge to be able to fulfil the duties of their role. Organisations will
generally have support systems in place for new employees, for employees
recently receiving a promotion or for employees needing to learn new techniques
or skills.
With legislation and standards often changing and new knowledge required to
keep up to the new standard, most organisations have a training department with
a training co-ordinator who will use assessment tasks or bring in experts from
other companies to assist employees with learning specific new concepts or to
renew licenses or certificates.
A support method often used for staff moving into a new role, is to have them
shadow a mentor for one or two weeks until they are familiar with their new role
and understand what is required of them. It is critical to have a strong mentor so
that bad habits do not get passed along to the newer staff member.
From time to time it may be necessary to conduct some one-on-one coaching to
ensure your staff have the skills and knowledge they need to best keep abreast of
relevant financial results, plans and reporting processes. Coaching is defined as
the process of equipping people with the tools, knowledge, and opportunities they
need to fully develop themselves to be effective in their commitment to
themselves, and their work. This is a very important step in ensuring that the
correct work is being done, and that procedures and checks put in place are
followed and staff members are accountable.

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Scenario: Staff issues

Denise Simmons has just joined Dollys Delights Pty Ltd, as the administration
assistant. Denise was previously employed in a similar role with a competitor
named ABC inc.
In her new role, Denises responsibilities include department invoicing and
purchasing, debt collection, sales and expense reports and maintaining the
accounting system. This is very similar to the accountability procedures Denise
used back at ABC Inc.
Denise has a working knowledge of the most current accounting, spreadsheet
and database systems available, which she will be required to use as part of her
employment at Dollys Delight.
Three weeks into her employment Denise comes to you looking overwhelmed
and frustrated and says: I dont think Im cut out for this job, I just dont seem
to be able to get it right! Everything is different to my last job and I am finding
working her really hard.
Being convinced that Denise will be a fantastic employee given the right
support, you decide to sit her down and diagnose the problem.
Learning activity: Providing support and resources

Read the scenario above and answer the following questions:
What transferable skills did Denise bring with her to Dollys Delight Pty Ltd?
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
What Dollys Delight Pty Ltd specific skills does Denise require to do her job?
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
What leadership behaviours do you think will best help Denise to learn her job
better?
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
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Why is it important to recognise the skills that Denise has brought with her as
well as the progress she has made?
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
Setting clear objectives

Setting objectives
A good idea, when managing, is to set goals or objectives with action plans that
clarify what is expected of team members and when. When setting goals, whether
they are personal or business, they need to follow the SMART format.
Specific: goals should be clear and specific. When writing specific goals
you are identifying the tasks to be done and the time it will take to
complete them.
Measurable: specific goals provide you with milestones that indicate your
progress. You will learn to estimate the time it takes to achieve the results
you want. When you are asked to nominate the time it will take to complete
a given task you will be able to measure your progress against the goals
you have set.
Agreed: each team member should be in agreement as to what is to be

achieved.
Realistic: goals must be attainable. There is no point in setting

unreachable targets. Instead set goals that might stretch your capabilities
a little. Goals that are too easy to achieve are meaningless and of little
value in providing feedback on personal work performance.
Timeframe: goals must have deadlines if they are to be effective. If you do

not have a schedule to work to your goals might be pushed aside by
inevitable day-to-day problems. Setting deadlines helps you to estimate
your progress and focus on your achievements.
Examples of SMART goals:
to increase sales by 10% by 1 July 201X
to reduce staff turnover by 15% by 1/7/1X
to implement new computer system into 90% of business units by 1/7/1X
to train all Safety Committee team members in OHS consultation using

approved WorkCover accredited training program by 1/11/1X
to sign five new clients to two-year contracts by 20/12/1X.

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Learning activity: Setting the rules

The following activity will be completed in groups of two or three. It will be
assumed that each member of the company (group) has three subordinates, all
of whom have a segmented responsibility in the area of their managers
financial responsibility.
As a group you will need to author:
A SMART objective that states what is to be achieved with regard to your

budget and financial plan.
A team charter which each manager will share with their employees. This
might include meetings and times; an open-door policy; what a team
member might do if they cannot attend a meeting, etc.
Team objective:
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
No
Activity
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By whom
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Section summary
After reading this section you should now be able to use the processes involved in
providing support to your team members and be able to show to use the
resources effectively and where the data sources come from. You should also now
be aware of the SMART system and how to use it effectively to obtain your
objectives.
Further reading
Daft, R and Samson, D 2009 Fundamentals of Management, 3rd edn,

Cengage Learning, Melbourne, pp. 5356.

Sydney, pp. 183234.
Section checklist
look at the source data for the budgets and financial plans
provide support to ensure that team members can competently perform
required roles associated with the management of finances
use effective coaching and mentoring methods to pass on relevant
information and by using the SMART method be able to set clear
objectives.

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Section 4 Develop Systems to Manage Budgets and Finances
Student Workbook
Section 4 Develop Systems to Manage

Budgets and Finances
This section is about implementing procedures and processes for monitoring
expenditure and expenses as well as deciding what action to take regarding any
excessive variances.
Managing budgets and finances will often require you to delegate fragments of
your budget to selected employees. Periodic monitoring, support mechanisms and
mentoring are just a few of the responsibilities you will need to demonstrate to
ensure your overall budget is being managed.
Scenario: Production cost variance
Dollys Delight needed to increase its production in order to meet the new sales
target. It used the marginal cost method to look at each unit of production and
its cost.
The actual cost for the extra units of production exceeded the budgeted cost by
a large amount and so Eden Black requested that the financial controller look at
the budgets and actual costs to see why the variances occurred.
After close examination of the budgets and actual figures, the financial
controller decided that the breakdown of the equipment during the period and
subsequent overtime work payments for staff were the main reason for the
larger than acceptable amount of the budget variance.

In order to work effectively when managing budgets and financial plans, you must
be able to:
determine and access resources and systems to manage financial
management processes within the work team
implement processes to monitor actual expenditure and to control costs
across the work team
learn about the different cost drivers
monitor expenditure and costs on an agreed cyclical basis to identify
cost variations and expenditure overruns
analyse the budget variances
report on budget and expenditure in accordance with organisational
protocols and external legal requirements.
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Processes to monitor expenditure and control cost budgets

Once goals or targets have been set and relevant plans are prepared and
implemented, we need to work out any variances between the projected and
actual outcomes. We need to examine why the variances occurred, what we have
learned from these discrepancies and how we can monitor and achieve our goals
in the future.
An example of this would be if a restaurant went over its budget for wastage. It
would then need to look closely at the reasons why so much food was going to
waste possibly due to over ordering of perishables or mistakes in the kitchen,
and it would implement new performance plans to try bring the figures back to
budget. This could include things such as finding alternative foods or defrosting
less, and keeping a detailed record of dishes and mistakes to see where the most
wastage occurs in the kitchen and when.
Job costing
Job costing is fundamental to managerial accounting, as it is the process of
tracking the expenses incurred on a job against the revenue produced by that job.
It is most useful as a tool when large amounts of money or income are derived
from relatively small numbers of customers, e.g. a helicopter supplier would find it
a useful tool, whereas a newsagency or convenience store manager would not.
Manufacturing cost models
Prime cost direct ingredients
Direct
materials
Prime
Cost
Direct
Labour
Product cost total cost of a product
Direct
materials
Direct
Labour

Factory
Overheads
Product
Costs
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Conversion Cost cost required to convert a product from raw material to a product
Factory
overheads
Conversion
Cost
Direct
Labour
Cost sheet
A statement of cost for a product for a given period of time.
It consists of the direct and indirect expenses incurred in producing a given

product.
Classifying expenses according to office administration, selling and

distribution, overheads.
Marginal costs
Marginal costs are the costs incurred in producing incrementally more

units of production, i.e. if it costs $1,000 to produce 100 units and $1,005
to produce 101 units then the marginal costs are $5. Marginal costs are
different to average costs. Average costs look at the total production costs
and units. In the above example the average cost would be $1,005 divided
by 101 = $9.95
Learning activity: Calculate the results

Given the information below, calculate the Prime cost, the Product cost and the
Conversion costs.
Factory overheads
$100,000
Cost
Direct materials
$50,000
Direct labour
$20,000
Answer
Prime cost
Product cost
Conversion costs
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Cost classifications
There are a number of different ways that we can classify costs: by behaviour,
function, relevance and traceability. For us the key classification is traceability
since in management accounting we are attempting to track costs as accurately
as we can. Typically, manufacturing costs are classified as either direct or indirect
and can be tracked as either fixed or variable costs.
Variable vs. fixed
Fixed costs per month are those costs you need to spend to maintain your
business or product sales each month but which do not change in line with
changes in your sales volume or business activity. Rent is a good
illustration of a fixed cost. Regardless of how much you sell, the rent is still
going to be the same. Other fixed costs could include equipment rental or
lease arrangements, insurance, interest on debt, plant and equipment
expenses, utilities, business licenses and salaries of permanent full-time
workers. As the charts below show, total fixed costs do not change with
increased volume yet the fixed cost per unit reduces the more volume is
produced.
Figure 2 Fixed costs
Variable costs are those costs that do vary in line with and usually in direct
proportion to changes in sales volume or business activity. Usually the
largest and most common variable cost is the costs of buying or
manufacturing the goods that are sold. This cost is often referred to as
Cost of Goods Sold (COGS). Other variable costs might include packaging,
and labour directly involved in a company's manufacturing or sales
process, vehicle fuel and salespersons telephone calls. As the chart below
shows, variable costs will increase in line with volume yet the variable cost
per unit will remain the same.

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Figure 3 Variable costs
Semi-variable costs are those that are a blend of the two. For example,
electricity to run the machinery that makes products is included on the
same bill for the electricity that lights the office, whether there is
production happening or not.
Direct vs indirect
Indirect costs are also referred to as overheads. Overheads are the costs
incurred by the firm but which cannot be attributed directly to a unit of
production. One example of an overhead is rent, which is a necessary cost
of business but is not directly related to the production of a specific
product.
Direct costs are those costs incurred by a firm which can be directly
attributed to units of production. One example of a direct cost is raw
material without which a final product would not exist. Raw material is a
direct cost because it can be directly attributed, proportionally, to a unit of
production.
Learning activity: Name that cost

Look at the cost on the left and decide whether it is more fixed than variable
and whether it is more direct than indirect.
Cost
Fixed
Variable
Direct
Indirect
Rent
Casual production
wages
CEO salary
Head office building
insurance
Raw materials
Electricity to run the
plant
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Monitoring expenditure and variance

When reviewing reports we need to ensure that the timing is correct. If a business
uses the report when it is too late to implement a plan for change then it is
ineffective. Also, if the financial reports show substantial gain for the business
and we fail to capitalise, then yet again, the reports are ineffective. The reports
will provide us with:
a reason to change current practices
a foundation for our future budgets and financial planning.
When monitoring for any unfavourable variances, we need to ensure any

corrections are done quickly. This involves:
continuous reviewing of the relevant reports
ensuring that any changes are made within acceptable time frames.
How to analyse the variance

When we examine why businesses fail, it often comes down to bad management
and inadequate planning. Small business failure rates are particularly alarming,
with an estimated 80 per cent of small businesses closing within five to ten years.
While larger businesses have greater resources and usually more funds available
to them, bad planning and management will lead to reduced profits and
productivity below optimum levels.
If processes are put in place that allow us to continually monitor how the business
is going according to the budgets and financial plans, we are then able to
effectively deal with any problems arising from variances and this will allow us to
analyse and work on what we need in order to do to remedy the situation.
Financial planning and monitoring will show up any weaknesses as well as allow
managers to build on the strengths of the business.
Variances and undesirable financial outcomes can be due to things like:
decreased sales
not achieving optimum output levels
equipment failure
new competition
poor marketing techniques
large bad debts
staffing issues
increase in purchase costs
similar products entering the market
too much or too little stock on hand.
Even with the financial reports on hand, sometimes it can still be difficult to
interpret the information and see what the drivers are behind the variances. In
this circumstance it might be wise to employ someone who has specialist
knowledge in the area.

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These would include professionals such as:
an accountant or financial planner
government sponsored bodies
your bank advisor
consultancy firms.
On the following page is an example of a budgeted cash flow statement for three
years shown in table format:
Jolimont Accountancy Firm
2006
2007
2008
Total
Collections from debtors
200,000
145,000
210,000
555,000
Collections from cash sales
120,000
135,000
160,000
415,000
Interest received
2,000
1,700
2,300
6,000
Payments to creditors
-100,000
-87,000
-121,000
-308,000
Wages and salaries
-14,000
-18,000
-16,000
-48,000
Interest Payments
-3,000
-4,000
-3,500
-10,500
Other Operating expenses paid
-16,000
-18,000
-17,000
-51,000
Income tax paid
-20,000
-17,000
-21,000
-58,000
Total Cash flows from operating expenses
169,000
137,700
193,800
500,500
Cash flows from operating activities
Cash flows from investing activities

Proceeds from sale of property
90,000
Payment for motor vehicle
90,000
-10,000
-10,000
Purchase of shares in Singhs Ltd
-10,000
-12,000
-22,000
Total cash flows from investing activities
80,000
-10000
-12000
58,000
55,000
22,000
7,000
84,000
Cash from financing activities

Proceeds from call on shares
Loan from Abbotsford Mortgage Co.
123,000
Loan repayments
123,000
-14,000
-14,000
Dividends Paid
-27,000
-32,000
-28,000
-87,000
GST Collections
2,890
3,780
12,400
19,070
GST Paid
-880
-1,270
-13,800
-15,950
ATO - GST Settlement
2,010
2,510
-1,400
3,120
Total cash flows from financing activities
30,010
115,510
-36,400
109,120
Net change in cash
279,010
260,210
166,400
725,620
Opening bank balance
20,000
299,010
559,220
725,620
Closing bank balance
299,010
559,220
725,620
1,451,240
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Learning activity: Cash flow

The previous example showed different sources of cash flow calculated under
different headings showing the sources. The importance of being able to
differentiate between normal operating expenses and revenues from other
sources of cash flows in and out of the business is very important in order to
have a more accurate picture of a businesss operating revenue and its current
financial position. Below are listed some sources of income and expenses for
Dollys Delight Pty Ltd for the month of February, and the headings from the
previous example. Can you put the expenses and revenues under the
appropriate headings to work out both the cash flow for operating activities and
the remaining balances?
Cash sales: $17,500,000
Interest payments: $60,000
Debtors payments: $30,000
GST paid: $120,000
Proceeds from disposal of

equipment: $25,000
Wages and salaries:

$280,000
GST collections: $159,091
Payments to creditors:
$49,000
Purchase of new machinery:

$25,000
Interest received: $16,000
Opening bank balance:

$22,000
Loan repayment: $30,000
Other operating expenses

paid: $ 69,000
Cash flows from operating activities:

___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
Total Cash flows from operating expenses:
Cash flows from investing activities:
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
Total cash flows from investing activities:

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Cash from financing activity:

___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
Total cash flows from financing activities:
Net change in cash:
Opening bank balance:
Closing bank balance:
What do we do with budget variances?

When budget variances occur, they need to be analysed so that the correct
actions can be taken depending on which sector the variance affects. We need to
work out if the variance is due to a lack of producing income or whether it is due
to increased costs.
When looking at variances that show lower income levels we will need to examine
things such as:
competition
patent issues
incorrect pricing
loss of staff with specialist knowledge
high level of debtors
not keeping up with consumer tastes
the economy for example the global financial crisis
accounting errors
bad publicity
bad preparation for seasonal peaks and troughs.
We need to find the key drivers for these variances before we can work on the
solution. A band-aid solution will not do if the key driver will still be causing the
same problem next month. How the business is performing needs to be examined
along with what is causing the lower income levels immediately to ensure future
viability of the business.
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When looking at cost increases as the cause of budget variance, we may need to
look at things like:
whether funds have been invested incorrectly
whether the budget was underestimated
is the department using its resources efficiently or is there a lot of

unnecessary wastage
are there other methods available to cut costs such as leasing equipment
rather than purchasing
failure of communication between departments
allocation of resources to failing products or projects.
With the expense variances, again we need to look at the key drivers behind the
costs, but it is usually clearer to see where the expenses have been incurred and
therefore we can begin implementing measures to rectify the situation as soon as
they are recognised.
Another important aspect of financial analysis regarding reports is to examine
whether the expense has occurred due to normal operating procedures. If the
revenue from the sale of equipment or property is not gained from normal
operating activities, then even though it might be on the balance sheet, we need
to disregard it when calculating how the business has performed during the
period.
What actions can we take?
Monitoring is a process that assists managers and staff to measure or assess
their progress towards specific goals. When there is unsatisfactory performance,
prompt action needs to be taken to ensure the situation is rectified and the
budget or goal achieved. There are four types of corrective action that can be
taken.
Interim action: this is action that aims to buy time until the real cause of
the problem can be identified and fixed. Often called a Band-Aid
approach, it is a valuable management response when used correctly and
if only for a short time.
Adaptive action: sometimes performance targets are set unrealistically

high. There may be a number of valid reasons errors, over-enthusiasm,
changes in circumstances and so on. At some point it becomes clear that a
performance deficit is inevitable. Adaptive action involves reviewing the
performance standards and bringing them in line with the new reality.
Adaptive action should not be used to cover up poor performance.
Corrective action: this targets the cause of the substandard performance.

It is designed to get the performance back on the rails.
Preventative action: this action removes the cause of potential

performance shortfalls before they occur. Effective monitoring provides the
early warning system that enables appropriate preventative action to be
taken.

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Learning activity: Achieving our goals

The below scenario will highlight a few potential problems a business may face
when running daily operations. Apply one of the action methods to each of the
problems you identify, and then explain why you chose to use that action. As
there may be numerous reasons for the variances to occur, try to guess some of
the possible underlying causes of the variances as this will help you choose an
appropriate action.
Steve is the owner of a small local restaurant. He recently examined his
financial reports for the past three months, and when he compared them to his
budgeted financial reports found that there were many concerning variances.
The first thing he noticed was that the wages costs were much higher
than the previous month, even though profits were slightly lower.
Next he noticed that his utilities charges were a lot higher than the
budget figures had anticipated.
Repairs to equipment had also been an unexpectedly large cost.
Somehow there had been a larger than usual number of debtors written
off with bad debts. The allowance for doubtful debts wasnt able to cover
the cost.
1. Possible cause for the variance:

Action taken:

Action taken:

Action taken:

Action taken:
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Internal reporting
The general purpose of financial reporting is to provide the relevant users of the
information with the required data when making decisions regarding the
allocation of resources.
Potentially anybody could be using the information of a financial report or data so
we need to ensure it is clear and user friendly while containing the relevant
information.
With computerised systems now in place in virtually every business, the accuracy
and availability of the information used has been greatly improved. Yet what type
of system, and who is in control of the financial information may vary greatly
according to size. For example, a production manager may use the sales budgets
and reports to work out inventory and production levels.
Reports are required for various reasons such as for reporting to the Australian
Tax Office (ATO), Australian Securities and Investment Commission (ASIC), and for
internal reporting and auditing purposes.
In larger businesses there may be an accounting department where all the
information is centrally processed and then distributed to the various
departments as needed. In smaller firms it may be the operations manager who
keeps a record of what is happening and it is their job to ensure that the reports
are then analysed and accurate.
There are various government bodies to which the organisation will need to pass
on information such as financial reports or for taxation purposes. These will be the
legal requirements of the business and can lead to fines or restrictions on the
business if these requirements are not met.
Closing the accounts

Businesses require the closing of accounts before final balances can be analysed
and compared with budgets or for generating reports. It is the only way that final
balances can be accurately measured as well as it being a legal requirement for
external reporting to governmental authorities. It also assists with accurate
measurement of final debtor and creditor balances.
Government regulations regarding reporting

As stated earlier, an organisation has a responsibility to produce accurate reports
for internal purposes but there are also legal requirements for organisations in
regards to reporting.
The Australian Securities and Investment Commission(ASIC) requires a larger
proprietary company to submit audited financial statements, and while the
smaller companies may not have their financial statements audited by ASIC, the
Australian Tax Office (ATO) may still choose to perform an audit, where the
accuracy of reports and records is still crucial.
So what is a large proprietary company?

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The ASIC website (<www.asic.gov.au>) states that a proprietary company is

defined as large for a financial year if it satisfies at least two of the following
paragraphs:
the consolidated revenue for the financial year of the company and any
entities it controls is $25 million or more
the value of the consolidated gross assets at the end of the financial year
of the company and any entities it controls is $12.5 million or more, and
the company and any entities it controls have 50 or more employees at the
end of the financial year.
Large proprietary companies will have their accounts audited yearly unless
otherwise informed by ASIC, and they need to submit a financial report and a
directors report annually.
The ASIC states that a proprietary is defined as small for a financial year if it
satisfies at least two of the following paragraphs:
the consolidated revenue for the financial year of the company and any
entities it controls is less than $25 million
the value of the consolidated gross assets at the end of the financial year
of the company and any entities it controls is less than $12.5 million, and
the company and any entities it controls have fewer than 50 employees at
the end of the financial year1.
Even though small proprietary companies may not need to lodge annual financial
reports with ASIC, it is still important that they keep clear and precise
documentation and record keeping for internal accuracy because the Australian
Tax Office (ATO) may want to do an audit.
What reports will the ATO look at?
The ATO will conduct an audit to ensure that all tax law responsibilities are met by
the organisation and that any deductions and offsets you have claimed are
actually entitled to you. They will examine the income statement, statement of
cash flows and balance sheet and look for any discrepancies.
When a notification letter arrives from the ATO informing you of their intention to
audit your organisation, a thorough review of reports and business activity
statement (BAS) information should be conducted and any errors accounted for.
Business activity statement and GST
One report that needs to be filled in quarterly or estimated yearly is the business
activity statements (BAS). These give a written figure on how much goods and
services tax (GST) and pay as you go (PAYG) withholding an organisation will have
to pay or possibly have refunded. An organisation can claim most GST paid by the
business against any GST paid on the final product or service to work out the
total. Currently the government charges ten percent GST.
1
Australian Securities and Investments Commission, 2009, Are you a large or small proprietary company?,
viewed February 2010, <http://www.asic.gov.au/asic/asic.nsf/byheadline/Are+you+a+large+or+small+
proprietary+company%3F?openDocument>.
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The way it is calculated is shown in the following flow chart.

If you pay $55 for materials to make a doll
house, you will have already paid $5 GST
in that transaction.
If you sell the doll house for$110, the GST

the consumer pays to you will be $10.
You are then entitled to claim the

previously paid $5. So you owe the ATO $5
GST.
It is worked out this way to avoid double counting and paying excess GST. The ATO
still gets its $10 $5 from you, and $5 from the business you bought the
materials from.
In business terms, there will be a ledger account with the GST balance. Every
time GST is paid for business purposes, we will classify this as an input credit.
When GST is received for services or products we will add this in the ledger
account as an output credit. If the input credits are higher than the output credits
then we receive a refund, and vice-versa.
The way to calculate 10% GST from any given amount is to divide it by 11. So for
example, the GST on $43 is worked out by dividing $43 by 11, which equals
$3.90.
Learning activity: GST calculation
Still using the example of Dollys Delights, work out the GST for the following
monthly transactions, and then add the total to discover if you need to pay GST
to the ATO, or if you are due for a refund.
Transactions
Amount paid/received
Purchases of raw
materials
$330,000
Electricity expense
$550
Insurance expense
$740
Purchase of equipment
Sales
GST
$20,000
$550,000
Total GST payable or received:

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Budgeting for GST

When working out budgets for GST and there are creditors and debtors involved
as well as cash, it is important to use the accruals accounting method. When
calculating GST amounts to be added on the BAS, we need to include three
separate accounts. These are to account for GST collected in cash during each
month, GST to be paid during each month and cash to be sent to the ATO (or
refunded). Below is a table with the information required for budgeting for GST
and the budgeted GST liability for Tanias Candy Shop.
Example: Tanias Candy Shop
March
April
May
Budgeted cash receipts

incurring GST:
Cash sales:
Cash revenue:
(besides sales)
Cash receipts from sale of
assets (not stock)
Total receipts for GST
13,900
600
14,100
720
14,000
680
19,500
14,820
14,600
4,200
4,200
3,900
3,900
4,500
4,500
5,000
Budgeted non-cash
receipts incurring GST:
Debtors sales:
Total non-cash receipts:
Total budgeted receipts
incurring GST
23,700
18,720
19,100
Budgeted cash payments

incurring GST
Cash Purchases of Stock
Cash Expenses
Total cash receipts
incurring GST
15,200
14,800
15,700
6,400
21,600
5,900
20,700
6,700
22,400
Credit purchases of stock

incurring GST
Credit purchases of assets
(besides stock)
4,000
3,800
4,300
2,000
1,700
2,300
Total cash payments

incurring GST
6,000
5,500
6,600
Budgeted credit payments

incurring GST
Total budgeted cash

payments incurring GST
Page 60 of 82
27,600
26,200
29,000

Student Workbook
GST Cash Budget

Calculations
a) Cash receipts
b) Cash Payments
19,500 x 10% =
14,820x10%=
14,600x10%
1950
1,482
1,460
21,600x10%=
20,700x10%=
22,400x10%=
2,160
2,070
2,240
(23,70027,600) x 10%=
(18,72026,200)x10%=
(19,10029,000)x10%=
(390)
(780)
(990)
120 (last
months figures)
(390)
(780)
c) GST Liability
(total receipts-total
payments)x10%
d) Amount to be added
to BAS and sent or
refunded
Learning activity: Anges Scrapbooking business

Using the above information from Anges Scrapbooking Business, see if you can
complete the table below and calculate the budgeted GST amounts for each
month.
March
April
May
Budgeted cash receipts

incurring GST:
Cash sales:
Cash revenue:
(besides sales)
Cash receipts from sale
of assets (not stock)
Total receipts for GST
12,000
800
13,000
600
13,900
490
6,000
18,800
13,600
14,390
Budgeted non-cash
receipts incurring GST:
Debtors sales:
5,300
3,900
5,000
Total non-cash receipts:
5,300
3,900
5,000
Total budgeted receipts

incurring GST
24,100
17,500
19,390

Page 61 of 82
Student Workbook
Budgeted cash
Cash Purchases of
Stock
Cash Expenses
Total cash receipts
incurring GST
11,900
12,400
12,500
4,300
5,200
5,250
16,200
17,600
17,750
Budgeted credit
Credit purchases of
stock incurring GST
Credit purchases of
assets (besides stock)
3,900
4,100
4,250
1,800
1,900
2,050
Total cash payments

incurring GST
5,700
6,000
6,300
Total budgeted cash

21,900
23,600
24,050
GST cash budget

calculations
a) Cash receipts
b) Cash payments
c) GST liability
(total receipts-total
payments)x10%
d) Amount to be
added to BAS
and sent or
refunded
A sample of a BAS statement is available at <www.ato.gov.au> and it gives

information about how to correctly fill in the BAS. There is also a free service
provided by the ATO, where BAS advisers may come to your business or premises
to assist you when filling out your initial statement.
Page 62 of 82

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Section summary
You should now be aware of the systems and processes involved when monitoring
budgets for variance. We learned what to look at when trying to discover key
drivers for the variances, and strategies we could use when trying to minimise the
impact of any budget blow-outs. We also looked at how reporting is an important
part of the business, and the statutory requirements as well as internal benefits of
accurate and clear reporting systems.
Further reading


Sydney, pp. 183234.
Section checklist
determine and access resources and systems to manage financial
management processes within the work team
implement processes to monitor actual expenditure and to control costs
across the work team
learn about the different cost drivers
monitor expenditure and costs on an agreed cyclical basis to identify
cost variations and expenditure overruns
analyse the budget variances
report on budget and expenditure in accordance with organisational
protocols and external legal requirements.

Page 63 of 82
Section 5 Review and Evaluate Financial Management Processes
Student Workbook
Section 5 Review and Evaluate

Financial Management
Processes
This section talks about the procedure of reviewing and evaluating financial
management processes, and goes through particular techniques showing us how
we can work through a problem when trying to work on a solution.
Scenario: Interdepartmental rivalry
Eden Black noticed that there seemed to be a bit of rivalry between the different
departments of the business. She felt that although a bit of rivalry helped
production levels, that it was harming the flow of communication between the
departments.
After meeting with her staff, they informed her that they often never got to meet
with members outside their department, and that they felt as though they were
on different teams for the business rather than both trying to achieve the same
goal.
Eden implemented a Fishbone diagram to identify the problems between the
departments and then worked on a strategy to help unite them and allow them
to get to know each other a little better.
Eden decided that the best method would be for her to hold a weekend team
building session paid for by the business.

In order to work effectively with budgets and financial plans, you must be able to:
collect and collate data and information for analysis of the effectiveness
of financial management processes within the work team
analyse data and information on the effectiveness of financial
management processes within the work team and identify, document
and recommend any improvements to existing processes
implement and monitor agreed improvements in line with financial
objectives of the work team and the organisation.
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Financial management processes

Once you have examined the financial reports, you will then be able to analyse
what all of the balances and entries along the way mean and get a clearer picture
of how you are going.
You will need to ensure that the processes in place are effective at keeping track
of expenditure and revenue, and that they are accurate, to be then able to use
these to generate financial reports.
You can check how you are going with financial records on hand such as:
Bank account records Where you would need to see the available
balance, check that there is enough cash on hand and that it reconciles.
Cash is the companys most liquid asset so there needs to be enough of it
on hand, but too much means that the company is not utilising this asset.
They would then look at ways to invest this money, or perhaps upgrade
machinery or pay out dividends.
Receipts To ensure accuracy of cash inflows, receipts are usually

matched to the register at the end of the day and any variances looked at.
Tax Invoices These contain GST information to be calculated by the

organisation. If the organisation we work for makes a sale for over $82.50
(including GST) and the purchaser asks for a tax invoice, we must supply
one. Conversely, if we are to claim GST for our business, we will need to
use the tax invoices in order to claim any GST we have paid on any
purchases for the business.
Depreciation If depreciation may be claimed, supporting documentation

is required. The historical cost of the asset must be supported by the
receipt of purchase.
GST calculations and any credits A detailed system must be kept as was
shown earlier in order to claim our GST paid against GST Collected.
Wages/salaries books (including PAYG, Superannuation etc) These are

usually the responsibility of the payroll officer, but reports regarding wage
expenses should be forwarded to relevant departments.
Petty cash receipts and balances This is usually the responsibility of a

particular team member, but it needs to be reconciled at the end of the
period as well usually monthly.
Job Costing By allocating costs to particular jobs, we can work out where
the major costs are, and how to price our products to cover our costs.
Ageing summaries These are covered in more detail below.
Ageing summaries
In organisations where there are debtors and creditors involved, an ageing
summary will be prepared by the companys auditor using the information
entered on packages like MYOB. The purpose of the accounts receivable aged
summary is to provide a trial balance of debtors and show any outstanding
amounts. Typically the summaries are shown using 30, 60 and 90 day periods
and some businesses may prefer longer timelines to show extremely late
Page 65 of 82
Student Workbook
payments. An example of an accounts receivable aged summary is provided

below:
Aged Receivables [Summary]
31/07/201X
Debtor
Total Due
030
31 60
61 90
90+
DeeGee
$3,129.60
$2,000.00 $1,000.00
$0.00
$129.60
Fryers
$2,898.64
$1,989.22
$909.42
$0.00
$0.00
Crimple
$18,989.99 $15,000.00 $3989.99
$0.00
$0.00
Grand Total:
$25,018.23 $18989.22 $5899.41
$0.00
$129.60
0.0%
0.5%
Aging Percent:
76%
23.5%
An aged payables summary is exactly the same as the receivables summary, but
with our creditors showing and our payments due showing. It is a way for the
auditor to check that we are up to date with our creditor payments and that we do
not owe too many overdue amounts.
Learning activity: Aged summary
Using the following data, work out the missing totals and percentages for the
accounts receivable aged summary for Dollys Delight Pty Ltd.
Aged Receivables [Summary]
31/07/201X
Debtor
Total Due
030
31 60
61 90
90+
Toys-a-lot
$5,980.60
$1,800.60
$680.00
$0.00
$0.00
Childs Play
$4,580.99
$3,580.99
$1,000
$0.00
$0.00
$22,899.78 $19,000.00 $3989.78
$0.00
$0.00
$0.00
$0.00
0.0%
0.0%
Wonderful
Grand Total:
Aging Percent:
$
%
$
%
Problem-solving
From time to time it may be necessary to come together as a team and confront a
particular problem or issue that is impacting on results. The Fishbone technique is
typically a great place to start as it tends to identify the root or cause of the
problem so that time isnt wasted trying to fix the effects.
The following figures show an example of Dollys Delight tackling the problem of
the need for extra production for the busy Christmas period.
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Student Workbook
Machinery/
Equipment
People
Needextra
production
for
Christmas
period
Methods
Materials

Page 67 of 82
Student Workbook
Cause and effect diagrams: Identifying the likely causes of problems
Identify the problem

1. Write down the exact problem you face in detail.
2. Where appropriate identify who is involved, what the problem is, and when
and where it occurs.
3. Write the problem in a box on the left hand side of a large sheet of paper.
Draw a line across the paper horizontally from the box. This gives you
space to develop ideas.
Work out the major factors involved
1. Next identify the factors that may contribute to the problem.
2. Draw lines off the spine for each factor, and label it.
3. These may be people involved with the problem, systems, equipment,
materials, external forces, etc. Try to draw out as many possible factors as
possible.
4. If you are trying to solve the problem as part of a group, then this may be a
good time for some brainstorming.
5. Using the 'Fish bone' analogy, the factors you find can be thought of as the
bones of the fish.
Identify possible causes
1. For each of the factors you considered in stage ii, brainstorm possible
causes of the problem that may be related to the factor.
2. Show these as smaller lines coming off the 'bones' of the fish.
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Student Workbook
Analyse your diagram

1. By this stage you should have a diagram showing all the possible causes of
your problem.
2. Depending on the complexity and importance of the problem, you can now
investigate the most likely causes further. This may involve setting up
investigations, carrying out surveys, etc. These will be designed to test
whether your assessments are correct.
Learning activity: Fishbone diagram
Using the fish-bone diagram example, complete your own fish-bone diagram
when trying to solve the problem of Dolly Delights having to extra space for
inventory on hand for quicker shipment to overseas customers.

Page 69 of 82
Student Workbook
Analysing the data

Nearly all businesses these days have a computerised accounting system such as
MYOB or QuickBooks. This makes producing a report at any given time as easy as
the touch of a button, and up to date account balances are always available to us.
The reports managers choose to use will depend on what information is required
and what it is used for. You will need to sort through the information to work out
what is important and how you should use it.
It will be part of your role to use this information to then make your own reports
about things like:
How the business is moving towards its goals and objectives. This would
focus on managers decisions and their success or failure to meet the
criteria set. Revenue and expenses will also be included in this report, but
reasons why things went the way they did will also be looked at more in
depth than just looking at the figures.
Highlighting new opportunities or products as well as including information

from other departments about any products that are not doing as well as
they should be.
Possible challenges that may affect the business, outlining new strategies
that can be put in place as a way to help deal with these. Becoming aware
that your technical expert will be leaving (if it is a specialised product), or
news of a new competitor are examples of potential company challenges,
and it is important step to develop strategic plans to deal with these.
How your sector of the organisation is performing, and what are its
weaknesses and its strengths.
Some of these reports will be used for various purposes such as providing outside
sources and investors with information, as well as for other managers to assess
or compare variables between departments, market research and there are many
other possible scenarios.
As a manager of a particular department, a financial performance report is
another way for you to show the key financial results of a more specific nature.
Examples of this would be financial performance reports on wastage or specific
job costs.
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The importance of review and evaluation

Scenario: Evaluating and reviewing a new idea
You have produced a new spreadsheet for tracking waste and markdowns in
your organisation. You have spent a great deal of time on the project and you
believe it is effective and easy to use. You are very positive about the idea and
believe that your team and your managers will be very happy with it.
You decide to go ahead and implement the new spreadsheet quickly as you feel
that productivity and efficiency will be greatly enhanced.
After the system has been in place for a number of weeks, you find you are
getting a number of complaints from your team who are saying that the
spreadsheet is cumbersome and time consuming to complete. Some team
members do not have access to the software required to operate the
spreadsheet.
The financial manager has also complained that the new spreadsheet does not
show comparisons with last years figures which she needs when writing the end
of period reports.
You are quite upset and disappointed that your idea seems to be unpopular and
will need revision.
Review and evaluation is about involving everyone in the company. There must be
avenues for people to identify opportunities for improvement and have
management evaluate and consider the merits of their ideas.
Examples of review processes and systems could include:
suggestion schemes
training and development programs
team meetings
focus workouts
newsletters and bulletins
audits
email or intranet
customer feedback evaluation
staff reward mechanisms
policies and procedures review.
Promoting constant review and evaluation in organisations requires commitment

and consistency. Small incremental improvements need to be monitored and
reviewed. They also need to be formally incorporated into the organisations
policies, procedures and systems so that they become the new standard.
Monitoring and reviewing performance
How do we monitor and review improvements to ensure they are meeting the
organisations needs? Methods may include:
technology computerised systems and software such as databases,

project management and word-processing
audits
customer feedback
reports.

Page 71 of 82
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Learning activity: Review and evaluate finances

Write down what type of documentation you would review and evaluate if a
problem were to be identified with each of the following issues.
An employee who has been underpaid:
___________________________________________________________________
___________________________________________________________________
Paying too much GST:
___________________________________________________________________
___________________________________________________________________
An inflated expense account:
___________________________________________________________________
___________________________________________________________________
A sales representatives commission:
___________________________________________________________________
___________________________________________________________________
An incorrect bank balance:
___________________________________________________________________
___________________________________________________________________
A ledger that does not balance:
___________________________________________________________________
___________________________________________________________________
Overstated accounts receivable:
___________________________________________________________________
___________________________________________________________________
Overstated accounts payable:
___________________________________________________________________
___________________________________________________________________
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Student Workbook
Selecting, evaluating and reviewing ideas

Selecting ideas
Once the team has generated a range of ideas, the team then needs to review
these to determine which ones might work, which might need additional
development and which ones definitely will not be successful. To do this, as a
group, identify the materials and resources that might be needed, possible
constraints, whether the ideas will meet the end user requirements and so on.
There are a number of ways in which you can sort out the more viable ideas from
the ones that might not work. Sometimes it will be obvious which ideas will not
work, and sometimes it will be a bit more difficult to evaluate the merit of an idea.
At this stage, you should be trying to draw out some of the more practical ideas
that could be developed further.
Evaluating and reviewing ideas
You now need to challenge, test and experiment with different ideas for concepts
as part of a collaborative process. Some suggestions for criteria to use to help you
review the ideas are:
suitability for target audience
technical feasibility
commercial potential, if this is necessary for this concept
possible social, ethical and environmental impacts
resources required to achieve the desired creative and innovative

outcomes; these will depend on the type of concept being developed, but
could include:
o facilities
o specialist equipment
o staffing including specialist staff
o cooperation of other external organisations
o computer hardware and software
o training needed
o materials required.
time constraints.
Choosing the best ideas

After evaluating the effectiveness of different strategies for achieving desired
outcomes in an innovative and feasible way, the organisation needs to choose the
best ideas.
One way to select good ideas is to use an evaluation grid, where you assess your
ideas against of number of criteria.

Page 73 of 82
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Example of an evaluation grid

In a table, such as the example shown on the next page, note down the ideas you
came up with during the brainstorm for a new concept.
A number of suggested criteria have been given, and you should mark them off or
write brief notes under each heading. You can use any of the criteria that may be
relevant to your ideas.
You will find the last column asks you to decide whether to continue exploring the
ideas following this initial evaluation. If you are not sure, and you feel an idea may
have potential, you should leave it in. There is a thorough evaluation stage to
come.
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Student Workbook
Evaluation grid
Idea
Suitability for
target
audience
Technical
feasibility

Commercial
potential
Possible
impacts
Resources
required
Time
constraints
Explore
further?
Yes/No
Page 75 of 82
Student Workbook
Learning activity: Design your own evaluation grid

Design your own evaluation grid, using the criteria in the example, or choose
your own that meet your evaluation requirements.
Write your ideas in the idea column have at least six, but include as many as
possible.
Assess your ideas, using the grid.
Continuous improvement
Implementing opportunities for further improvement
In order to maintain a workforce committed to improvement, processes need to
be in place to ensure team members are informed of savings, productivity or
service improvements in achieving the business plan.
The process for this feedback needs to be formalised so that the continuous
improvement loop remains intact. As previously discussed, continuous
improvement is about involving everyone in the organisation and there must be
avenues for people to identify scope for improvement and have management
evaluate and consider the merits of their ideas.
Key performance indicators (KPIs) are a simple and helpful tool when trying to
measure the performance of an industry. Some examples are as follows:
In the fast food industry, an easy way to measure performance is to

calculate the number of meals sold, divided by the average food cost and
deduct any wastage.
A retail store can measure the number of people who enter the store,
against number of sales, with the average number of items per sale and
the conversion rate (% of people who bought something), against their total
sales.
Examples of continuous improvements processes and systems could include:
suggestion schemes
team meetings
newsletters and bulletins
email/intranet
staff reward mechanisms
training and development programs
focus workouts
audits
customer feedback evaluation
policies and procedures.
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Student Workbook
Promoting continuous improvement within organisations requires commitment

and consistency.
Small incremental improvements when made need to be monitored and reviewed.
They also need to be formally incorporated into the organisations policies,
procedures and systems so that they become the new standard.
Section summary
You should be aware of which reports to use when trying to evaluate the data and
how to use this information for reviewing purposes. You should now also
understand how to analyse the data effectively and how to evaluate the finances
of the business as well as the methods to use for continuous improvement.
Further reading

Sydney, pp 183234
Australian Bureau of Statistics

<http://www.abs.gov.au>
Australian Securities and Investment Commission

<http://www.asc.gov.au>
Australian Taxation Office: Checklist for New Businesses

<http://www.ato.gov.au/businesses>
Institute of Chartered Accountants in Australia

<http://www.icaa.org.au>.
Section checklist
After having completed this section, make sure that you are able to:
collect and collate for analysis, data and information on the
effectiveness of financial management processes within the work team
analyse data and information on the effectiveness of financial
management processes within the work team and identify, document
and recommend any improvements to existing processes
implement and monitor agreed improvements in line with financial
objectives of the work team and the organisation.

Page 77 of 82
Appendices
Student Workbook
Appendices
Appendix 1: Sample cash flow statement
Sample business plan
Sample cash flow statement
Statement for the month ended_________.
Cash flow from operating activities
Net income
$1,800
Noncash expenses and revenues

Include income
Increase in accounts receivable
$(1,000)
Increase in supplies
500
Increase in accounts payable
600
Net cash flow from operating activities
(900)
900
Cash flows from investing activities

Purchase of land
$(10,000)
Purchase of building
(25,000)
Net cash flow used by investing activities

Cash flow financing activities
Invested
Withdrawals
Net cash flow provided by financing
activities
Net increase (Decrease) in cash
Page 78 of 82
50,000
(600)
$49,400
$

Student Workbook
Appendices
Appendix 2: Sample operational plan

I. CHAPTER ANNUAL GOALS
1
Gather data from membership to assist with decisions related to chapter goals, member recruitment and retention, and operations.
Prepare needs assessments and satisfaction surveys
Determine why member attendance at monthly meetings has been dropping, including some chapter leaders.
Analyse survey data to identify member satisfaction, needs that are not being met, and services that are valued by members
Develop major focus areas, key strategies and tasks and timelines to address findings from above
Enhance the quality of monthly programming (strategic focus). Maintain job referral and annual seminar.
Determine/review long-range and annual goals for chapter, identifying corresponding criteria for measuring success.
Long range goals: Increase membership, provide greater array of resources to members, and develop depth in chapter
leadership.
Annual goals: Upgrade programming and increase overall ratings to 4.5. Increase member retention by developing a
mentoring program. Reduce non-renewals by 10%. Invest in the development of board members with goal of having less than
50% of the board transition off in a given year
Maintain 100% CORE compliance

Review CORE elements and develop reporting systems as needed.
Develop and publish a balanced budget

Increase dollar amount in reserve account by 3%
II. MARKETING and COMMUNICATIONS STRATEGY

Goals
Tasks:
Update webpage with current information, products, and services
Maintain past, present, and future meeting information on

webpage
Keep membership informed of upcoming events
Advertise National and local events via membership email

broadcasts
Develop operating/procedure manuals for board members
Revise operating manual to reflect changes in board member

responsibilities

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Appendices
Student Workbook
III. RECRUITMENT AND RETENTION STRATEGY
Goals
Tasks:
Increase membership
Develop a Bring a Buddy campaign

Create a corporate membership option
Obtain list of local National members and develop membership
campaign
Reduce number of members that do not renew their membership
Follow up with non-renewals by board member phone process

Assist members in becoming involved in chapter
activities/volunteering
Create a mentoring program
Utilise website effectively as a recruitment/retention tool
Develop a process to keep information current and easily read

Highlight a member each month/corporate partner
Set up online registration system
IV. SUCCESSION PLANNING STRATEGY
Goals
Tasks:
Integrate leader recruitment across all functional lines
Have current board members actively recruit members to

committees
Host a leadership development night to showcase learning
opportunities, responsibilities, and testimonials from current/past
board members
Identify potential chapter leaders
Develop formal interview process for future leaders
Involve past presidents
Use past presidents as leadership mentors for new board

members
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Appendices
Appendix 3: Sample of financial projections

SAMPLE of Financial
PROJECTIONS
SALES
Item 1
$
50,184.00
Item 2
$
32,319.00
Item 3
$
2,000.00
Item 4
$
2,352.00
Item 5
$
1,050.00
Item 6
$
1,050.00
Item 7
$101,304.00
$190,259.00
COGS
$
(24,000.00)
GROSS PROFIT
$166,259.00
EXPENSES:
Misc. Expense
$
1,200.00
Rent
$
16,704.00
Wages (4 employees @ $5.15/hr)
$
39,552.00
Electricity
$
8,400.00
Phone
SBA Note Interest
$
2,700.00
Insurance
$
3,600.00
Bank Service Charges
120.00
Accounting and Legal Fees
500.00
Maintenance and Repairs
$
1,200.00
Depreciation
$
1,343.10
TOTAL EXPENSES

600.00
$
75,919.10
Page 81 of 82
Appendices
Student Workbook
$90,339.90
NET INCOME
NET INCOME
$
90,339.90
+INTEREST
$
2,700.00
+DEPRECIATION
$
1,343.10
TOTAL AVAILABLE CASH
$94,383.00
DEDUCTIONS:
Owner's Withdrawals
$
14,400.00
SBA/Bank Loan (P&I)
$
10,461.84
Other Debt Service
TOTAL DEDUCTIONS
NET CASH FLOW BEFORE INCOME TAXES
Page 82 of 82
$24,861.84
$69,521.16


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Manage budgets and

BSBFIM501A Manage budgets and

Part of a suite of support materials for the

BSB07 Business Services Training Package

Copyright and Trade Mark statement

Published by: Innovation and Business

First published: July 2009

Section summary ............................................................................................ 45

About the Student Workbook

Features of the Training Program

Student Workbook (SW) self-paced learning activities to help you to

Facilitator-led sessions (FLS) challenging and interesting learning

Assessment Tasks summative assessments where you can apply your

BSBFIM501A Manage budgets and financial plans

Structure of the Training Program

BSBFIM501A Manage budgets and financial plans

About the theme/scenario

30,000 40,000 50,000 60,000 70,000 80,000 90,000 90,000 90,000

What skills will you need?

BSBFIM501A Manage budgets and financial plans

Information and budgets

Selling price per

BSBFIM501A Manage budgets and financial plans

Budgeted sales (units)

Required ending finished 3,000

Finished goods required

Less beginning finished

Direct Material Budget

BSBFIM501A Manage budgets and financial plans

The role of management and the management cycle

Model of the management cycle

Planning requires the formation of goals and objectives followed by

Organising is a coordination function involving people, materials,

Leading is providing support, guidance and motivation to ensure other

Monitoring ensures that a manager knows what is happening in all areas

BSBFIM501A Manage budgets and financial plans

Learning activity: Management cycle

Bear, A, Blythe, P and Flanders, D 2005, Introduction to budgeting. 4th edn,

BSBFIM501A Manage budgets and financial plans

Section 1 Plan Financial Management Approaches

Section 1 Plan Financial Management

BSBFIM501A Manage budgets and financial plans

Section 1 Plan Financial Management Approaches

What skills will you need?

Planning and control

Planning involves formulating the firms objectives and includes the

Control involves the continuous assessment of actual performance with a

BSBFIM501A Manage budgets and financial plans

Section 1 Plan Financial Management Approaches

Key tasks of management accounting

determining the firms critical success factor

implementing benchmarks that will enhance operational efficiency.

Management accounting in service organisations

BSBFIM501A Manage budgets and financial plans

Section 1 Plan Financial Management Approaches

Planning, production and selling/administration processes and costs

BSBFIM501A Manage budgets and financial plans

Section 1 Plan Financial Management Approaches

Budgeted income statement

Less cost of goods sold

Less other expenses

Less general selling and administration