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PLANNING EFFICIENTLY FOR TQM

DIPENDRA GAUTAM

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OUTLINECapital planning and budgetingRequirement of capital projectCapital planning procedureOperation and capital budgetFixed and flexible budgetRevision of budgetBudget control method (audit)

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CAPITAL PLANNING

List and describe capital project

Effects of plan on key

financial variables

Project funding procedure

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BUDGETING

EVALUATION COMPARISON SELECTIONCAPITAL

BUDGETING

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INTERACTION BETWEEN PLANNING AND BUDGETING

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REQUIREMENT OF CAPITAL PROJECTPreparatory works: - Needs and demand analysis with

output specification - Options analysisViability evaluation - Financial analysis - Economic analysisRisk assessment and sensitivity analysis

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Contd….Professional analysis -Technology discussion -EIA -Legal and regulatory due diligenceImplementation readiness -Institutional capacity -Procurement planFinal summary matrix

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CAPITAL PLANNING PROCEDURE2. Identification of capital needs

3. Prioritization of capital requests

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Contd….

4. Capital improvement programming

5. Assessment and forecast of financial condition ability to finance capital needs

6. Selection of financial source(s) foe individual capital projects and expenditures

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Contd…

7. Maintaining or improving bond ratings

8. Authorization of capital projects or expenditures and appropriation of funds for them

9. Obtaining and management of financing for projects

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OPERATING AND CAPITAL BUDGET OPERATING BUDGET: Immediate future plan Affects how much we can wine and dine a client Developed by first estimating sales revenue Market trends and pricing decision facilitate this

forecast tempered with the capacity of the company to deliver the product or services

Covers: -Labor cost -Raw materials -Utilities

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Contd… -Overhead -Sales -Marketing -R & DZero based budgetDeveloped by month and may differ

significantly based on timing of outlaysMonitored monthlyShort term viability is checked

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Contd… CAPITAL BUDGET: Developed for two reasons: -Expansion -Replacement Developed with : - Continuous evaluation of market condition -Analysis of opportunities Use of NPV method for analysis Investment in the future Long termed

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FIXED AND FLEXIBLE BUDGETFIXED BUDGET: Static budget, projects static level of

known income and expenses over a set period of time

Acceptable for situations where the levels of income and expenses are not expected to fluctuate through the duration of the budgeting period

Prepared based only on one level of output Large variance is encountered.

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Contd….FLEXIBLE BUDGET (VARIABLE

BUDGET) A fixed budget, adjusted to account for

variable results Helps a business account for future

changes in any expense or income account

Designed to change in accordance with the level of activity attained

Designed to change appropriately with fluctuations

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STEPS FOR PREPARING FLEXIBLE BUDGET

Determination of budget variable cost per unit output

Determination of budget level of fixed cost

Determination of actual volume of output

FLEXIBLE BUDGET

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REVISION OF BUDGETMajor change in operating conditionExpected shift in sales happensSalary conditions vary rapidlyTo increase the company’s financial

standing

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STEPS FOR REVISION OF BUDGET

Analyze budget

Identify troubled areas

Make changes

Monitor and revise

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BUDGET CONTROL METHOD (AUDIT) Unbiased evaluation of a person,

organization, system, process, enterprise, project or product

Can be done: -Internally (by employees of the

organization) -Externally (outside firm)

audit

financial Quality

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WHY AN AUDIT?

audit

Irregularities

Inefficie

ncy

Adjustment

Reliability

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AUDITING PROCEDURE Completed by audit staff recording  Initials and the date the test A summary of the test results whether or not substantive tests are

required (and test reference)

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and Welch remarks….‘ The budgeting process at most

companies has to be the most ineffective practice in management. It sucks the energy, time, fun and big dreams out of an organization. It hides opportunities and stunts growths.’

- Jack Welch

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CITATIONS Capital Planning Guidelines Havens, H., Management Controls, Audit and

Evaluation Lawrence, D. M., Vogt, A. J., Capital Planning,

Budgeting and Debt Financing, Cahpel Hill School of Government, 2007, North Carolina

Office of Budget and Financial Planning, MIT Reports to the president; 2003-2004.

Smart Practices in capital Planning, The Federal CIO council, et al., 2007

Water Sense Summer 1999

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Many Thanks For Your Kind Attention