Unit 3 Budget Components and Forms

Overview

We turn our attention to using budgets to lead an organization. When most people think of budgeting, they can come up with a very basic idea of how they are constructed, but they fall short of grasping the power that a budget can provide. The power of a dynamic budget is that they can be used to monitor organizational health, permitting the leadership to then make decisions accordingly.

One key element of budgeting is to always remember that budgets are (just) ESTIMATES of what you plan to spend. But keep in mind that too many managers will act as if the budget is MORE than a collection of estimates. Because of this, leaders may find themselves not only digging to find the root causes of the variances, but they may also have to navigate conflict management, too.

We will spend much more time in the next Unit on estimating.

There are generally two types of budgets with many variations within each. The most common type refers to an objective (project?) and identifies the expenditures required to achieve the objective. The other type is very similar, but considers income and expenditures over time. (Each unit of time is commonly called a ‘time bucket’.)

Formatting a budget is easier than one might think, using Microsoft Excel to achieve a highly-readable and functional budget. This will be our primary tool and the Assessment due in Unit 4 will require the use of Excel. Students will consider various formats and choose the one that best suits their assessment needs.

Topics

This unit is divided into the following topics:

  1. Budget Concepts and Components
  2. Building a Standard Budget
  3. Building a Monthly Annualized Budget

Learning Outcomes

When you have completed this unit, you should be able to:

  • Understand budget concepts and components
  • Recognize the various budget formats available
  • Select the proper budget format that fits the organizational needs

Activity Checklist

Here is a checklist of learning activities you will benefit from in completing this unit. You may find it useful for planning your work.

Learning Activities

  • Complete the Build a Simple Budget activity
  • Building a Monthly Annualized Budget activity

Assessment

  • In this course you demonstrate your understanding of the course learning outcomes in different ways, including papers, projects, discussions and quizzes. Please see the Assessment section in Moodle for assignment details and due dates.

Resources

Here are the resources you will need to complete this unit.

  • Kline, G. and Dabney, A. ; (2013) The Cartoon Introduction to Statistics. New York: Hill and Wang
    • 978-0-8090-3359-1
    • (CIS)
  • Mullis, D. and Orloff, J.; (1998) The Accounting Game. Naperville, Ill: Sourcebooks.
    • 978-1-4022-1186-7
    • (TAG)
  • Other online resources will be provided in the unit.

Planning Ahead

Before you examine the topics in this unit, take a moment to watch this video that has been provided by the instructor. This video will introduce each topic and help support your learning. You are encouraged to re-watch this video if you are struggling with any of the concepts you will be learning about in this section.

3.1 Budget Concepts and Components

We begin this unit by developing an understanding of the methods or techniques for building a budget. In this section, you will be introduced to the idea of general budget ‘shape’, focusing on the overall form, fit, and function. This includes formatting of a proper budget. (Note: We will expound on this Unit in the next Unit.)

There are several formats for a budget, but there are generally two types, one that considers time (e.g., a monthly budget) and one that does not (say, a project budget where the funds already exist in savings). Budgets that consider timing of income and expenditures are very common and the time window for each column is commonly called a ‘bucket’.

For the sake of this Unit, we will focus on the budget that does not have time buckets. But keep in mind that the key to those that are formatted this way should NEVER have a time bucket go negative, otherwise, the organization is pulling cash from reserves to cover the difference. If they do not have reserves, they could be in serious financial trouble.

If you notice, personal budgets can have the SAME formatting as organizational budgets. The formats are the same, just the content is different.

Please view these videos:

Watch: Small Business Budgeting Simplified: How to Create a Budget for Your Small Business

Watch: Excel Budget Template | Automate your budget in 15 minutes

Watch: The SIMPLEST Business Budget Template / Small Business Budget / Profit First Simplified

Watch: Budgetary Control for Managers

3.2 Building a Standard Budget

Adding to the content from 3.1, you’ll need to consider the items and tasks that need to be budgeted. The videos below can aid in deciding which budget format is the best fit.

Simple budgets may just be a list of the tasks and items (which may also be called goods, or materials). This style of budget can be stretched out into several columns, but still NOT take into account the timing of the expenditures (and income, if applicable).

Budgets with time buckets, conversely may not be able to have the detail (from the ‘stretched out’ budget) but clearly have a distinct advantage to ensure proper cash flow throughout the total time period.

(Again, not forgetting that personal budgets have the same formatting as organizational budgets.)

The following videos help to explain:

3.3 Building Monthly Annualized Budgets

After considering the basic format and content of budgets, in this section, we will reinforce how to build monthly annualized budgets in Excel. Excel is the most common spreadsheeting tool for budgets and is easy to use once basic internal formatting skills are learned.

(Note: If you have insufficient Excel skills, it may be wise to seek additional tutoring.)

To better understand why this is important, and what requires consideration, watch the following videos:

Activity: Build a Simple Budget

For this activity, you will create a simple budget (using MS Excel) based on the information outlined scenario below:

You are a personal Assistant of an executive. You have been asked to put together a budget for your boss that will take her family to Disneyland on a 5-day vacation. This is to be a COMPLETE secret from her family and needs high discretion.

Your budget should be based on the following information:

Customers: Herself, husband, age 17 (boy) and age 7 (girl).

Special Inclusions:

  • One “Character Meal”
  • A single special (paid) activity for EACH of the kids, may or may not be on Disney property.

Your task is to obtain quotes and to put those quotes onto a budget. Below are some additional considerations for your budget:

  • Hotel/Accommodations (consider using hotels.com)
  • Must be located near park so they can walk (no daily ground transportation needed)
  • Airfare
  • Vancouver, British Columbia (Canada) to Orange County/John Wayne (California, USA)
  • Transportation to and from airport (Taxi? Uber? Shuttle?)
  • ONLY to and from airport is necessary
  • All meals
  • Tickets (consider using Disney.com)
  • Souvenirs
  • Any additional purchases you anticipate

Set up your sheet using the following headers - be sure to include column “Totals” on the bottom of each:

Description Budget Amount Actual Amount Variance Estimation Rationale

Reconsider EVERY estimation and add a comment in the Estimation Rationale column (each row should have an entry for how the estimated cost was determined).

IGNORE the Actual Amount and Variance columns for now. Fill in any missing data so that only the Actual and the Variance columns are empty.

Finally, once you have completed your budget, adjust formatting (i.e., colorizing and bolding) to enhance readability.

Note: Learning activities in this course are ungraded, unless specified. They are designed to help you succeed in your assessments in this course, so you are strongly encouraged to complete them.

Activity: Building a Monthly Annualized Budget

For this activity, you will create a monthly annualized budget (using MS Excel) based on the information outlined scenario below:

You are the Executive Pastor at a church of 500, and you are in charge of building the monthly annualized budget for the next year.

Primary Stakeholders:

  • The Lead Pastor
  • The Board of Elders
  • Voting members of the church
  • The remaining church family

The minimum items to be included:

  • Salaries
    • Lead Pastor - salary
    • Yourself - salary
    • Children’s Pastor - salary
    • Creative Arts Pastor (Worship team leader) - salary
    • Part-time Accountant/Office Manager - hourly
    • Part-time Front Desk Admin - hourly
  • Salary Related expenses for all
  • Building lease, 1500sm
  • Building Insurance
  • Building Operating costs
  • Other Operating Expenses
  • Major events
    • Christmas Program
    • Easter Program
    • Back to School bash
  • Income:
    • Average ‘give’ per attender (Average Giving Unit – AGU) is $32
    • Giving is greater in Q1 and Q4, and is very low during summer months

Your columns will include, but not be limited to: Description, (each) Month, and an Annual Total. For each column, there should be a total, too.

Note: Learning activities in this course are ungraded, unless specified. They are designed to help you succeed in your assessments in this course, so you are strongly encouraged to complete them.

Assessment

There are no assessments for Unit 3, but the work from Activity 3.1 will used in Unit 4.

Refer to the course schedule for graded assignments you are responsible for submitting. All graded assignments, and their due dates, can be found on the “Assessment” tab.

In addition to any graded assignments, you are responsible for submitting, be sure to complete all the Learning Activities that have been provided throughout the content - these are intended to support your understanding of the content.

Checking your Learning

Before you move on to the next unit, you may want to check to make sure that you are able to:

  • Understand budget concepts and components
  • Recognize the various budget formats available
  • Select the proper budget format that fits the organizational needs