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The Management of a Budget
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Managing a budget requires comparing actual figures with budgeted figures (what actually happened compared to what you expected to happen. The difference between the two is called the variance. A budget should also include commentary on the variance.
An example of the management of a monthly budget for a business unit is shown below:
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Rands |
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Month of June |
Year to end June |
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Actual |
Budget |
Variance |
Actual |
Budget |
Variance |
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Salaries |
12000 |
10000 |
2000 |
72000 |
60000 |
12000 |
|
Stationery |
2000 |
2000 |
0 |
12000 |
12000 |
0 |
|
Telephone |
950 |
500 |
450 |
5700 |
3000 |
2700 |
|
Travel |
2500 |
1200 |
1300 |
15000 |
7200 |
7800 |
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Total Spending |
17450 |
13700 |
3750 |
104700 |
82200 |
22500 |
Budget Commentary
- Salaries were over budget by R2000 per month due to the salary increase authorised in line with additional responsibilities allocated.
- Stationery was in line with the budget.
- Telephone expenditure was way over budget by R450 per month – the reasons for this need to be investigated and telephone expenditure needs to be curbed.
- Travel expenditure exceeded more than 100% of the budgeted figure. Urgently requires a check and control or possibly a revision of the budget.
When reviewing a budget, a manager should keep an eye out for some of the following problem indicators:
- Sales are on target, but spending is not.
- Spending is on target, but sales are not.
- Large variances (more than 10%).
- Trends that show a decline, even if still within target.
- Sudden big changes.
- Single items of expenditure that exceed business unit spending limits.
- Large increases in accounts receivable (credit given to the customer) and ageing accounts receivable (debts not being collected).
- Headings that might conceal payments to third parties.
Click here to view a video that explains the budgetary process.
Click here to view a video that explains budgeting.