Monitoring expenditure

It is essential that you can monitor income and expenditure according to the budget and identify ways of improving budget performance. Part of your job is to also control expenditure, so that outgoings are all disbursed according to the rules and the budget. If you have a very detailed predictive budget, here's what to do:

1. At regular intervals, check actual income and expenditure against the budget to know if the actuals follow the budget and cash flow projections.
2. Keep key people advised of the budget status. If something is wrong, inform the right person. But check your message for accuracy first, because you don't want to create unnecessary angst. A quick, informal oral message will sometimes be enough, but it might be wise to have something in writing. Email is good.
3. Prepare and present income and expenditure reports. Your organization probably has its own format and you should know who you are supposed to submit them to.

Managing a budget

If, however, you need to actually manage finances, read on.

Your job is much more than simply maintaining and reporting compliance. This is the really interesting bit; it is what makes you a manager. Go through the figures and look for:

• assumptions made in the budget that worked out badly
• assumptions made in the budget that worked out really well
• cost blow-outs
• risks
• lazy assets
• opportunities to perform better
• accounts where unused funds are piling up
• build-up of debts receivable
• product life-cycles (i.e. a new product is performing well, an old product is now declining in popularity)
• costs not included in the budget
• gaps where income is not billed, and
• areas of outstanding financial performance.

Now you know what the numbers are doing, identify any deviations from the budget and the reasons for deviation. Take the appropriate action, which will vary according to the situation, e.g.

• You can be under or over budget.
• Income and expenditure totals might be firm, but the timing might be late or ahead
• The organization may have had to change the structure of income or expenditure
• You may have to evaluate risks, and take preventative action
• You might have to alert people of cost blow-outs

Some tricks and traps

Your organization's income cycle is probably different from its expenditure cycle. For example:

• A fee-funded school might get most of its income early in first semester, but face its biggest expenditures late second semester when buying resources for the following new year.
• A project often incurs major costs for buying materials in the early stages. But it might not get paid until the end of each stage.

Check that you get all that you pay for. For example, your budget allocates $x to buy four widgets. Somebody goes to the widget shop and spends $x on widgets. But does he get four widgets? Did he get the brand XYZ equivalent to a widget?

Other things to consider

1. The factors affecting how accurate your cost estimates will be will probably include:
• the stage of the project life cycle
• the availability of information at the time
• contingencies to allow for identified risks and uncertainty
• organizational requirements, for example overhead and profit margin
2. Use the right financial management processes and procedures to monitor actual expenditure and to control costs. These may include:
• approval processes
• financial authorizations or delegations
• invoice procedures
• communication and reporting
3. Select cost analysis methods and tools and use them to:
1. identify cost variations
2. evaluate options and
3. recommend actions to your supervisor
4. Implement any decisions made to vary the budget.
1. Monitor them as you go and modify them if necessary so that you will meet financial and overall project objectives throughout the project life cycle
5. Keep records, which may include:
   • lists of planned and potential costs
   • a schedule of payments to be made
   • invoice and payment summaries
   • budgets, commitment and expenditure
   • cost management plans
   • reports to a higher authority
   • recommended and approved courses of action
   • project and/or organisation files and records
   • cost management lessons learned