Course Methodology

This course focuses on exercises, case studies, and individual and group presentations.

Course Objectives

By the end of the course, participants will be able to:

• Defend the importance of linking an organization's budget with its strategic plan
• Demonstrate how the budget relates to the balance sheet, income statement, and cash flow statement
• Prepare the key elements of an operating and capital budget and evaluate the different budgeting approaches used
• Apply cost control tools, analyze management variance reports, and take proper corrective action
• Calculate different capital budgeting evaluation techniques as included in a capital expenditure proposal
• Utilize cost-volume-profit analysis in making budgeting decisions

Target Audience

All managers, supervisors and analysts who prepare or use management budgets.

Target Competencies

• Interpreting financial statements
• Planning and budgeting
• Cost control
• Capital budgeting
• Applying cost-volume-profit analysis
• Utilizing breakeven analysis

Planning and the Functions of Management

• The critical functions of management
• Budget as a planning tool
• Control: The missing link
• Roadmap to strategy
• Aligning the budget with the organization’s strategy
• Planning pitfalls

The Key Financial Statements

• The accounting system
• The income statement
• The balance sheet
• Retained earnings
• The cash flow statement

Budgeting: Process and Approaches

• The advantages of budgeting
• The budget process
• Rolling budgets
• Direct and indirect costs
• The master budget
• Operating and capital budgets
• Approaches to budgeting:
• Incremental budgeting
• Zero-based budgeting
• Flexible budgeting
• Kaizen budgeting and continuous improvement
• Activity-based budgeting
• Tools of forecasting
• Characteristics of an adequate budget
• Problems in budgeting

Cost Control

• Budget as a control tool
• The control process
• Characteristics of an effective control system
• Responsibility reporting
• Variance analysis:
• Identifying the components of variance
• Taking the corrective action

Capital Expenditure Budgeting and Analysis

• Time value of money
• The discount rate: Using cost of capital
• Simple versus compound interest
• Identifying and analyzing cash flows
• Net Present Value (NPV)
• Internal Rate of Return (IRR)
• Profitability Index (PI)
• Pay-Back Period (PBP)
• Accounting Rate of Return (ARR)
• Approval for Expenditure (AFE)
• Sensitivity and risk analysis

Cost Volume Profit Analysis (CVP)

• Defining fixed costs
• Defining variable costs
• Breakeven point in units
• Breakeven point in dollars
• Computing breakeven point in sales
• Sensitivity analysis: Changing assumptions