Budgeting: Planning, Forecasting, What-if Analysis & Reporting

Planning for Success

• What are planning strategies?
• Work with the planning cycle
• Mission
• Strategic analysis
• Strategic choice
• Strategic implementation
• Corporate objectives
• Corporate value and shareholder value
• The agency problem and corporate governance
• Planning requirements and working capital
• Plan outline
• Financial planning for growth
• Financial modeling
• Development of the key performance indicators (KPIs)
• The balanced scorecard

The Forecasting Process

• Determine the purpose and objective of the forecast
• Analyzing data
• Statistical analytical tools
• Quantitative analysis and forecasting
• Forecasting techniques
• Univariate analysis models: time series; moving averages; exponential smoothing; trend progression
• Causal analysis models – regression analysis

Projecting Revenues – The Sales Budget

• Projecting sales
• Long-term trend sales forecast
• Short-term trend sales forecast
• The basis of revenue assumptions
• Sales pricing
• Full cost pricing
• Marginal cost pricing
• Using Excel® to project an optimum product mix

The Nature and Behaviour of Costs

• Cost behavior
• What is the cost?
• What is the activity?
• Cost classification
• Fixed costs and stepped fixed costs
• Variable costs and semi-variable costs
• Notional costs
• Cost allocation
• Product costs and period costs
• Product costing for inventory valuations and profit ascertainment
• Absorption costing
• Cost / volume /profit (CVP) and ‘what-if’ analysis

The Budgeting Process

• Why do we budget? - the purposes of budgeting
• Planning and control
• Budgeting for sales and costs
• Stages in the budget process
• Budget preparation process
• Accounting for headcount and labor costs in the budget model
• Accounting for depreciation in the budget model
• Putting the budget together

Budgetary Control

• Standard Costing
• The purposes of standard costing
• Flexed budgets
• Variance analysis
• The reasons for variances
• Planning and operating variances

Projecting Expenses – Activity-Based Costing (ABC) And Activity Based Budgeting (ABB)

• The activities that cause costs
• Processes and activities
• Under- and over-costing – product cost cross-subsidization
• Activity-based costing (ABC)
• Refinement of the costing system
• ABC and cost management
• Design of ABC systems
• The cost hierarchy and cost drivers
• Advantages and disadvantages of ABC systems
• From traditional budgeting to activity-based budgeting (ABB)
• The ABB process
• Motivation and the behavioral aspect of budgeting

The Time Value of Money

• The impact time has on the value of money
• Future values and compound interest
• Present values
• Discounted cash flow (DCF)

Evaluating Capital Project Proposals

• Various types of capital projects
• Capital project evaluation
• Capital investment project appraisal
• Accounting rate of return (ARR)
• Payback method
• Net present value (NPV)
• Internal rate of return (IRR)
• Discounted payback method
• Choosing the right investment appraisal method
• Equivalent annual cost (EAC) method
• Modified internal rate of return (MIRR)
• Capital budgeting methods
• Capital rationing
• Profitability index (PI)

Putting the Pieces Together - The Budget

• Long- and short-term funding
• Sources of finance
• Capital cost models
• Cost of equity
• Cost of debt
• The weighted average cost of capital (WACC)
• Risk and the cost of capital
• Capital asset pricing model (CAPM) and the beta factor
• Optimal capital structure
• Capital structure models

Budget Re-projection – Evaluating Risk And Uncertainty

• Risk and uncertainty decision rules
• Worst and best-case scenarios
• The value of perfect information (VOPI)
• Analyzing risk: expected values; standard deviation
• Sensitivity analysis
• Simulation model
• Scenario analysis
• NPV break-even