Name: Chan Chen Chin

Assessment 1

Unit Title: Manage Budget and Financial Plan

Name: Chan Chen Chin
ID: 11939
Unit Code: BSBFIM501
Name: Chan Chen Chin
Assessment 1

Contents
No. Particular Page no.
1. Budget Objective 3
2. Set Milestone 4
3. Performance Indicator 5
4. Review Assumption and Budget Parameter 5
5. Clearly details and cash, expenditure & revenue item 6
6. Ensure your budget objectives are clear & conform with 7
the business’ expectations
7. Include milestones and performance indicator to monitor 7
financial performance
8. Include a detailed breakdown of your annual budget into 9
seasonal periods as required by the business
9. Identify any financial risks and incorporate protection 11
strategies according to business
10. Include contingency plans for budget blow-outs or changes 11
11. Include a monitoring process to monitor implementation of 12
budget
12. Reference 14
Name: Chan Chen Chin
Assessment 1
Budget Objective
Using Budgets to Plan Ahead

When you started the business, you had visions about what the company would look like.
You had an idea that the sales staff would sell a lot of products, and you would pay all the
employees and the bills, making a good profit. But did you sit down to figure out exactly
how that was going to happen? A budget is the tool that provides those answers.

Let's say that at the start of the year, you wanted the business to end up with a net profit of
$100,000, representing a 5 percent margin. This means total sales would have to reach $2
million ($100,000/.05). But what happens with the $1.9 million of cash between the $2
million in sales and the profit of $100,000? A budget would show that a certain amount of
this money would go to direct materials and labour costs. This would produce a gross profit
margin that would be used to pay the fixed overhead expenses.

A budget gives you a plan of the exact amount of money you intend to spend on all of those
fixed expenses. How much is the rent? What is the amount for administrative salaries? How
much do you have to pay your accountant and lawyer? Insurance costs? With a budget, you
make a plan at the beginning of the year that details how you plan to operate the business
to obtain the desired profit – no mystery, this is how you will do it.
Allocation of Resources

Running a business requires a certain amount of capital. Funds must be invested in

equipment, inventory, receivables and cash in the bank. A budget details the inflows and
outflows of money during the year. By studying the fluctuations in cash flow, you can
determine how much money you might have to borrow during the year to support any
negative cash flows. This may require setting up a line of credit with the local bank.
Goals and Business Coordination

With a budget, you can give goals to each department in the company. The sales staff know
how much they need to sell. The production supervisors know how much money they have
available to spend on labour and materials. Your administrative people know how much
they can spend on rent, insurance, utilities, salaries and so on.

Each department works together to achieve a common goal: Make the $100,000 profit. Best
of all, you know precisely the amount of money each department gets to spend.
Reviewing Results and Performance Evaluations
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Assessment 1
Because all departments now know what they are supposed to do and how much money
they have to spend, you can evaluate their performance on how well they met those
objectives. Budgets, sales and costs are all quantitative amounts. They can be measured and
reported. You, as the owner, get to compare the actual results to the budgeted amounts to
see if the business is on track to reach its $100,000 profit goal. If not, deficiencies can be
identified, and corrective actions taken.

A budget is the framework of how a business is going to operate to reach a stated objective.
It guides the company through the year and gets all employees on the same page and
working toward a common goal. The owner steers the activities of the business and makes
corrections to unfavourable results.

Set Milestones

 Specific.

Each milestone of the project should be scoped out, so that when you look at the
milestone you know what is exactly required to reach it.

 Attainable & Timely.

Just like a good goal, effective milestones can be tracked against a calendar. There
should be a start time, due date and expected timeframe associated with each of your
milestones. Without timely milestones that you can attain, you have no reason to get
things done because there are no deadlines. This is one key source of procrastination.

 Progressive.

Milestones should follow a linear path of progression. What this means is that by
completing one milestone, you should be able to complete the next one. Making
milestones that are toward the end of the project dependent on ones at the beginning
will have you inefficiently going back and forth. Once one milestone is done, it should
be 100% finished and the next one should then be 100% doable.

 Significant.

Milestones should be significant to the point where they complete a respectable

portion of the project. If a milestone is too small or too specific in scope, you’ll end up
with a barrage of many milestones that make the project look bigger than it really is.
And once we get into things appearing too big, procrastination sets in.
 Name: Chan Chen Chin
Assessment 1
Performance Indicator

The Importance of KPIs and Business Strategy

When it comes to tracking your business day-to-day, there are certain financial KPIs you
should take pulse of. These include cash flow and even outstanding revenue.

While these KPIs may also inform your strategy, you might want to broaden your horizons
and look at other financial indicators that inform your long-term strategy.

After all, KPIs help you measure here and now, but may not always show you unexplored
opportunities or a longer-term picture.

So, besides tracking the KPIs that help you measure performance today, look at the
following KPIs that will help you think and strategize like a CEO.

These metrics will help you:

 Determine whether (or not) you’re on track to reach your financial goals

 Evaluate the success of your strategy based on these key metrics

 Pinpoint areas in your business that may need improvement

 Identify any opportunities and challenges

 Assess whether your customers are happy or not

Review assumption and budget parameters

Expenses Assumption from 1st July 2017 Annual Increase

- fish price per kilo 3.333%

- variable expenses 10% expect as below
 registration, insurance 5%
 licenses 5%
 bank fees 5%
 wages 3%
 fish food 3%
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Cash Flow Assumption
- Average monthly sales are 150kg per day x 30 Days = 150kg per operation day
- All Sales are paid in the month of sales
- Wages are paid in same month
 GST refund/remittance is quarterly, at 28 days after end of quarter
 Income Tax is paid 6 monthlies in July and January
- All Boats Registration & Insure is paid
 7 months paid in March
 5 months on paid on October
- Fishing Association Subscription is paid monthly
- Sickness & Accident Insurance is paid monthly
- All licenses fees are paid annually in January
- PO Box is paid annually in April
- Super is paid quarterly 28 days after end of each quarter
All other expenses are paid for cash same month

Other relevant information

- depreciation used is straight line, not diminishing value

- the quantity of fish food use is directly proportionate to the catch
- the amounts for repair to Cod net is directly proportionate to the catch
- other expenses do NOT vary with the catch
- the supervisor is responsibility for crew, fish, food, repair to Cod Boats, repair to nets
& equipment, plus outboard boats and vehicle
- the 3 outboard boats need two operator each

clearly details any cash expenditure and revenue items

Capital expenditures are for fixed assets, which are expected to be productive assets for
a long period of time. Revenue expenditures are for costs that are related to specific
revenue transactions or operating periods, such as the cost of goods sold or repairs and
maintenance expense. Thus, the differences between these two types of expenditures
are as follows:
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Assessment 1
 Timing. Capital expenditures are charged to expense gradually via depreciation,
and over a long period of time. Revenue expenditures are charged to expense in the
current period, or shortly thereafter.

 Consumption. A capital expenditure is assumed to be consumed over the useful

life of the related fixed asset. A revenue expenditure is assumed to be consumed within
a very short period of time.

 Size. A more questionable difference is that capital expenditures tend to involve

larger monetary amounts than revenue expenditures. This is because an expenditure is
only classified as a capital expenditure if it exceeds a certain threshold value; if not, it is
automatically designated as a revenue expenditure. However, certain quite large
expenditures can still be classified as revenue expenditures, as long they are directly
associated with revenue transactions or are period costs.

ensure your budget objective are clear & conform with the business expectation

 clarity on the key drivers of your business – find out the key aspects of your plan
that need to be achieved in order for you to reach your expected budget results
 tools to measure and monitor performance – your budget can include key
performance indicators, such as minimum monthly sales, maximum level of expenses –
you can measure these against actual results
 improved profitability – by having a budget and comparing this to actual results,
you'll quickly see what's working and what's not – and make changes so your profit can
be improved easily
 increased efficiency in the use of resources and assets – monitoring your resources
to budget expectations will ensure you get the most efficient use of your business
resources. For example, you can look at the time taken from customer order to
completion of the job and then payment, and determine if the time-frame can be
shortened – this will mean you'll receive payment quicker and have your staff move on
to the next job earlier.

include milestone and performance indicators to monitor financial performance

Milestones Do Not Make Meaningful Performance Measures

Milestones are commonly used as KPIs or performance measures. But they are not
performance measures because they fail a few essential tests of what makes a meaningful
performance measure.
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Assessment 1

Milestones like “Complete business process review by June 2010” and “Implement customer
relationship management system by December 2009” and “New workplace safety policy in
place” are NOT performance measures, despite how often they appear as such in business
and strategic plans and despite what many performance measure practitioners and experts
might say.

1. Milestones are about action, but measures are about results.

Meaningful performance measures track business results, because achievement of business

results is what defines performance. Completing a task or activity, such as reaching a
milestone, doesn’t define performance. Just think of all the examples in your own business
or organisation where projects or initiatives or actions have actually worsened performance!
That’s why milestones aren’t meaningful measures.

2. Milestones are hypotheses, not proof.

A milestone is a point in time when a particular project has reached an important stage that
indicates it’s progressing as planned. Projects, and their milestones, are our best guesses
(hopefully informed guesses) about what’s going to improve business performance. Not all
projects succeed in this quest, and that’s because we don’t know what’s going to work until
we try it out and learn from it. Milestones need measures to test if they’re working or not.
That’s why milestones can’t themselves be meaningful measures.

3. Milestones are too little, too late.

You reach a milestone or you don’t. It’s that simple. If you use milestones as measures, then
you’re really saying if we don’t meet it, we’ve failed. But that’s too trivial, and it also drives
the wrong behaviour (people fiddling with the project schedule or scope, rather than
making sure the project is making the improvements in business performance it was
designed to). With continuous feedback that meaningful measures can give us over time, we
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Assessment 1
can easily adjust our projects and activities as and when we learn what works and what
doesn’t. That’s why milestones aren’t meaningful measures.

Are you convinced that milestones aren’t measures?

Where ever you have milestones in place of measures, you very likely need to go back to
your intended results. What improvement are you trying to achieve? What difference are
you trying to make? Why does reaching this milestone matter? Then focus on finding
measures to track those results, through time, as feedback on how well your projects (and
their milestones) are working in bringing those results into reality

Include a detailed breakdown of your annual budget into seasonal periods as required
by the business

2017 Actuals 2017 average

12 months for each of the

operation months

Sales (average 30 days@150kg@$35.00/ kg) 1,57,5000 157,500

Boat Expenses

Petrol & Oil 454,555 45,444

Depreciation of Cod Boat 60,000 5,000

Cod Boat Registration & Insur 28,571 2,381

Depreciation 3 Outboard Boats 15,000 1,250

3 Outboard Boats Reg & Insur 16,571 1,381

Repair to Cod Boat Equip 4,091 409

Mobile Phone Expenses 11,364 1,136

Six Crew’s Wages 319,191 31,919

Six Crew’s Super 30,323 3,032

939,657 91,963
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Cod Nets Expenses

Repairs to Cod Nets 50,000 5,000

Fish food expenses 194,175 19,417

License Fee 22,857 1,905

267,032 26,322

Vehicle Expenses

Petrol, Oil & Tyres 8,182 682

Depreciation of Vehicle 20,400 1,700

Vehicle Registration & Insurance 4,571 381

33,153 2,763

Administration Expenses

Pox Box Hire 109 9

Depreciation of Office Equipment 3,000 250

Stationery & sundry & admin exp’s 273 23

Home Office Electricity 764 64

Fishing Association Subscription 2,727 227

Sickness & Accidence Insurance 28,571 2,381

35,444 2,954

Finance

Interest Expenses 38,400 3,200

Loan Service fees 1,200 100

Bank Fees 1,714 143

41,314 3,443

Total Budgeted Expenses 1,316,609 127,445

Budgeted Net Profit 258,389 30,055

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Assessment 1

identify any financial risks and incorporate protection strategies according to business
KEY TAKEAWAYS

 Some risks have the potential to destroy a business or at least cause serious damage
that can be costly to repair.
 Organizations should identify which risks pose a threat to their operations.
 Potential threats include location hazards such as fires and storm damage, alcohol
and drug abuse among personnel, technology risks such as power outages, and
strategic risks such as investment in research and development.
 A risk management consultant can recommend a strategy including staff training,
safety checks, equipment and space maintenance, and necessary insurance policies.

Location Risks
Among the location hazards facing a business are nearby fires, storm damage, floods,
hurricanes or tornados, earthquakes, and other natural disasters. Employees should be
familiar with the streets leading in and out of the neighbourhood on all sides of the place of
business. Individuals should keep enough fuel in their vehicles to drive out of and away from
the area. Liability or property and casualty insurance are often used to transfer the financial
burden of location risks to a third-party or a business insurance company.

Strategic Risks
Strategy risks are not altogether undesirable. Financial institutions such as banks or credit
unions take on strategy risk when lending to consumers while pharmaceutical companies
are exposed to strategy risk through research and development for a new drug. Each of
these strategy-related risks is inherent in an organization's business objectives. When
structured efficiently, the acceptance of strategy risks can create highly profitable
operations. Companies exposed to substantial strategy risk can mitigate the potential for
negative consequences by creating and maintaining infrastructures that support high-risk
projects. A system established to control the financial hardship that occurs when a risky
venture fails often includes diversification of current projects, healthy cash flow, or the
ability to finance new projects in an affordable way, and a comprehensive process to review
and analyse potential ventures based on future return on investment.

include contingency plans for budget blow-out or changes

DESIGNERS FAILING TO USE THE COST PLAN AS A TOOL

We covered this in part one of this series using the Sydney Opera House as an example. The
lead design consultant must refer to the cost plan for all design decisions at all stages of the
design development process.
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Assessment 1
When solutions to design issues don’t align with the cost plan these need to be
communicated to the cost planning consultant. “It’s critical that the design team clearly
communicate design changes and amendments to the cost control consultant,” says Kerry.
“We need to be told about changes, amendments and additions to a design otherwise we
can’t cost it”.

Solution: Ensure that the lead designer has developed processes and systems to track design
changes and formally communicate these to the cost consultant.

PROGRAMME

In last week’s post we described the cost planning process, and how design development
should reach a milestone, a cost plan should be prepared, and affirmative action be taken. If
the project is over budget, the design process should not continue until changes are made
to the design to bring it back on budget.

In reality, however, when the trigger is pulled to undertake a project, there is a vested
interest by all parties to progress documentation as quickly as possible. Clients want their
projects up and running as soon as possible, and it is generally more profitable for
consultants to complete documentation in a shorter timeframe.

When a cost plan comes back over budget, there is often a temptation to forge on with
design development and make savings on the fly in the next phase of the documentation
process. This approach makes it more difficult to keep track of costs and use the cost plan as
a tool in the design process.

Solution: Set a realistic programme for the design development process. Allow suitable time
following milestones to undertake a thorough cost plan and time to modify the design if
necessary.

include a monitoring process to monitor implementation of budget

1. CALCULATE EXPENSES

Your first order of business is finding out exactly how much you’re spending each month. Do
this by consulting your bank statements, receipts and financial files. Because some expenses
are intermittent, such as insurance payments, you’ll get the most accurate financial picture
if you calculate an average for six months to a year. Add up everything you spent for the last
six to 12 months and then divide by the amount of months, which will give you your average
monthly expenses.

Remember that being thorough when you add up expenses is important in creating a
realistic budget. A forgotten bill really throws a wrench into your savings plan. When
calculating your expenses, also factor in unexpected bills, such as unplanned car repairs. A
good rule of thumb is to add an extra 10 percent to 15 percent. So if you’ve determined that
you spend $1,500 a month, add $150 to $225.
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2. DETERMINE YOUR INCOME

Once you’ve figured out how much money you need to stay afloat financially each month,
it’s time to determine your actual income. Besides your regular salary, get an accurate
picture by adding in any extra funds that come your way throughout the year, such as cash
gifts, sale of items online or via garage sales, and don’t forget other income sources like
alimony, child support, interest, dividends and rental income.

3. SET SAVINGS AND DEBT PAYOFF GOALS

In order to determine realistic savings and debt payoff goals, you must find out if you have a
budget shortfall or overage. Do this by subtracting your monthly expenses from your
income. If you determine you’re making more money than you’re spending, congratulations.
This amount can be earmarked for savings and to pay off debt.

But if you determine you’re spending more than you’re making, it’s time to do some cutting
so you have something to save and don’t go further into debt. The best way to figure out
where you can cut from your expenses is to track your spending and record every expense
for a month. Seemingly insignificant items such as a cup of coffee add up over time. For
instance, even if you spend just $5 a week on snacks, that adds up to $260 a year, which is
not insignificant.
One you have a clear picture of where all your money goes, be merciless in cutting expenses
until your budget is in the black. Cut enough so that you have 10 percent to 20 percent of
your income left over each month to add to your savings account. If you are unable to cut a
enough from your budget, consider ways you can increase your income.

4. RECORD SPENDING AND TRACK PROGRESS

The best way to stay on top of your budget is to record all of your expenses and income.
Having to input expenses will cause you to think twice before splurging, and it’s especially
satisfying and motivating to record when you’ve met a savings goal.

5. BE REALISTIC

Aim for sticking to your budget most of the time, and you’re bound to reach your financial
goals. Breaking your budget occasionally is OK, providing you get right back on track as soon
as possible.
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References
breakdown, 2017. annual budget. [Online]
Available at: http://www.breakdown-annual-budget.au.com
[Accessed may 2018].

assumption, 2017. budget parameters. [Online]

Available at: http://www.assumption-budget-parameters.au.com
[Accessed june 2018].

contingency plans, 2017.budget blow-outs. [Online]

Available at: http://www.contingencyplan-budget-blow-out.au.com
[Accessed july 2018].
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