The managers most likely to succeed in today’s business environment, are those who understand how to use budgets as business tools, for departmental and personal success. Managing Budgets is an informative and practical guide to the essential skills needed. produce accurate and useful budgets.

1. Modern methods in preparing
budgets
Part Two
Iyad Attari 2009

2. Strategic Planning

3. Types of Planning
• Strategic Planning:
 The art & science of formulating, developing, implementing and
evaluating cross-functional decisions that enable an organization
to achieve its objectives.
 Is a course of action to achieve long-range goals.
 Reflect the company’s direction and its purpose as stated in its
mission statement.

4. Advantages of strategic planning
• Raise of profitability in the organization.
• Improving the working process.
• Saving both time & efforts.
• Identify Environmental factors effecting
organization.

5. Advantages of strategic planning
• Take advantage of the marketing opportunities.
• Determine administrative, productivity and
financial problems.
• All managers & Employees involved in planning
and success.

6. The concept of Financial
strategic planning Strategic plan
Strategic
planning
Definition of Strategic
strategic plan Deviation (Control)

7. Environmental Master Strategies Tactical Plans
Analysis Vision, mission, strategies, Operational plans,
(S.W.O.T.) goals, objectives budgets
Monitor Performance Implementation
Adjust

8. Strategic Planning
The art & science of formulating, developing, implementing and evaluating
cross-functional decisions that enable an organization to achieve its objectives
Finance
Marketing/ A complete look at how
HR to position the
sales
organization for the
future
IT Operations
8

9. Matrixorganisation
SIF INS Eclm HDS NW PMC OPD Sub Core
Q.A.
Fin.
H.R.
MKT
ICT
R&D
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10. Strategic Planning Process
Fundamental decision making/problem solving model
 Defines where the organization is now, where it wants to be, and how it
will get there
 Gathers internal and external information.
 Develops alternative strategies
 Selects appropriate strategies
 Implements a plan
 Evaluates and revises the plan as needed
Phase 1 Phase 2 Phase 3 Phase 4
Strategy
Strategy Strategy Strategy
Implementa-
Formulation Development Evaluation
tion
10

11. Strategic Planning Process
Phase 1: Strategy Formulation
Vision
Strategy Formulation Guiding image of
the organizations
desired future
Develop vision &
mission statements Values
Mission
• Describe what is
Define organizational • Who the company is?
important
values • What the company do?
• Dictate employee
• Who the company’s
behavior
customers are?
11

12. Vision, Mission, Objectives, and Goals
Vision
• Defines the desired or intended future state of an
organization or enterprise in terms of its fundamental
objective and/or strategic direction.
•Vision is a long term view.
12

13. Vision, Mission, Objectives, and Goals
Mission
• Defines the fundamental purpose of an organization or an
enterprise.
•Describing why it exists and what it does to achieve its
Vision
•A corporate Mission can last for many years, or for the life
of the organization.
13

14. Vision, Mission, Objectives, and
Goals
Goals
• are general guidelines that explain what you want to
achieve in your company.
•They are usually long-term and represent global visions.
•such as “protect public health and safety.”
14

15. Vision, Mission, Objectives, and
Goals
Objectives
•define strategies or implementation steps to attain the
identified goals.
•Unlike goals, objectives are specific, measurable, and have
a defined completion date.
•They are more specific and outline the “who, what, when,
where, and how” of reaching the goals.
15

16. Example
NatHealth
Vision, Mission, & Values

19. .1
.2
.3
.4
.5
.6
.7
.8
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20. Strategic Planning Process
Phase 2: Strategy Development
Strategy Development Internal Strengths
Conduct a SWOT analysis S
including environmental
External External
scan O T
Establish long-term Opportunities Threats
objectives (3-5 Ys)
W
Identify strategies:
- corporate Internal Weaknesses
- unit &
- functional
20

21. SWOT Analysis
Placeholder for your own sub headline
Internal analysis
Strengths Weaknesses
SWOT
External analysis
Opportunities Threats
!
YOUR LOGO
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22. SWOT Analysis
Placeholder for your own sub headline
STRENGTHS WEAKNESSES
 What do you do particularly well?  What do you not feel as comfortable doing?
 What do you do that is unique in the  What needed resources, staff, or skills
“marketplace?” do you lack?
 What do your customers/ clients/ patrons ask for
you to do over and over again?
 What do you have the right tools/ resources to
accomplish?
 Are there new situations coming down the road  Who is your competition and what do they offer
that you can take advantage of (new programs that you can’t do as well or at all?
being offered, new faculty joining the department,  Are there “environmental” changes or situations
new tools available to you)? that could cause problems for you and your
 Are there gaps in the “market” that you can fill? programs?
 Are there partnerships that might be fruitful?  What other roadblocks are being thrown
in your path?
OPPORTUNITIES THREATS
YOUR LOGO
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23. YOUR LOGO
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24. YOUR LOGO
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25. YOUR LOGO
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26. YOUR LOGO
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27. YOUR LOGO
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28. YOUR LOGO
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29. YOUR LOGO
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30. YOUR LOGO
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31. YOUR LOGO
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32. YOUR LOGO
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33. YOUR LOGO
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34. YOUR LOGO
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35. YOUR LOGO
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36. YOUR LOGO
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37. YOUR LOGO
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38. YOUR LOGO
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39. Strategic Planning Process
Phase 3: Strategy Implementation
Strategy Implementation
Technological Financial
Establish short-term
objectives (6 Ms-1 Y)
Develop action plans
Resources
Allocate resources
Motivate employees
Human Physical
39

40. Strategic Planning Process
Phase 4: Strategy Evaluation
Activity one:
Review strategies
Strategy Evaluation
Have significant differences occurred?
Yes Activity
Review strategies three:
No
Take
Activity two: corrective
Measure performance Measure performance action
Take corrective action Have significant differences occurred?
Yes
No
Continue present course
Framework to Evaluate Strategies
February 19, 40
2013

41. Assessing the Internal Environment
 Describe the role of each
function in the organization.
must be able to  Understand the organization structure &
its effect of the implementation of strategic
planning
Employees Finance and
Accounting  Understand the perspective of your
business partners.
 Create communication & collaboration.
HR
Marketing
 Identify internal needs & emerging issues.
Information
Technology and Sales
Operations
41

42. Employees Finance and
Accounting
HR
Finance and Accounting
Information Marketing
Technology and Sales
Operations
Finance:
Assists other business units
in the financial aspects of
their business.
 Pricing products
 Creating financial models
Accounting:
Balances the checkbook of
the company.
 Accounts receivable
 Accounts payable
42

43. Assets, Liabilities & Equity
Equity
Assets
(The amount of the owners
(What the organization owns)
portion of the business)
Liabilities
(Debts & other
financial obligations)
43

44. Accounts Payable & Accounts Receivable
The money The money
a company owes to a company’s customers
its vender & suppliers Owe the company
(liability accounts) (assets accounts)
44

45. Balance Sheet
 Summarizes the firm’s financial position
Assets = Liabilities + Equity
 Every financial transaction is an exchange, and both sides
are recorded.
 Only records transactions measured in money.
 Profit increase equity
 Cash withdrawal decrease equity
45

46. Income Statement
A statement explaining
revenues, expenses, and profits over a specific period of time
(one year or a quarter)
Gross sales $360,000
Less cost of goods sold $240,000
Gross profit $120,000
Less expenses: $50,000
Salaries $20,000
Rent $18,000
Utilities $7,200
Depreciation $1,800
Interest $3,000
Income less expenses $70,000
Income tax expense $28,000
Net income $42,000
46

47. Gross Profit Margin
Measures the difference between
what its costs
selling price
to produce a product
47

48. Employees Finance and
Accounting
Information
Technology
HR
Operations
Marketing
and Sales
Marketing and Sales
Marketing Sales:
The process of planning, pricing, promoting & distributing goods/services Sell the organization's
to satisfy organizational objectives product
to the marketplace
What the organization sells to make profit
Product
Who the product/service
Promotion Place will be made available
Techniques for
communicating for purchase by customers
information about
product/service to Price
customers
A key decision in marketing plan.
(large share of the market/ lowest price)
48

49. Employees Finance and
Accounting
Operations
HR
Information Marketing
Technology and Sales
Operations
The Central Focus
To provide goods and
Capacity
services to customers
Control Standards Primary responsibility
Key Productivity, quality, cost,
concepts delivery & performance
Affected by supply chain
Inventory Scheduling management
49

50. Employees Finance and
Accounting
Information Technology
HR
Information Marketing
Technology and Sales
Operations
Enables an organization to use information to support its strategic
objectives.
• Strategic information systems are
designed to achieve competitive
advantages.
− Airline reservation systems
• Operational systems focus on
reducing costs or improving
productivity.
− Remote access systems that allow
telecommuting
50

51. Employees Finance and
Accounting
HR
Information
Technology
Operations
Marketing
and Sales
Employees
Increasing
Investing in
employee
human capital
engagement
Encouragement
creativity
51

52. Increasing Employee Engagement
Employees willingness to “go the extra mile”
Measuring employee engagement
 How employee describes the organization
 Whether they choose to remain
 How they work
52

53. Investing in Human Capital
Human capital consists of
combined knowledge, skills and experience of company’s employees
 Create an organizational culture that develop
creative, loyal and empowered employees
 HR to play a role in confirming the
organization’s return on investment (ROI) in
its human capital
53

54. Organizational Design
Introduction Growth Maturity Decline
 Problem resolved  Fixed rules &
High energy/creativity  Change & expansion
regulations
Develop products/ Staffing & organizational
 Backlogs & scheduling  Leadership resist
Services & markets culture stabilized
problem change
Experienced staff  Additional product &
 Polices, procedures &
services
rules in place  Enhanced product/cost
Meet or exceed the
reduction programs
pay range  Training
 Recruitment & (early retirement-
selection increased closing major facilities-
No training  Labour cost becomes
outsourcing-
a factor
 Leadership sustains third party contracts-
Basic employee policy
moral/ motivation retaining key staff)
 No change
while building teams
54

55. Patterns of Organizations Change
HR Focus:
Staffing Staffing and Compensation, HR planning, Change management
training training Outplacement
Crisis:
Bureaucracy Cross-training
Crisis: Change
Crisis: resistance
Delegation Need: Need:
Formal systems • Streamlined
Crisis: decision making
Leadership • Flexibility
Need: Clear
direction • Small-company
Need:
thinking
Creativity
Introduction Growth Maturity Decline
55

56. Scanning
The External Environment

57. Environmental Scanning
Is a process that systematically surveys & interprets relevant data
to identify external opportunities and threats
In the
Now future

58. External Environment Factors
Demographic
Political International
Economic Technology
Employment Social

59. Demographic Factors

60. Demographic Factors
Nontraditional Age
labor force
Gender
Unskilled
labor
Generational
Ethnicity differences
Geographic
shifts in
populations

61. Demographic Factors (cont.)
Age

62. Demographic Factors (cont.)
Age
Baby boomers
2004
Educated 78 million baby
Trained
Loyal boomers
Dependable
Start to be 60 in 2006
Born between
1946 and 1964
44%

63. Demographic Factors (cont.)
Gender
47% of 2004 workforce
56% of student in college campuses
Family constrain
Inflexible working
conditions Occupational
barriers
Gender
stereotyping

64. Demographic Factors (cont.)
Generational differences
Millennium
Born between Born after 1980
1965 and 1980

65. Demographic Factors (cont.)
Geographic shifts in populations
Urban centers The suburbs

66. Demographic Factors (cont.)
Ethnicity
Hispanic
The largest minority group
in US
Hawaii
Minorities made up the majority of the population

67. Demographic Factors (cont.)
Unskilled labor
Higher education Skilled workers
Training Off shoring

68. Demographic Factors (cont.)
Nontraditional labor force
Find enabling technology
Create enabling environment

69. Economic Factors
Total value of goods and services produced in a country in a given year
Gross Domestic Product
Good economy No wage increases
Wage increases GDP Downsizing
Measure the average change over
time in the prices paid by the
consumer for goods &
Unemployment Employment services
Less investment Investment Consumer Price Index
Interest
CPI
rates
Economic
Factors
The amount of money the consumer
When supply of money is in excess of have to spend after taxes paid
the amount of goods and services
Disposable
Inflation
income
Salary compression
Increase in starting salary

70. Other Factors
Political Social Technological
• Legislation • Changing • Advances
and definition of • Skills
regulatory families • “Digital
guidelines • Strain on divide”
health-care • Process
systems changes

71. Example: Strategic planning

81. The Budgeting
Iyad Attari

82. What is Budget
• Its an Estimated list of activities and processes
that the management expect to be completed
within a specific period.
• It’s a digital translation for the managerial plans.
• It’s a Quantitative plan to make use of the
resources within the accounting unit

83. Budgeting functions
Evaluating &
Monitoring Coordination Planning
following up
Function Function Function
Function

84. Success factors in Budgeting
Budgeting Relates
Participation
To org. Structure
Flexibility Reality
Predictions &
Comprehensive
Estimation
Following up &
Time frame
Feed back

85. Preparing Budgets
Iyad Attari

86. Characteristics of Preparing Budgets
1st.: Planning for firms activities:
• systematic planning to make use of the resources and
predict the future problems to avoid it.
2nd.: Improve the efficiency of communications &
coordination's:
• Good tool to improve communications within all levels.

87. Characteristics of Preparing Budgets
3rd. : quantitative measurement :
• Translate all the goals to numbers.
4th.: Key performance indication tool:
• By comparing the budgeted with actual.

88. Characteristics of Preparing Budgets
5th. : Regulation :
• Some firms such as the public firms its an obligation to
prepare the budgets.
6th.: Gathering efforts to reach goals:
• Because its quantitative and can be measured all levels
work together to reach these Numbers.

89. Types of budgets
Iyad S. Attari

90. Types of budgets
Depending on Time
Long-Term Short-Term Continuous
Budgets Budgets Budgets

91. Types of budgets
Depending on Activities
Capital activities Current Activities
Budgets Budgets

92. Types of budgets
Depending on Transactions
Financial Cash Intangible
Budgets Budgets Budgets

93. Types of budgets
Depending on Accounting unit
Programs Production General
Budgets Budgets Budgets

94. Opinions towards budgeting
• Positive opinion:
• Managers want to make use of budgets.
• Use it as planning ,implementation ,and control tool.

95. Neutral Opinion
• Imitation of other firms.
• Using it to be modern, and updated.
• No benefits or damages if you use it .

96. Negative opinion:
• Theoretical tool that cant be applied.
• So no need to use it (ignore it).

97. Statistical forms in budgets

98. Using Statistical forms for budgets
Statistical forms:
A -Time Series
B -Linear Regression
C -Changing Avarage

99. Using Statistical forms for budgets
Statistical forms:
A -Time Series:Statistical data that split the time.

100. Example Time Series

113. Using Statistical forms for budgets
Statistical forms:
B - Linear Regression:
Using the linesr regression formula

114. Example: Linear Regression

125. Using Statistical forms for budgets
Statistical forms:
C - Changing Avarage :

126. Example: Linear Regression

132. CAPITAL BUDGETS
Iyad S. Attari 2009

133. Capital Budgets:
Reflecting the managerial decisions
about assessing, evaluating, and
purchasing capital assets.

134. Types of Capital Budgeting
Replacing Purchasing
Assets New Assets
Capital Expanding
Leasing Decisions
Decisions

135. Importance of Capital Budgeting
Exchange cash now to create benefits later
Long Term Investment (more than 1 year)
Expected to create stream returns in future

136. Characteristics of Capital Budgeting
High Risk
Needs a large Investments.
Difficult to revise the decisions
Needs a continuous evaluations

137. Information needed to evaluate Capital
Investments
• The Expected amounts for capital investment.
• The maturity date & life cycle (NPV).
• The Return on investment (ROI) & cash flow.
• Rate and return formula.

138. What kind of relationship between return & risk.
Positive relationship .
Risk And Return
120
100
SML
(Expected)
80
60
Return
40
Free risk (Sys)
20
0 Risk (beta)
1 2 3 4 5 6

139. Steps to evaluate Capital
Investment
• What is the goal of investing in capital.
• Write the alternative to reach goals.
• Collect the information for each alternative.

140. Steps to evaluate Capital
Investment
• Estimate the cost & return expected from
each alternative.
• Create an Indexes to evaluate results.
• Chose the best alternative upon the above
mentioned points.

141. Standards of evaluating Capital
projects
Tradetional Methods

142. Standards of evaluating Capital projects
• Pay Back Period (PBP):
The time needed to Cover the invested
amounts.
• Accounting Rate of Return (ARR):
ARR= Yearly return Average
Investment Average

143. Example: Accounting Rate of Return
(ARR):

147. Standards of evaluating Capital
projects
Modern Methods

148. Standards of evaluating Capital projects
Modern Methods
• Net Present Value (NPV):
Its the net preset value for the returns
(cash in flows) and present value for
the investment (cash out flow) at a
descounted price.

149. Example:Net Present Value
(NPV)

154. Standards of evaluating Capital projects
Modern Methods
• Internal Rate of return (IRR):
The rate that make the (NPV) of the
cash in flows for a project equal zero.

155. Example: Internal Rate of return
(IRR)

159. Standards of evaluating Capital projects
Modern Methods
• Profitability index:
The percentage of (Cash in flows) to
conpaired to the investment present
value (Cash out flow).

Profitability Index = Cash in flows (P.V.)
Investment amount

160. Example: Profitability index:

165. Control by using
Performance Report
Iyad S. Attari 2009

166. Performance Report
• IT is a regular basis report (usually quarterly
or yearly).
• Evaluate the companies performance of
reaching pre-determined goals, within the
strategic plan and budgets.

167. The Presentation of the report:
1 -The title (Name of the Co., month).
2 -Presentation of The deviations :
a) Between actual & expected for a month or quarter
in the current year.
b) With a similar month or quarter in the past year
(Snap shot).
C) From the beginning of the current year up to date.

168. The Presentation of the report:
3 -Use a charts of comparisons.
4 -The reason of the positive or negative
deviations.

169. The Content of the
Performance Report
Profitability Analysis:
Operational Net Income
Profits (Before Tax)
Operational Operational Other Other
Revenues Expenses Revenues Expenses
• Here we analyze the deviations and the reason of it.

170. The Content of the
Performance Report
Financing Structure Analysis
Operational Net Income
Profits (Before Tax)
Operational Operational Other Other
Revenues Expenses Revenues Expenses
• Here we analyze the deviations and the reason of it.

171. The Content of the
Performance Report
Financing Structure Analysis
Comparison between all the following:
• Equity %.
• Long term Loans %.
• Short term loans%.

172. The Content of the
Performance Report
Investment Portfolio Analysis
Classifying portfolio to:
• Stocks & Bonds.
• Local & internatianal securities.
• Debend on the GAAP (For trading or to
maturity).

173. Portfolio Risk :
 Is the risk remaining after allowing for risk reducing effects of combining securities into a
portfolio .
 Portfolio risk is attributable to the poor balance of risks within the portfolio.
 There is a limitation for the no. of securities in the portfolio.
120
Diversification by using portfolio
100
80 1
Risk
60
40
4
20
0
1 2 3 4 5 6
Size of portfolio

174. The Content of the
Performance Report
Financial Ratios & Indexes

175. The Content of the
Performance Report
Financial Ratios & Indexes

176. The Content of the
Performance Report
Financial Ratios & Indexes

177. The Content of the
Performance Report
Financial Ratios & Indexes

178. The Content of the
Performance Report
Financial Ratios & Indexes

179. The Content of the
Performance Report
Financial Ratios & Indexes

180. The Content of the
Performance Report
Financial Statement Items
Present comparison for the statement items
• Income Statement.
• Financial position.
• Cash Flow.

181. Thank You
Iyad S. Attari 2009