RESTY FLOI TEANO

CEIT-01-802P
2015-104752

CPLANNING OF PARTICULAR PROJECTS-9.4 (FISCAL PLANNING)

Definition
Must be able to plan the work-unit’s budget and manage income and expenditure, through
responsible implementation of policies, practices and decisions in order to achieve unit
objectives effectively and efficiently. Key Words: Budgeting; Financial Planning; Budget
Analysis and Control.
Fiscal Planning and Management is designed to provide urban planners and related
professionals with the methods of public financial management and analysis used in urban
planning and public policy contexts. The course includes topics such as fiscal planning and
mangement systems, budgeting, revenues, intergovernmental relations, debt financing, fiscal
analysis, public investment analysis, and fiscal impact analysis. The course requires lecture
and seminar sessions, independent reading, a short paper, and problem sets. The focus is on
the practical and professional rather than the theoretical aspects of fiscal planning. The first
part of the course is a two-credit module required of students for the master's of urban
planning degree. The last part of the course continues with quantitative applications of the
principles learned in the first part of the course. Students may enroll either for the 2-credit-hour
portion or for the entire 3-credit-hour course. Students are assumed to have a basic
understanding of microeconomics.

BUDGET is an estimation of revenue and expenses over a specified future period of time and

is usually compiled and re-evaluated on a periodic basis. Budgets can be made for a person, a
family, a group of people, a business, a government, a country, a multinational organization or
just about anything else that makes and spends money. At companies and organizations, a
budget is an internal tool used by management and is often not required for reporting by
external parties.

TYPES OF BUDGETING
1. Incremental budgeting
Incremental budgeting takes last year’s actual figures and adds or subtracts a percentage to
obtain the current year’s budget.  It is the most common method of budgeting because it is
simple and easy to understand.  Incremental budgeting is appropriate to use if the primary cost
drivers do not change from year to year.  However, there are some problems with using the
method:
It is likely to perpetuate inefficiencies. For example, if a manager knows that there is an
opportunity to grow his budget by 10% every year, he will simply take that opportunity to attain
a bigger budget, while not putting effort into seeking ways to cut costs or economize.
It is likely to result in budgetary slack. For example, a manager might overstate the size of the
budget that the team actually needs so it appears that the team is always under budget.
It is also likely to ignore external drivers of activity and performance. For example, there is very
high inflation in certain input costs.  Incremental budgeting ignores any external factors and
simply assumes the cost will grow by, for example, 10% this year.

2. Activity-based budgeting
Activity-based budgeting is a top-down budgeting approach that determines the amount of
inputs required to support the targets or outputs set by the company.  For example, a company
sets an output target of $100 million in revenues.  The company will need to first determine the
activities that need to be undertaken to meet the sales target, and then find out the costs of
carrying out these activities.
3. Value proposition budgeting
In value proposition budgeting, the budgeter considers the following questions:
Why is this amount included in the budget?
Does the item create value for customers, staff, or other stakeholders?
Does the value of the item outweigh its cost? If not, then is there another reason why the cost
is justified?
Value proposition budgeting is really a mindset about making sure that everything that is
included in the budget delivers value for the business. Value proposition budgeting aims to
avoid unnecessary expenditures – although it is not as precisely aimed at that goal as our final
budgeting option, zero-based budgeting.
 
4. Zero-based budgeting
As one of the most commonly used budgeting methods, zero-based budgeting starts with the
assumption that all department budgets are zero and must be rebuilt from scratch.  Managers
must be able to justify every single expense. No expenditures are automatically “okayed”.
Zero-based budgeting is very tight, aiming to avoid any and all expenditures that are not
considered absolutely essential to the company’s successful (profitable) operation. This kind of
bottom-up budgeting can be a highly effective way to “shake things up”.
The zero-based approach is good to use when there is an urgent need for cost containment,
for example, in a situation where a company is going through a financial restructuring or a
major economic or market downturn that requires it to reduce the budget dramatically.
Zero-based budgeting is best suited for addressing discretionary costs rather than essential
operating costs. However, it can be an extremely time-consuming approach, so many
companies only use this approach occasionally.
Levels of Involvement in Budgeting Process
We want buy-in and acceptance from the entire organization in the budgeting process, but we
also want a well-defined budget and one that is not manipulated by people.  There is always a
trade-off between goal congruence and involvement. The three themes outlined below need to
be taken into consideration with all types of budgets.
Imposed budgeting
Imposed budgeting is a top-down process where executives adhere to a goal that they set for
the company.  Managers follow the goals and impose budget targets for activities and costs.  It
can be effective if a company is in a turnaround situation where they need to meet some
difficult goals, but there might be very little goal congruence.
 
Negotiated budgeting
Negotiated budgeting is a combination of both top-down and bottom-up budgeting methods. 
Executives may outline some of the targets they would like to hit, but at the same time, there is
shared responsibility for budget preparation between managers and employees. This
increased involvement in the budgeting process by lower-level employees may make it easier
to adhere to budget targets, as the employees feel like they have a more personal interest in
the success of the budget plan.
 
Participative budgeting
Participative budgeting is a roll-up approach where employees work from the bottom up to
recommend targets to the executives.  The executives may provide some input, but they more
or less take the recommendations as given by department managers and other employees
(within reason, of course).  Operations are treated as autonomous subsidiaries and are given a
lot of freedom to set up the budget.
 
Budgeting involves the coordination of financial and nonfinancial planning to satisfy
organizational goals and objectives. No foolproof method exists for preparing an effective
budget. However, budget makers should carefully consider the conditions that follow:
Top management support All management levels must be aware of the budget’s importance to
the company and must know that the budget has top management’s support. Top
management, then, must clearly state long-range goals and broad objectives. These goals and
objectives must be communicated throughout the organization. Long-range goals include the
expected quality of products or services, growth rates in sales and earnings, and percentage-
of-market targets. Overemphasis on the mechanics of the budgeting process should be
avoided.
Participation in goal setting Management uses budgets to show how it intends to acquire and
use resources to achieve the company’s long-range goals. Employees are more likely to strive
toward organizational goals if they participate in setting them and in preparing budgets. Often,
employees have significant information that could help in preparing a meaningful budget. Also,
employees may be motivated to perform their own functions within budget constraints if they
are committed to achieving organizational goals.
Communicating results People should be promptly and clearly informed of their progress.
Effective communication implies (1) timeliness, (2) reasonable accuracy, and (3) improved
understanding. Managers should effectively communicate results so employees can make any
necessary adjustments in their performance.
Flexibility If significant basic assumptions underlying the budget change during the year, the
planned operating budget should be restated. For control purposes, after the actual level of
operations is known, the actual revenues and expenses can be compared to expected
performance at that level of operations.
Follow-up Budget follow-up and data feedback are part of the control aspect of budgetary
control. Since the budgets are dealing with projections and estimates for future operating
results and financial positions, managers must continuously check their budgets and correct
them if necessary. Often management uses performance reports as a follow-up tool to
compare actual results with budgeted results.

Financial planing
 We all make hundreds of decisions each day. Most of these decisions are quite simple
and have few consequences. Some are complex and have long-term effects on our
personal and financial situations. The financial planning process is a logical, six-step
procedure:
(1) determining your current financial situation
If
(2) developing financial goals
(3) identifying alternative courses of action
(4) evaluating alternatives
(5) creating and implementing a financial action plan, and
(6) reevaluating and revising the plan.
 Step 1: Determine Your Current Financial Situation
In this first step of the financial planning process, you will determine your current financial
situation with regard to income, savings, living expenses, and debts. Preparing a list of
current asset and debt balances and amounts spent for various items gives you a
foundation for financial planning activities.
 Step 2: Develop Financial Goals
You should periodically analyze your financial values and goals. This involves identifying
how you feel about money and why you feel that way. The purpose of this analysis is to
differentiate your needs from your wants.
Specific financial goals are vital to financial planning. Others can suggest financial goals
for you; however, you must decide which goals to pursue. Your financial goals can range
from spending all of your current income to developing an extensive savings and
investment program for your future financial security.
 Step 3: Identify Alternative Courses of Action
Developing alternatives is crucial for making good decisions. Although many factors will
influence the available alternatives, possible courses of action usually fall into these
categories: 
Continue the same course of action.
Expand the current situation.
Change the current situation.
Take a new course of action.
Not all of these categories will apply to every decision situation; however, they do
represent possible courses of action.
Creativity in decision making is vital to effective choices. Considering all of the possible
alternatives will help you make more effective and satisfying decisions.
 Step 4: Evaluate Alternatives
You need to evaluate possible courses of action, taking into consideration your life
situation, personal values, and current economic conditions.
Consequences of Choices.  Every decision closes off alternatives. For example, a
decision to invest in stock may mean you cannot take a vacation. A decision to go to
school full time may mean you cannot work full time. Opportunity cost is what you give up
you become a budget analyst, your duties will include more than just adding up figures, such
as:

 Drawing up the budget with program and project managers.

 Reviewing managers' budget proposals: Are they accurate? Complete? Do they comply
with the law?
 Consolidating all the program budgets into a single document.
 Explaining your recommendations.
 Finding alternatives if your analysis shows things aren't working.
 Tracking spending to see that it stays under budget.
 Estimating future financial needs.