Rolling budgets

Given the speed of change and general uncertainty in the external environment, shareholders seek quick results. Companies typically report to shareholders every three months, compared with the normal six months. Rolling budgets involve evaluating the previous twelve months’ performance on an ongoing basis, and forecasting the next three months’ performance. We see our budget as a forward looking plan that sees our direction and destination point, other documents such as the balance sheet and the profit & loss account allows us to look back and reflect our progress telling us where we have been and how we got to this current position.

The companies budget is a fixed type budget and is prepared annually by the contracts manager, finance manager and the 5 leisure centre managers (budgeting team), it is review every month throughout the year to reflect our progress. The budget allows our centre managers to co-ordinate and control the activities of the organisation effectively, it also allows them to implement the business plan as well.

The budget is a key management tool for decision making and the steps below that we follow allows the managers to know where they are going. The budget consists of:

Income/sales which is based on new members joining the fitness suite, activity levels, patronage users, secondary spends plus the management fee that is paid to us from the council. Expenditure which is based on wages, utilities, repairs and maintenance, admin, marketing etc. Capital expenditure works which include new health and fitness studios, DDA works, building improvements and information technology Once each centres budget is completed the contract manager who is responsible for the 5 leisure centres and the support team co-ordinates the individual budgets into a master budget.

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The centre manager also co-ordinates the budget down to there duty managers, this shows them what they can spend on certain items and what the income levels should be. When the agreed budget is in place we have several financial procedures to follow this allows us to control the budget daily and is quite easy to run. Each centre manager regularly monitors progress and checks for variances, they fill in a daily income and expenditure spreadsheet which allows them to compare the actual and budgeted results.

The budgeting team meet up at the end of each month to view the budget, this allows managers to react on major variances in terms of the likely impact upon the organisations overall budget. The budgeting team can then discuss what revisions are needed to get the budget on its original course. A couple of criticises of a fixed budget is that it works less well when organisations face large or highly correlated risks, or when the financial year is too short to smooth out the natural variability due to repeated chance occurrences.

When such uncertainties emerge, the timing of decisions within the financial year takes on added importance. Fixed budgets also provide obvious incentives for over-spending near the end of the financial year. These adverse incentives are then aggravated by the complicated signalling games that take place between central authorities and their subordinates. Ironically, under spending may be taken, as a sign of incompetence that needed work has not been done.

While it is difficult to spend every last penny and some lapses are always going to occur, the magnitude of these lapses makes it extremely uncomfortable for three reasons * Significant under spending makes it difficult to justify any increases in these appropriations. * There are concerns that clients needing services are not getting them * Some astute budget analyst is going to notice a pattern and reduce the appropriations, figuring that if we don’t spend it we must not need it.

A fixed budget does control costs on expenditure levels in our organisation, i. e. if a duty manager is given a certain amount to spend, once that money has gone he can not spend anymore, this keeping a tight control on the budget, on the other hand If a manager needed more sports equipment for a activity to take place and his budget has been spent, this would effect the customer and may prevent them from taking part in the activity. This shows that the budget process can be a barrier to performance.

At current the budgeting team have made certain assumptions in determining the original budget (mainly utilities, maintenance and repair costs). If we used a flexible budget adjustments can be made throughout the year to ensure that we operate the centre within the budget we have set, using the knowledge we gain through the operation of the business. I. e. Single loop feedback involves making corrections to current activities in order to ‘get back on course’ and double loop feedback involves amending the original plans so that they more accurately reflect current business reality.

The budget process that we put together is time consuming and costly to put together it is also based on guesswork and unsupported assumptions. Managers spend far to much time analysing their budgets, and other parts of the business seems to suffer. I. e. the front line staff and the customers, how can a manager know what the customers want when he is stuck in the office analysing his budget and not communicating with the customers.

Unsupported assumptions and guesswork takes place because he does not communicate and involve his staff in the budgeting process. One of the ways we could improve the system and the control of income and expenditure would be to have site specific administration and expenditure controls to be updated and to be reviewed constantly. The introduction of a new till system will enable us better interrogation of income figures to be undertaken, enabling us to market facilities more effectively and to receive more accurate information regarding users.