We have considered the sort of control actions that should be taken. And this lecture will cover the process of ensuring that they are effective. The first thing is to identify variances and the pause, and previous lectures have covered these things. The next is to develop and implement a plan of action to control the budget. This should include setting some sorts of targets for achievement. When this has been done, a regular review should be undertaken and projected out turns revised on a monthly basis.
Action should continue until the variances have either been eliminated or the targets achieved Calculating variances and establishing their cause have already been covered. And with this knowledge budget holders are in a position to make decisions about the future and how they can best control their budgets. These decisions are very dependent though, upon the accuracy and completeness of the financial management information being used to calculate those variances. Budget holders should ensure that they are confident in the information they use in order to reduce the risk in their decision making. Budget holders must not lose sight of the overall objectives they are trying to achieve. Now, developing an action plan should be the same Regardless of the type of service area you are responsible for.
The first thing is to set a target or objective that you wish to achieve. For example, the expected reduction in the variance or the level of savings etc. then identify what actions need to be taken and the time scale in which they should be taken. This will help you with monitoring for example, things like increasing efficiency rate so, lowering unit costs you then need to check the impact on service delivery, both the quantity and quality to ensure that objectives are still being met. If the current action plan is not having the desired effect, and the budget is still out of control Or the service is being detrimentally affected, then you need to revise your plans and go back to setting targets to be achieved timescales to achieve them in monitoring their impact, and revising actions if necessary. Let's take an example of the emergency services.
Right We can see that below there's a management report for a district Ambulance Service. It's a month for report and there are several expenditure areas. Temporary staff have budgeted 5000 for the period, year to date, and actual expenditure is 10,000 year to date, giving a negative variance of five The annual budget or budget for the year is 15,000. Based on this, the projected out is 30,000. equipment maintenance have the budget of 14,000 with an actual year to date expenditure of six, giving a positive variance of 8000. The budget for the year is 28,000 and the outturn has been projected as 28,000. Few is 12,000 budget for the four months, the actual expenditure is 13,800 for that period, giving a variance of 1800 negative the annual budget is 36,000 and the outturn has been calculated at 41,400.
So with this information, we should be Asking a few additional questions and the notes give a bit more explanation. Temporary staff have been used to cover a dispute over shift patterns. equipment maintenance is planned during the year, and the budget has been profiled to reflect this plan. However, there has been a delay to the first phase of the maintenance but it should be back on target in the next two months. The cost per liter of fuel is 15% higher than that used when setting the budget. This is not expected to reduce in the foreseeable future.
This information enables us to understand the projected out turn figures using the information in the previous slide. As a budget holder there are a number of decisions that could be made in order to control the budget. However, it is important to can That the risk and the impact on services before implementing a plan of action. examples of the types of action that can be taken are given as follows. resolve the dispute in order to reduce the need for temporary staff. dispute resolution however, may be costly in itself.
And changing the shift patterns may also have an impact on staff costs. Sometimes it's necessary to have third parties to assist in dispute resolution. Ensure the plant equipment maintenance delays remedied quickly, not only to ensure the budget is on track, but defective vehicles will impact on the quantity and quality of services being delivered. as fuel costs are outside the budget holders controlled, it may be necessary to request additional funds wired into the budget. Below is an extract from the management report Two months later. It's a month six report compared to the previous month for report.
In month six, it would appear that temporary staff budget year to date seven 500 is compared with an actual spend of 12,500. This gives us a variance of 5000 negative, but it should be noted that this variance has stayed the same as the month for variance. The budget for the year is still 15,000. But the projected out turn has now reduced to 20,000. The equipment maintenance budget year to date is 14,000. And the actual spend is also now 14,000.
Given zero variance, the budget for the year is 28,000. And the projected out term 28,000. Few is budgeted so far to be 18,000. But the actual expenditure for the six months is 20,700. This variance is a negative 2700 and is showing an increase from the previous month for report. The budget for the year is 36,000.
And the projected out has remained the same as at month four at 41,400. The notes with this management report, identify the temporary staff have been reduced as the dispute is now resolved. And the overspending going forward will not change but we do need To find savings to compensate for the 5000 overspent already incurred to date. equipment maintenance has now been brought into line with the profile, so there is no need for any further action. fuel costs however remain 15% of both budget and apartment has now been requested from senior management