14. Calculating Outturns

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This lecture will concentrate on how to calculate the projected out term. projecting the out term requires forward thinking and Future Planning. This can be straightforward for budgets that have very little change during the year, such as a fixed budget like salaries or rent. budgets that have a great deal of variability over the year however, such as a demand led budget will require the budget holder to have a good understanding of the service, such as understanding budget drivers, and we've covered budget drivers in previous lectures. projected out term should take account of known future events, such as when new employees are due to start or price changes to new or existing contracts. We're now going to go through a basic term calculation.

This is a simplistic approach to calculating the projected out for the year using an average formula. We look at the expenditure to date and the number of months, multiply it by 12 months for the year to calculate the projected out term. In other words, we assume expenditure arises at the same rate every month. This is best shown in the example 4000 was spent in the first four months of the year. Using this very simple formula, the outturn would be 12,000 in other words 4000 expenditure today eight divided by the number of months which is four multiplied by 12 months and this estimate assumes that 1000 expenditure will arise every month going forward until the end of the year. This approach is really only suitable for expenditure income that has a very even fixed profile across the year.

Applying this formula to other costs or income can give a very distorted result, especially if there are seasonal fluctuations. This approach is sometimes used in an automated accounting system where the budget holder is able to input their knowledge or whether there is a lack of any other relevant information. In order to project a more accurate out turn, it is used To gather as much information as possible. This will include the basis for the budget, such as the number and grade of staff for the salaries budget, or the budget drivers that have been used for calculating service costs, things like the number of clients. Other aspects such as contract terms and conditions, ongoing fixed costs, such as rent are all necessary to get an accurate figure. The actual to date figures are also important.

The budget holder should establish exactly how they have been compiled, and ensure they include creditors and commitments. If not, they should be factored in. The budget holders should also be aware of any known future events, which will have an impact on their expenditure or their income. Estimates of future activity base on future demand are also important. Along with the impact of legislation or policy, the budget holder really needs to understand the budget in order to get an accurate outturn figure. Let's take a scenario based in the school setting.

The physics departmental head has been asked to calculate a projected out for the following budgets based on the information in the report below. It's a month for report. It covers salaries, the budget year to date is 40,000. And the actual is also 40,000. Giving a zero variance. The budget for the year is 120,000.

And it might be possible to do the simple out calculation in this case, a salary should arise relatively evenly over the year. We can see that 40,000 actual year to date divided by four and multiplied by 12 would give a projected out turn of 120,000. Moving on to equipment, the budget year to date is 4000 and the actual expenditure 6000. This gives a negative 2000 variants or an overspend. Looking at the budget for the year we have 12,000 and the projected out turn it calculated in a simple way may give a very misleading result. This would be the same for trips.

We have a budget year today to 2000 and no expenditure so far. This gives a positive variance have 2000 and the budget for the year is 6000. Before any projected out term calculations can be made, it is sensible to find out the basis for the original budgets. What we have found out is that salaries were based on three members of staff, one at 50,002 35,000, inclusive of all costs. The equipment budget was based on 120 pupils with an average spend per pupil of 100 each. And there were two school trips planned for the year, taking an average of 30 peoples and a staff member.

The school contribution however, was fixed at 3000 per trip, with the balance being made up from people contributions Now, in order to be accurate with the projected out turn calculations, we need a little more information. And we found out the following. One member of staff on 35,000 is leaving at the end of month 10 and will not be replaced until the new financial year. The student intake was below expectations. And so the number of students is 100 rather than 120. The average spend on equipment however, is expected to remain the same.

One school trip has already been arranged, and that's going to take place in month six, but payment of the school contribution has not been made yet. The second trip is to be scaled back in order to make savings and the school will only contribute 1500 Now we have gathered the information, we can begin to complete the calculations. So in the case of salaries, we cannot use the simple method, because we have a lever partway through the year. Therefore, we have to add to the 40,000 incurred so far, eight months worth of two salaries, the one at 50,000 and the one at 35,000. So, if we divide that by 12 and multiply through for the further eight months, we get 56 667. To this we need to add only six months of the leavers salary because they're going to leave in month 10.

So, this is 35,000 divided by 12 and multiplied by Six giving 17,500 b equipment projected out should be 100 times 100 for the year, which takes account of the decrease in people numbers. And instead of 120 we only have 100. The trips projected out and more reflect the saving of 1500 on the second trip. So here's our report. We can now fill in the projected out turn column. So if we add together 40,056 667 and 17 and a half, we get the projected out 10 for salaries of 114167.

The equipment out turn is 100 times 110,000 and the trips out turn is 3000 for our first trip in month six, and the further 1500 for the second trip, giving us 4500. The budget holder is actually quite pleased with these projected out turns because the engineer position as predicted will be savings on all budgets. I think the best thing is to get some practice on working out projected out terms. You can do this by downloading the worksheet that has been provided with this course. You can then go on to try and calculate your own projected out terms and that will definitely help you in managing your budget.

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