fantasy meets reality strategic planning and budgeting capital vs expense presented by: jarmila...
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Fantasy Meets RealityFantasy Meets Reality
Strategic Planning and Budgeting
Capital vs Expense
Presented by: Jarmila PencikovaManager, Accounting
Osler, Hoskin & Harcourt LLP
Fantasy or Reality?Fantasy or Reality?
BudgetingBudgeting
* Analysis
* Terminology
* Operating Budget
* Capital Budget
* Budgeting for Projects
* ReportingOsler, Hoskin & Harcourt LLP
IT Spending AnalysisIT Spending Analysis
- by type of expenditure (capital, operating)
- by category (salaries, consulting, etc)
- per partner
- per lawyer
- staff member
- % to revenue
Osler, Hoskin & Harcourt LLP
Total 2002 2001 2000 1999 1998 1997 1996
in $'000 Actuals Budget Actuals Actuals Actuals Actuals Actuals Actuals
Operating Expenditures:Salaries and Related 6,100$ 1,300$ 1,200$ 1,100$ 1,100$ 1,000$ 900$ 800$ Outside Consulting and Related 680$ 90$ 80$ 120$ 270$ 100$ 100$ 10$ Telecom 2,170$ 350$ 300$ 290$ 350$ 350$ 420$ 460$ Other Expenses 1,740$ 420$ 400$ 350$ 320$ 270$ 200$ 200$ Software Depreciation, Licences & Maintenance 3,900$ 1,100$ 1,000$ 1,000$ 650$ 500$ 350$ 400$ Hardware Depreciation, Leases & Maintenance 7,950$ 1,250$ 1,200$ 1,300$ 1,350$ 1,400$ 1,500$ 1,200$ Outside Consulting Related to Capital Projects 1,650$ 250$ 400$ 160$ 300$ 380$ 360$ 50$ TOTAL OPERATING EXPENDITURES 24,190$ 4,760$ 4,580$ 4,320$ 4,340$ 4,000$ 3,830$ 3,120$
CAPITAL EXPENDITURESHardware 2,565$ 650$ 600$ 380$ 160$ 300$ 225$ 900$ Software 1,170$ 150$ 250$ 230$ 270$ 200$ 170$ 50$ TOTAL CAPITAL EXPENDITURES 3,735$ 800$ 850$ 610$ 430$ 500$ 395$ 950$
TOTAL EXPENDITURES 27,925$ 5,560$ 5,430$ 4,930$ 4,770$ 4,500$ 4,225$ 4,070$
Statistical RatiosExpenditures per partner 262$ 46$ 47$ 45$ 43$ 43$ 42$ 41$ Expenditures per lawyer 150$ 27$ 27$ 26$ 25$ 24$ 23$ 23$ Expenditures per timekeeper 118$ 22$ 22$ 21$ 20$ 19$ 18$ 18$ Expenditures per staff member 50$ 9$ 9$ 9$ 8$ 8$ 8$ 8$ Expenditures to Revenue 5.0% 4.6% 4.9% 4.9% 5.0% 5.0% 5.0% 5.1%
Number of partners 106.7 120 115 110 110 105 100 100 Number of lawyers 186.7 205 200 190 190 185 180 175 Number of timekeepers 236.7 255 250 240 240 235 230 225 Number of staff 555.0 625 600 575 575 550 530 500 Revenue 93,333$ 120,000$ 110,000$ 100,000$ 95,000$ 90,000$ 85,000$ 80,000$
Smith, Smith & Smith
Summary of Information Technology spending for period 1996 to 2002
Capital vs ExpenseCapital vs Expense
Capital Expenditures/Assets
are the tangible or intangible properties that meet certain criteria.
Tangible properties: land, building, equipment
Intangible properties: softwareOsler, Hoskin & Harcourt LLP
Capital Expenditures/AssetsCapital Expenditures/Assets
Criteria- held for use in the provision of services, for
admin purposes, etc.- acquired to be used on a continuing basis- not intended for sale in the ordinary course
of operations- have a value and useful life (normally more
than 1 year)Osler, Hoskin & Harcourt LLP
Capital Expenditures/AssetsCapital Expenditures/Assets
Categories
- Hardware
- Software
- Equipment
- Furniture
- Leaseholds Improvements
- etc.Osler, Hoskin & Harcourt LLP
Prepaid ExpensesPrepaid Expenses
Expenses over a certain limit (set by the Firm) that cover period of more than 1 month are usually expensed over the period they cover.
Examples: Equipment Maintenance
Software Maintenance& Licenses
Insurance
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BudgetBudget
Summary of the expected financial consequences of the organization/unit’s short-term operating activities.
Focus on 2 types of Budgets:
- Operating
- Capital
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Operating BudgetOperating Budget
Find out how many people will be hired in the new year throughout the Firm
impact on your operating expenses
(computer leases, number of IT people required to support it, etc.)
Osler, Hoskin & Harcourt LLP
Operating BudgetOperating Budget
Find out what the Firm’s business plan is
(expansion, merger plans, office relocation)
impact on your operating expenses
(computer leases, number of IT people required to support it, etc.)
Osler, Hoskin & Harcourt LLP
Operating BudgetOperating Budget
* For known expenses (amount & timing),
budget the amount in appropriate month.
* For general expenses budget 1/12 of the annual amount in each month.
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Operating BudgetOperating Budget
You can prepare budget based on:
- events (involves more than 1 account)
- individual accounts
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Visit to another officeVisit to another office
- How many days?- How will I travel there?- What’s the purpose of the trip?
Types of expenses: * Accommodation * Travel (incl. airfare, train,
mileage, parking & taxi) * Meals * Long Distance Calls
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Attending a ConferenceAttending a Conference
Conference Attendance
- Registration
- Airfare/Train/Bus
- Meals
- Hotel
- Taxi
- Car Rental
- Other (parking, long distance calls, gas, etc.)Osler, Hoskin & Harcourt LLP
Attending a ConferenceAttending a Conference
Example: Conference @ end of August
Registration & Airfare May/June
Meals, Hotel & other Aug/Sept
Tip: Don’t forget to convert foreign currency amounts into your local currency!
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Maintenance ContractsMaintenance Contracts
Equipment/Software Maintenance & Licenses
Annual Contract where cost < Prepaid Limit- budget full amount in the appropriate
monthAnnual Contract where cost > Prepaid Limit
- budget 1/12 of the annual cost for each month of the year
Osler, Hoskin & Harcourt LLP
Equipment MaintenanceEquipment Maintenance
Example: Existing contract @ $60,000/year for period July 2002 to June 2003. This cost will go up to $90,000/yearfor period July 2003 to June 2004.
Budget for 2003:$30,000 for Jan to June 2003 ($5,000/month)$45,000 for July to Dec 2003 ($7,500/month)$75,000 total for 2003
Payment in 2003 - $90,000 in July
Osler, Hoskin & Harcourt LLP
Capital BudgetCapital Budget
You can prepare budget based on:
- Asset category
- Project
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Budgeting by Asset CategoryBudgeting by Asset Category
List individual categories and budget within each category:
* Specific amounts for specific items
* General amount for unknown items
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Capital ProjectCapital Project
* One or more capital expenditures with or without related operating expenses.
* Budget is prepared for each Project.
* Each Project will have it’s own Capital Project number.
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Budgeting for Capital ProjectsBudgeting for Capital Projects
* Show the cost for the entire life of the Project (if more than 1 year) broken down by each fiscal year.
* Budget by Asset Category within each Capital Project.
Osler, Hoskin & Harcourt LLP
Budgeting for Capital ProjectBudgeting for Capital Project
Each Project may have 2 types of expenditures:
* Capital (Hardware, Software, Equipment, Furniture)
* Operating (Consultants fees, Travel,
Training cost, etc.)
Osler, Hoskin & Harcourt LLP
Budgeting for Capital ProjectBudgeting for Capital Project
How and where do you enter the budget numbers?
- in Excel
- in your accounting software
How do you report on your variances?
Osler, Hoskin & Harcourt LLP
Budgeting for Capital ProjectBudgeting for Capital Project
Set up each Project as a “department” in your accounting software and record every expenditure (capital or operating) under this “department”.
Advantages:
- easy to record
- easy to keep track of
- easy to report on
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ReportingReporting
* Listing of all Projects
* Statement per Project summarized by expense category
Osler, Hoskin & Harcourt LLP
Project Project YTD YTD YTD Unspent AnnualNumber Name Actual Budget Variance Amount Budget
100 HR Information System 180,000$ 200,000$ 20,000$ 70,000$ 250,000$ 101 Audio/Visual Equipment 75,000$ 65,000$ 10,000-$ 25,000$ 100,000$ 102 Online Training 1,000$ 20,000$ 19,000$ 49,000$ 50,000$ 103 Document Management System 395,000$ 400,000$ 5,000$ 5,000$ 400,000$ 104 Microsoft Word XP Upgrade 325,000$ 300,000$ 25,000-$ 175,000$ 500,000$ 105 Litigation Support Software 118,000$ 120,000$ 2,000$ 32,000$ 150,000$
Total for All 2002 Capital Projects 1,094,000$ 1,105,000$ 11,000$ 356,000$ 1,450,000$
Summary of Project ExpendituresCapital Expenditures 1,065,000$ 1,080,000$ 15,000$ 235,000$ 1,300,000$ Operating Expenditures 29,000$ 25,000$ 4,000-$ 121,000$ 150,000$
Total 2002 Projects Expenditures 1,094,000$ 1,105,000$ 11,000$ 356,000$ 1,450,000$
Smith, Smith & Smith
2002 Capital Projects SummaryFor period ending July 31, 2002
Expenditure YTD YTD YTD Unspent AnnualCategory Actual Budget Variance Amount Budget
Capital ExpendituresHardware 91,000$ 100,000$ 9,000$ 9,000$ 100,000$ Software 205,000$ 200,000$ 5,000-$ 5,000-$ 200,000$ Equipment 18,000$ 20,000$ 2,000$ 2,000$ 20,000$
Total Capital Expenditures 314,000$ 320,000$ 6,000$ 6,000$ 320,000$
Operating ExpendituresConsultants 60,000$ 50,000$ 10,000-$ 10,000-$ 50,000$ Training Cost 15,000$ 20,000$ 5,000$ 5,000$ 20,000$ Travel Cost 6,000$ 10,000$ 4,000$ 4,000$ 10,000$
Total Operating Expenditures 81,000$ 80,000$ 1,000-$ 1,000-$ 80,000$
Total for the Project 395,000$ 400,000$ 5,000$ 5,000$ 400,000$
Smith, Smith & Smith
Summary for 2002 Project # 103 - Document Management SystemFor period ending July 31, 2002
Suggested Reading or Talking?Suggested Reading or Talking?
Osler, Hoskin & Harcourt LLP
Speak to your CFO/Controller
Contact InformationContact Information
Jarmila PencikovaManager, Accounting
Osler, Hoskin & Harcourt LLPFirst Canadian Place, P.O. Box 50
Toronto, Ontario M5X 1B8 Canada
QuestionsQuestions
Osler, Hoskin & Harcourt LLP