Chapter 3: Financial Management & Cost Control Flashcards
What is a budget?
- planned forecast of future income and expenditure
- which is usually made annually
- but can be projected for any given period
Types of budgets
- administrative budget
- operational budget
- capital budget
What is administrative budget?
- those items of overhead that a department shares with other departments in the organization
- controls not only the funds for personnel but also numbers of positions
- make hiring greater number of lower ranking employees difficult
- not fungible
what does fungible mean?
- can be replaced
Operational budget
- covers funds that company gives to facility manager to perform their mission
- level of detail is a matter of choice, depending on management information needs
What is capital budget?
- provides information on major buildings, furniture, furnishings, and equipment
- that the organisation needs to perform its mission
- used to solve major long-term construction and replacement requirements uncovered in strategic planning
4 main subheads of annual expenditure
- building, fixtures, and furnitures
- mechanical, tools & plant
- electrical
- renewals
points to consider when preparing maintenance budgets
- Must have a clear understanding of the overall objectives and their priorities.
- Must complete a systematic analysis of the needs and demands stemming from the objectives.
- Must be able to balance demands within the known constraints of labour, materials, managerial skills and funds.
- Avoid the waste of financial resources.
Try to develop a budget system so that:
- adequate measurement can be obtained
- sets work standards
- performance deviations can be easily seen
- identify future opportunities
Budgetary control
- check difference between budget and actual costs
- weekly or monthly basis
- difference analyzed and corrective actions taken
- overrun of budget - various factors
reasons for budget overrun
- tender in excess of the estimates
- increase in scope of work due
- inefficient organization and planning of work
why tenders in excess in estimates happen?
- Inaccurate estimates
- Unforeseen increases in wage rates or material prices
- Changes in market conditions affecting tender climate
- Delay in starting the work resulting in tenders being invited at an unfavourable time
Increase in scope of work due to
- Variations during execution period
- Higher proportion of user requests than anticipated
- Abnormal user
- Exceptional weather conditions
Inefficient organization and planning of work resulting in
- Higher proportion of non-productive time
- Lower output during productive time
- Material wastage
revise planning
- revise budget to keep up with progress of programs
- work may be ahead or behind time
- cost may be lower or higher
- unplanned or unforseen works
Actions to be taken in revised planning
- examine why work is not on schedule
- determine remedial action
- determine if original resources need to be revised
What is LCC?
Life Cycle Cost
What does LCC do?
- helps property managers to justify equipment & process selection based on total costs rather than initial
purchase price - objective is to choose the most cost effective approach of the product or system
LCC analysis MUST consider
total cost + concept of time value of money = LCC analysis
Concept of time value of money
- a dollar you receive today is worth more than a dollar received tomorrow
- difference between money today and money in the future
why is a dollar today worth more?
- put in bank and earn interest
- spend and enjoy rn
LCC formula
Initial cost + (maintenance cost + Energy cost + Cleaning cost + Overhead & management cost) + Utilization cost - resale value
