Financial Planning 1
Introduction and Budgeting
Learning Objectives

Understand the importance of linking
planning and budgeting

Understand key financial planning terms
and concepts

Apply tools and techniques for preparing a
financial plan
Definition
Goal/
Objectives
Strategy &
Strategic
Interventions
Activities &
Subactivities
Financial Plan
A detailed year-by-year estimate of the revenues
and expenses entailed by the strategic plan
Financial Planning
 It represents the planned activities of a
system in terms of money
 Financial plans detail the system’s estimate
of how much each activity will cost for a
specified time period, usually 3-5 years
 Financial plans detail the expected income
that will pay for the planned activities
Financial Planning

Helps a program take into account available
and potential financial resources for
initiatives

Identifies resource allocation issues inherent
to the strategic planning process
Implementation and
Financial Plan
Implementation
Plan
•Planned
activities &
subactivities
•5 years
Annual
Budget
Financial
Plan
•Required
inputs
•Detailed
•Cost of inputs
estimates of
cost & revenue •Projections
•Sources of revenue
for Year 1
•3-5 Year Plan
Planning & Budgeting

Planning and budgeting are linked activities:
Plans include goals and objectives that are to
be accomplished in a stated time period

Plans describe activities to accomplish the
goals

Planning & budgeting are parts of an iterative
process

Initial plans may have to be changed
depending on whether funds are available to pay
for the activities

Financial Planning Involves…
Identify resource
requirements
Estimate revenue
& expenses
Analyze
current &
potential
sources of
revenue
Prioritize
resource use
Budget
Financial Planning & Budgeting
Are Important





Define in monetary terms the strategic plan
Provide a basis for evaluating financial
performance
Provide a tool for controlling costs
Force implementers to think through how
much each activity will cost
Give implementers information on projected
expenses and the funds needed for planned
activities
Budgeting: Terms & Definitions

Expenses: All of the costs incurred in operating
a program

The Operating Budget is composed of

Expense Budget – based on converting
resource needs identified in the planning
process into money estimates

Revenue Budget – based on identifying
sources of funding. Examples: service fees,
grants, donor funding, government funds
Budgeting: Terms & Definitions

Asset – anything that has value that helps an
organization conduct business. Examples:
cash, equipment, supplies, etc.

Current Assets – assets used within the space
of a year, such as cash and supplies

Fixed Assets – assets that have a useful life of
longer than a year, such as land, buildings, and
equipment
Budgeting: Terms & Definitions

Fixed Costs – costs that do not vary with the
volume of services provided, such as rent and
insurance

Variable Costs – costs that vary according to
the volume of service provided or people
served. Example: medical supplies

Semi-variable or Semi-fixed Costs – costs
that increase or decrease with volume but not
in a directly proportional relationship
Budgeting: Terms & Definitions
Cost/Volume Relationships:
Cost
Cost
Volume
Fixed
Volume
Variable
Budgeting: Terms & Definitions

Direct Costs - costs that are identifiable with a
specific service. Example: contraceptives for FP
services

Indirect Costs (Overhead Costs) – costs not
directly linked to a specific service. Example:
utilities, salaries of administrative staff
 Incremental Costs – costs of adding or
implementing additional projects or programs
to existing services
Budgeting: Terms & Definitions
 Joint Costs – resources used for more than one
intervention. Examples: costs of clinic resources,
salaries, equipment, exam table

Non-joint Costs (Direct Costs) – resources that
are directly linked to the service provided such as
the cost of contraceptives for FP services
Budgeting: Terms & Definitions

Allocation of Costs – costs that are systematically
allocated among products, departments, or
programs. Example: salaries of providers working
on two different programs on the basis of time

Capital Cost – costs incurred when acquiring,
constructing, or renovating fixed assets

Recurrent Costs – costs associated with inputs that
will be consumed or replaced in one year or less.
Examples: salaries, maintenance, medicines
Budget Process

Who should be involved in the financial
planning and budgeting process?
 MOF
 MOH
 MOP
 Other
key stakeholders
Financial Planning Process
List
Planned
Activities
Goal &
Strategy
Prepare
Budget
for Year 1
Identify
New Inputs,
Years 2-3
Identify
Inputs
Assign
Monetary
Values
Make
Projections
Quantify
Inputs
Collect
Cost
Information
Prepare
Financial Plan,
3-5 Years
Steps in Budgeting
1. Resources (inputs) are specified to
accomplish activities
2. Costs (expenses) are assigned to resources
3. Sources of funding (revenues) are
estimated to finance the activities
4. Compare revenue and expense projections
Steps in Budgeting
1. Resources (inputs) are specified to
accomplish activities
Staff (type and number)
 Supplies (how many? what kind?)
 Equipment (what type?)
 Communications
 Travel (frequency, who travels? etc.)
 Other resources

Steps in Budgeting
2. Costs are assigned to resources

Use objective sources for estimating costs:

Consult commercial suppliers

Check the amounts spent the previous year for
similar items (factor in inflation)

Contact hotels and transportation sources for costs
of travel and per diem
DO NOT GUESS ABOUT THE COSTS
Steps in Budgeting
3. Sources of funding (revenues) are estimated
to finance the activities

Government funds?

Donor funding available?

Service fees? Are fees being charged currently?

Grants available?
Steps in Budgeting
4. Compare revenue and expense projections

If expenses do not equal revenues, activities
may have to be adjusted

If expenses need to be reduced, a fixed
percentage cut across all expense line items is
not necessarily the most effective remedy

Fixed costs will have to be paid regardless,
but variable costs can be changed
Budgeting Tips

Salary – determine annual salary package
including all fringe benefits

Fees – include budget amounts for infrequent
fees, such as annual audits and staff training

Building Operating Costs – include minor
repairs, renovation, janitorial services, and
maintenance

Vehicle Operating Costs – include budget
amounts for fuel, maintenance, and repairs
Budgeting Tips

Travel and Per Diem Expenses – estimate
amounts for airfare, taxis, fuel, mileage, per diem
and out-of-pocket expenses

General Administrative Expenses
(Overhead Expenses) – include office
equipment rental, maintenance and minor repairs,
data processing, copying and printing costs, office
supplies, and insurance
Budgeting Tips

Medical Supplies and Expendable Low-cost
Equipment – estimate, based on the number of
clients projected to be served in the budget year,
gloves, contraceptives, infection control supplies

Fixed Assets – include budget amounts (Capital
Budget) for any fixed assets to be purchased in
the budget period: land, buildings, and equipment
Budgeting and Long-range
Financial Planning

Prepare detailed budget for Year 1

Identify, quantify, and cost new inputs for
Years 2 and 3

Make projections

Adjust for inflation

Prepare detailed financial plan

Review and revise it periodically
Financial Monitoring
Expenditures Compared to Budget Report

Monitors actual expenditures of the
program against the planned expenses

Analyzes the results of the operation with
the planned activities

Modifies activities to achieve goals and
objectives