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  • 1.  Budgeting Centralized vs Departmental Costs and Minimal Threshold for Budget Lines

    Founding Member
    Posted 4 days ago

    Hi all. At Partners In Health, we budget in a LOT of detail (see here for the related thread), but we also allow our users a lot of flexibility in how they budget. We are a global health non profit operating in 10 countries around the world and it seems that each country team has different ideas on how to budget certain types of cost, particularly what gets centralized vs spread across multiple departments. We also don't have a standard minimum cost threshold for lines to be budgeted in so sometimes end up with many budget lines at very low costs, which then confuses end users who are submitting expense codes because they have too many options to choose from.

    As an example, we procure a lot of medical and operating supplies in each country, but in some the cost is centralized (i.e. the Operations or Procurement department buys all medicines, medical supplies, office supplies, fuel, etc.) while others ask each department to budget these costs individually. The intention of the latter approach is to help people realize that things have real costs rather than just assuming there is a centralized budget for things their department isn't actually paying for.

    This is something our IT teams are trying to solve for as well. We've long had a standard of charging each department for laptops and monitors, but we usually centralize server, software or license costs on the IT budget. As each of those costs grows over time though, we don't want people to think that there's an infinite amount of funds to cover additional licenses and are now wrestling with whether it's worth charging each department for those costs. The logistics of getting departments to submit expense codes and then the effort required by the IT team to split out the cost of an invoice is challenging though so we're not sure it's actually worth it.

    Does anyone have any guidance or best practices around what types of common costs you budget centrally vs by department? Do you have any standard practices or controls for a minimum amount that a budget line needs to reach (i.e. anything less than $1,000 needs to be rolled into another line)? Do you have any criteria for how you make these decisions? Or if you split shared costs to departments, do you have any tips for how to allocate and process those shared costs that are budgeted by department?

    Thanks, Brendan



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    Brendan Eger
    Assoc. Dir. of Information Systems and Analytics
    Partners In Health
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  • 2.  RE: Budgeting Centralized vs Departmental Costs and Minimal Threshold for Budget Lines

    Venanite
    Posted 3 hours ago

    Hey Brendan,

    When I was a consultant I had one client in particular who faced a similar challenge. The way they overcame it was by a pretty extensive allocations template. For example, let's say the IT department entered all their software, licences, and server costs to one GL code called Central IT costs. This line would only show for their specific department. Then in the allocations template, there were specific rules. I know they used headcount as a straightforward driver (easy for them as they also had the workforce planning package) but they also had additional drivers like licences per department and specific usage (both flat-file loads that they only updated during the budget period based off last year's actuals). These drivers would split the costs out to each department and save to a new GL line called like Specific IT Costs and it would zero out the initial amount entered in Central IT costs. 

    This was a couple of years ago so I'm sure I'm getting some of the details hazy, but they were very large which is why it made sense for them to do it. It was pretty labour intensive to build (especially defining the rules) but after that, I don't believe there was major maintenance involved and they were happy with it. They previously did it manually and it took over a week where now a template was just giving them the answer and they trusted it.

    I saw you mention budget lines with very low costs. I wonder if using Line Item Details and reducing the number of GLs end users can budget against would help with this? As long as they're still in the same roll-ups analysis of budget vs actual can still be completed (e.g. the current set up might be "10001 Computers", "10002 Licences", "100003 Hardware", etc but they all fall under the parent "IT Costs". You could restrict the end-user so they can only budget to "100001 Computers", but they can use LIDs so they still include the level of detail they'd like, and on review you compare the parent roll-up rather than individual GL codes)



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    Olivia MacDonald
    Manager, Financial Systems and Operations
    PwC
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  • 3.  RE: Budgeting Centralized vs Departmental Costs and Minimal Threshold for Budget Lines

    Founding Member
    Posted an hour ago

    Thanks Olivia! Very helpful to think about using an allocation template for centralized costs that actually need to be distributed based on different drivers. That seems like a good logistical solution, but I'm also still curious whether anyone has any criteria for when it makes sense to do this - i.e. when do you decide it's actually worth the effort to pursue an allocation template vs just budgeting/paying for things centrally? Do you decide based on donor requirements (for those of us in the non-profit space) or some other internal criteria? What's the value for the organization/business of actually splitting costs out? Is it just creating an overhead task that doesn't really add value? Can it help the organization better see which department is driving an increase in costs? (but couldn't you get at that another way by looking at the # of computers/licenses/etc. when that analysis is needed?) 

    Our challenge with very low costs is that we committed 6 years ago to creating speedkey codes (we call them "Super Codes") that map to each individual budget lines so that people know what codes to use when submitting an expense and how much they've spent on any given line. The goal is to help a budget manager see exactly what was spent on a line they created, rather than just seeing a rolled up summary which ends up as a sort of black box. As an example below, we have several low dollar budget lines that are all tagged to our Rwanda budget and Food GL, but they all have slightly different purposes. We use Line Item Details in one of our templates to allow the end users to create whatever lines they need, but they end up creating these low dollar lines, and because the Super Codes connected to each of these lines drive our expense submission, we then have confusion when people don't know which code to use when they submit an expense. As a result, our coding accuracy of our actuals suffers and we're left with a bunch of codes/lines that don't have any actuals in them. We could create validation rules to restrict lines to meet a minimum threshold and encourage our budget managers to roll up costs, but I think this is more an issue of policy/procedure rather than technical design of a template. I'm not sure if others have similar challenges or if we're alone in creating this mess for ourselves, but if anyone has dealt with this, I'd be curious how your organization decided to create technical and/or policy/procedural changes to address it.



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    Brendan Eger
    Assoc. Dir. of Information Systems and Analytics
    Partners In Health
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