Name: Video 1 - Administration Budget and connections with other budgets
Uploaded: 2017-09-19T00:49:04.282Z
Duration: 5 min 16 s

Hi. Good to see you again.

The sessions we'll start right now are about Administration Budget.

This budget is strongly connected to the other areas' budget.

That's why you may have to view and review it many times during the budgeting process.

It comprises all the activities necessary to support the budget of the other areas.

I know it seems a little abstract so,

let's make an analogy to have a clear idea.

Imagine every week, you go to a restaurant that you enjoy

a lot and you personally thanks to the chef and the service team.

So basically, you thank the direct workforce of the restaurant,

people who work at the core activities of the restaurant business.

But, what if, for some reason,

the taxes are not paid,

the benefits of the employees are not paid or even the rent is not paid?

Will you have the opportunity to go to this restaurant,

let's say, six months from now?

Probably not because it's going to be out of business.

Well, at least I expect it to be true. Who knows?

Anyway, the point is the administrative function of controlling accounts payable,

accounts receivable, legal compliance fees and

payroll processing are necessary to keep the business running.

Administration function is a support activity,

whereas, cooking and serving customers are primary activities.

So, the conclusion is that administration is

the function that supports the core business activities.

By the conclusion, the administration budget supports plans,

projects and activities that are budgeted for other areas.

It also provides a neutral view on the budgets proposed for the other areas.

Let's just call it as

an independent view in the sense that the analysis would be free of bias.

Now, analyzing administrative expenses is very straightforward.

So, administration budgets should not be complicated.

However, things are not that easy.

Why? Well, we can easily understand

the straightforwardness of administrative expenses but,

still, there is a question,

"Why do we have to incur in some of the administrative expenses?"

What I'm telling you is this.

Some people have difficulty in understanding the administrative activities.

At least, some of the activities.

Have you had the same difficulty any time in your professional life?

Well, I've had.

Please don't get me wrong.

I'm not telling you that administration is useless.

Far from it.

What I'm saying is that we tend to question the need to some administrative activities.

Maybe because they are not directly related to production,

manufacturing or providing services.

Explaining it in a more practical view,

administration budget is hard because of some key characteristics.

Allocation complexity, it's hard to define clearly where the costs should be allocated.

Discretionary approach, administration expenses allocation will

eventually be defined by a discretionary decision and we don't need to say,

such a decision tend to be questioned.

Now, what are the administrative expenses that we are talking about?

Typical expenses of this budget are: human resources,

legal and regulatory, public relations, treasury,

auditing, information technology, telecom,

corporate management, risk management,

real estate and facility services, accounting.

The list of cost items for administration budget can be long,

as you may have thought.

It includes for example, insurance,

taxes on payroll and properties,

rent, utilities, legal fees, audit fees,

bank fees, accounting fees, supplies, compensation,

employees' benefits, directors' incentives and consulting fees.

Now, let's talk about the alternatives to structure administration budget.

One alternative could be like this one here.

In this table, the approach is based on the nature of the administrative expense.

So, the administration costs would be aggregated by

nature and managers with budget administration following this structure.

This approach would be recommended for small to medium companies.

For a large company though,

it may be necessary to budget by departments.

In this case, how would it be structured?

It would be like this example here.

Well, we discussed it in this video some approaches to structure administration budget.

In the next video,

we're going to talk about relevant issues of administration budget.

Stay tuned. And, see you.

Video 1 - Administration Budget and connections with other budgets

Budgeting essentials and development

与讲师见面