1. BUDGET MANAGEMENT TRAINING LAF 2009

2. Training LAF 20092 BUDGET MANAGEMENT MODULE OBJECTIVE At the end of this training, the participant will be capable of managing budgets during the project lifespan in line with the BTC procedures. 1. Monitor the budget of a project 2. Explain when should a budget modification take place? 3. Explain how should a budget modification take place? 4. Calculate the budget balance 5. Reconcile FIT and NAVISION data 6. Analyse the « Cost effectiveness » of budgets

3. Training LAF 20093 1. Monitor the budget of a project  Experience sharing: In your respective countries, how do you monitor the budget of a project?

4. Training LAF 20094 1. Monitor the budget of a project 1.1 Explain the objectives of budget monitoring Tool of financial follow-up of a project  Are budget limitations respected?  Which means are still available for the implementation of activities ?  Are the funds properly used? Tool to monitor the progress of a project  Indication on the progress of a project

5. Training LAF 20095 1. Monitor the budget of a project 1.1 Explain the objectives of budget monitoring Tool of intern and extern communication on project results  Interim reports for the project management, the employees, the local partners, the beneficiaries, the JLCB, the donors… Tool of analysis and help in decision making  Need to proceed a budget modification?  Anticipating a request for project extension?  Adapt activities, review objectives?  Achieve cost savings…

6. Training LAF 20096 A budget is not an isolated element Content Available ressources Duration of the project / State of progress in time 1. Monitor the budget of a project

7. Training LAF 20097 1.2 Procedure of budget monitoring Procedure: Cfr Q-platform Regular monitoring at representation level  At least once per trimester (before or during FP)  Once a month during the last 6 months of a project Written report summarizing the findings of the budget follow-up  Plan a formal moment to summarize report with the project team (FIN/ADMIN team + operational PO)  Action Plan with actions undertaken (activities adaptation, cost savings, budget modifications, extensions...)  Regular monitoring of agreed action plan. 1. Monitor the budget of a project

8. Training LAF 20098 1.3 To analyze a budget monitoring report  What are the factors that can distort the budget monitoring exercise? Informations on expenditures are not available in time. Informations on expenditures are incomplete. Changes in the budgets were not communicated Information on commitments are not available 1. Monitor the budget of a project

9. Training LAF 20099 1.3 To analyze a budget monitoring report  What kind of risks may occur if budget monitoring is incorrect / incomplete? Activities are delayed due to uncertainty about the available resources Exceeding budget due to the lack of comprehensive information: Orders paid whereas funds were exhausted The budget is not based on good assumptions and / or control of the budget is not based on correct figures: Bad decisions taken... 1. Monitor the budget of a project

10. Training LAF 200910 1.3 To analyze a budget monitoring report Goal: Compare the project budget against expenditures and commitments. Different types of reports exist according to the desired analysis Prerequisites for a good follow-up: Data is available on time, accurate, complete and correctly converted into € 1. Monitor the budget of a project

11. Training LAF 200911 Points of attention during the analysis of financial monitoring  Analysis of amounts (relevance, exhaustively (all PHQ included), consistency (general resources), efficient use...)  Take into account invoices and ongoing commitments  Make the link with operational planning  Analyze current or potential overshooting (per budget line and financial mode) distinguishing the activity from the general means.  Consistency of entries  Consider payment cycle (TOR, PC, CTRT, activity, invoice, payment) 1. Monitor the budget of a project

12. Training LAF 200912 Points of attention TA:  General rule: 12.500 € budgeted per month  Includes all salary costs. Often found under line Z_01_01 and the vehicle is budgeted under line Z_01_02 15.000€ if everything (salary, rent, BA, vehicle, PC, phone) is incorporated under one single budget line Z_01_01.  Huge variation in the costs of rent between different countries(and towns)-Ex. Vientiane in Laos : 1.200 €/month versus Alger: 4.800 €/month  Impact of family composition of the TA (married with 4 children or single)  Profile junior or senior? Annex 1 1. Monitor the budget of a project

13. Training LAF 200913 Analyze a budget monitoring report Annexe 2/2-a 1. Monitor the budget of a project

14. Training LAF 200914 2. Explain when should a budget modification take place? Experience sharing: In your respective countries, at which point would you decide to modify a budget? Experience sharing : In your respective countries, how would you proceed to implement these budget modifications?

15. Training LAF 200915 2. Explain when should a budget modification take place? 2.1 Explain when it is necessary to modify a budget  Increase of total budget  Transfer between different financial modes  Modification of budget structure  Using the budget reserve  Movement between budget lines For scenarios 1 to 4, a budget change must take place in all cases. For point 5, prerequisites!.

16. Training LAF 200916 2. Explain when should a budget modification take place? 5. Movement between budget lines Give up the concept of "significant” or “not significant." A change between budget lines within a section should only take place if any of the following conditions is present:  Exceeding the "general means";  Excess observed /foreseen of 10% of a category of the general means;  The budget line exceeds (or will exceed) its amount established at the latest budget version with more then 10% and this excess is greater than 1% of the total budget per financial mode.

17. Training LAF 200917 Exceptions to point 5 «movement between budget lines » Budgets of type « Expert Funds »: No modification necessary (except in the case of an increase of the budget or a transfer between the different modes of financing.). The startup JLCB could decide to establish other rules if necessary (setting the threshold at 15%, for example) A budget overshooting meeting the predefined criteria’s under point 5 is allowed. No budget modification is due to take place. 2. Explain when should a budget modification take place?

18. Training LAF 200918 Budget reserve Never enter or schedule expenditures on this line! The use of the reserve is formalized in a budget modification proposal The proposal has to be validated by a JLCB 2. Explain when should a budget modification take place?

19. Training LAF 200919  Prerequisite before any changes: Modification proposal must be based on a budget analysis conducted using the FIT report “Follow-up and new budget proposal" and including a narrative explaination.  Existence of enough information and probability on the implementation and total cost of the activities concerning the appropriate budget lines to modify.  If new activities are decided, a new budget line must be created.  Budget lines "miscellaneous" or "unforeseen" can never be created following a budget modification to register expenses  Always refer to the Terms of the contract for IS and multidonor projects 3. Explain how should a budget modification take place?

20. Training LAF 200920 3.1 Budget modification procedure Annexe 3 1. Draft proposal for budget change 2. Verify proposal for budget change 3. Analyse proposal for budget change 4. Approve proposal for budget change 5. Update database 6. Control of budget change 3. Explain how should a budget modification take place?

21. Training LAF 200921 A proposal for budget modification is prepared and motivated.  Final objective: Ensure that the figures presented in JLCB are correct!  Means: Prepare the proposal methodologicaly, share it and discuss it between projects and representation.  Tool: Template « Budget modification proposal ».  Timing : All documents must be submitted to the representation 3 weeks before meeting with the JLCB for verification and validation  Exception: If the budget increase, the proposed increase must be submitted at least 1 year before the end of the project unless unforeseen circumstances clearly justified it. 1. Draft proposal for budget change 3. Explain how should a budget modification take place?

22. Training LAF 200922 The proposed budget modification is verified in terms of:  The necessity (Is it really necessary to make a change?).  The accuracy and completeness of the figures.  Its format (transmission of all documents required). 2. Verify proposal for budget change 3. Explain how should a budget modification take place?

23. Training LAF 200923 3. Explain how should a budget modification take place? The budget modification proposal is analysed during the JLCB The budget modification proposal is approved during the JLCB 3. Analyse proposal for budget change 4. Approve proposal for budget change

24. Training LAF 200924 The project database is updated The registered budget modification in the project database is examined. 5. Update database 6. Control of budget change 3. Explain how should a budget modification take place?

25. Training LAF 200925 3.2 Organize the budget modification procedure at country level With the help of the budget modification procedure described above, describe how you would organize this process Annex 4 3. Explain how should a budget modification take place?

26. Training LAF 200926 3.3 Explain new report « Follow-up and new budget proposal » Annex 5 3.4 Explain new narrative report « Budget change proposal» Annex 6-a/6-b 3. Explain how should a budget modification take place?

27. Training LAF 200927 What to present? Explain budget situation Narrative report of « budget modification proposal » and Report « Follow-up and new budget proposal » List the most important commitments Budget balance calculated according to treasury method When? To sent 3 weeks before the JLCB With whom? Refer to the RACI of related processes Information to the RC 3 weeks before the SMCL in all cases Support of RC if it concerns a transfer between the different financial modes, an increase of budget and for any REGIE budget including PHQ 3. Explain how should a budget modification take place?

28. Training LAF 200928 3.5 Propose a budget modification (figures and narrative) based on reports Annexe 7 3. Explain how should a budget modification take place?

29. Training LAF 200929 3.6 Modify a budget in FIT  Viewing of the video « Budget Modification » Annexe 8  Viewing of the « budget follow-up table » Annexe 9 3. Explain how should a budget modification take place?

30. Training LAF 200930 4. Calculate budget balance Goal: Being able to estimate at a particular moment during the project lifespan, the budget balance available Two possible methods: Budget monitoring versus treasury method Approximate balance versus exact balance May gives different results! Crucial exercise during the last year of a project

31. Training LAF 200931 4.1 Explain budget monitoring method Principle: It is based on expenditures made in € or in a currency at a fixed parity with the € (CFA) Pay attention to: All amounts are converted to € (Open advance and bank account balance in USD are converted). Convertion differences 4. Calculate budget balance

32. Training LAF 200932 4.1 Explain budget monitoring method Method: Budget – expenses = balance available - balance of commitments = balance available for future commitments 4. Calculate budget balance

33. Training LAF 200933 4.2 Explain treasury method Principle: Based on the treasury of a project. Considers provisions and payments made by the Headquarter (PHQ) Considers the bank and cash balances Pay attention to: All amounts are in € No differences in currency conversion 4. Calculate budget balance

34. Training LAF 200934 4.2 Explain treasury method Method: Total budget - Cash calls received - Payments made by HQ AND = Balance available for provisions AND futur payments made by HQ + Bank and cash balances + Open advances = Available balance - Balance of commitments = Balance available for future commitments 4. Calculate budget balance

35. Training LAF 200935 4.3 Calculate the budget balance according to the monitoring budget and treasury method Annexe 10/10-a/10-b 4. Calculate budget balance

36. Training LAF 200936 5. Reconcile FIT & NAVISION 5.1 Explain the concept of reconciliation The FIT software (Finance Information Tool) registers expenses made at project level The NAVISION software is used for the bookkeeping at HQ and representation level, and integrates all expenses issued from FIT. It is the only official reference accounting tool of the BTC to the "outside" Basic Principle: The project data of FIT and NAVISION must be identical. It must therefore be checked at a regular basis if FIT equals NAVISION. This exercise is called reconciliation. A system should be put in place to follow-up the booking of the PHQ.

37. Training LAF 200937 5.1 Explain the concept of reconciliation When should it be done?: o Before any change to the budget involving an increase or a transfer between financial modes o Prior to any request for extension of an TA o Before submitting any report to donors. o At least once a year o Mandatory 6 months before the end of a project Who should do it?: o The LAF should manage the exercise (Execute or help executing it) o Assistance of RC when needed o RC for all projects before 2005 5. Reconcile FIT & NAVISION

38. Training LAF 200938 5. Reconcile FIT & NAVISION 5.2 Explain potential sources of differences Expenses projects: FIT = Navision Expenses (PbH = Payments by Headquarters) i.e. incurred by headquarters but charged to the project budget e.g. salaries of technical assistance, plane tickets, insurances, projects scholarship, consultancy invoices or logistic orders, …but also exhange differences, credit notes, cancellations writting... o Not sent or partial sent by HQ? o Sent but not received (email problem)? o Forgetfulness or wrong registration? o Old projects (before 2005)? o Rounding difference?

39. Training LAF 200939 5.3 Explain the reconciliation method Which information is needed? o Export of NAVISION data (via RC) o Export of FIT figures o Overview PHQ-FIT Which technique to use? o Pivot table: Helps to organize the data so they can be analyzed o Follow the « reconciliation guidelines » Annex 11 5. Reconcile FIT & NAVISION

40. Training LAF 200940 5. Reconcile FIT & NAVISION 5.4 Reconcile FIT and NAVISION Annex 12

41. Training LAF 200941 6. Analyze the « Cost effectiveness » of budgets 6.1 Explain the concept « Cost effectiveness » Definition:  Measures taken to ensure the project achieves its results with an optimal cost-efficency ratio.

42. Training LAF 200942 6.1 Explain the concept « Cost effectiveness » Context: BTC= Manage Public fonds Availability of financial resources Consequences: Use all possible means to ensure effective and efficient use of available resources to achieve the objectives. Role of the LAF: Key role Establish monitoring procedures Channeling the "pressure" to spend: Spend> <Waste Important financial resources : Ensure « Value for Money » Analyze/ correct actions/advice Support of RC 6. Analyze the « Cost effectiveness » of budgets

43. Training LAF 200943 6.1 Explain the concept « Cost effectiveness » Preamble: Clarify 2 important concepts “Effectiveness” and “Efficiency” Effectiveness: The extent to which the objectives of development have been achieved or are being addressed, taking into account their relative importance.  The efficiency indicators of a cooperation prestation indicate the extent to which the results have helped to achieve the objectives  Effectiveness= « Doing the right things » 6. Analyze the « Cost effectiveness » of budgets

44. Training LAF 200944 6.1 Explain the concept « Cost effectiveness » Efficiency: The extent to which the resources (funds, expertise, time, etc..) are converted into results in an economical way.  During a cost / benefit analysis, indicators of efficiency allows us to measure the results (quality and quantity) compared to the cost of human resources, financial and material used  Efficiency= « Doing the things right » 6. Analyze the « Cost effectiveness » of budgets

45. Training LAF 200945 6.2 List the points of focus How do you/would you as a LAF implement the principle of « cost-effectiveness »? 6. Analyze the « Cost effectiveness » of budgets

46. Training LAF 200946 6.2 List the points of focus Key to succes? 1. Startup budgets well established (preparatory activities) and known to all 2. Country rules and procedures clearly described and communicated 3. Level of support / advice consistent with the project team 4. Critical mind 5. « carefull Management » Which items should you check? Personnel costs – National staff  Consistent with salary grid  Respect rules of bonus and per diem  Monitor overtime  Monitor holidaysAnnex 13 6. Analyze the « Cost effectiveness » of budgets

47. Training LAF 200947 6.2 List the points of focus Activities  Are the prices in line with the market prices?  Are the TOR of the consultants clearly defined?  Are the cost of workshop, seminar reasonnable? Investment  Are the prices in line with the market prices? Operational expenses  Rent: Knowledge of the local market. Benchmark with other institutions / organizations  Water/ Gas / Electricity: Follow the evolution of costs. Alert staff with cost saving tips 6. Analyze the « Cost effectiveness » of budgets

48. Training LAF 200948 6.2 List the points of focus Operational expenses  Services and maintenance costs: Have the various services offered on the market been compared? External or internal?  Running costs of vehicles: Monitoring consumption, maintenance costs, comparison of various alternatives on the market in terms of insurance  Telecommunications: Monitoring compliance with the communication policy in force, re-invoice private costs  Missions: Verification of respect of procedures (TA, lodging, Per Diem) 6. Analyze the « Cost effectiveness » of budgets

49. Training LAF 200949 6.2 List the points of focus Which tools to set up / use?  Check lists of estimated standard cost Which actions should be taken?  At least 4 times a year: perform an analyze cost/ benefit of one or more projects with higher risks  1 time a year, perform a "Benchmarking" of costs between projects  Decisions on the need to perform some savings.  Ensure that the resources / means to achieve transactions are done in the most cost-effectively way possible  On the arrival of a new TA, co-responsible/delegate of co-management or team FIN / ADMIN, provide them with a formal specific time to review the budget for the project. Annex 14 6. Analyze the « Cost effectiveness » of budgets