Topic Financial

4 Management

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 Contents

• Sources of funding
• Budget planning and procedures
• Cost / benefit analysis

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 Budget
• Budget generally refers to a list of all planned expenses
and revenues.
• A financial standard for particular operation ,activity
,program and department
• Budgeting involves the allocation of resources among
activities and programs or services in library.
• Which comes first, planning or budgeting?

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 Objectives of budget:

a) To assist managers in planning their work effectively

b) To assist in allocating resources
c) To assist in controlling and monitoring resources
utilization during the budget period

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 The budget forms an essential part of planning and control,
whereby:

• The cost of providing any service can be reliably estimated

• Expenditure is assessed against particular activities or programs
• Comparisons are made between the cost-effectiveness of such
programs
• Planning future activities is made possible in the light of expected
income and expenditure

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 • Multi year budgets, capital
Capital investments, to fund things of
enduring worth that are not
budgets consumed quickly (eg. new
building, large expense item)

• Year by year budgets,

generally drawn up on an
Types of Operating annual basis, for the
organization as a whole and
Budgets /revenue for its constituent parts to
budgets fund current operations
• Focus on revenue and
expenses

• Varying time periods &

may include both capital
Special & operating funds to fund
budgets smaller-scale projects.
• Response to an emergency
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 Most LIS are
dependent on a
parent organization
FUNDING
and their main
source of income
has traditionally
been a grant
(allocation, subsidy
Like fuel to run
or vote). business

Some additional Funding is the act

of providing
funds coming financial
from income- resources, usually
generating or in the form of
revenue-earning money, or other
values such as
activities. effort or time, to
finance a need,
program, and
project, usually by
an organisation or 7
government.
 Sources of funding
1. Local Support
•Local levels and sources of funding vary with the local government
unit that established or maintains the library.

•Local sources of revenue for libraries may include funds from

general revenue funds, property, federal funds, interest on
investments, contracts for services, fines, fees, library bond
issues for materials and construction, and rental of properties
owned by the library.

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 .
Many libraries have been creative in augmenting
funds through the following means:
• gifts and memorials
• endowments based on legacies
• special Friends of the Library projects
• regular donations from service clubs, civic organizations, and/or individuals

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 2. State Aid to Public Libraries
• A supplement to local financial support is provided by state
aid to public libraries.

• State aid provides a means for the library to upgrade its

collections, and to provide services not otherwise possible
through local funding alone.

• State aid is only a small portion of the library's income and

should never be used a s a substitute for local tax support.

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 3. Federal Funds
• Federal funds come primarily from the Kementerian Kebudayaan,
Kesenian dan Warisan Malaysia.The Board of Library Commissioners
is the administrative agency which plans programs and grants for the
distribution of these funds.

• Grants can be awarded to qualifying libraries of all types (including public,

school, academic, and special libraries). In order to qualify for this funds, a
library must have a long range plan on file with the Board of Library
Commissioners, and must submit annual updates.

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 4. Grants

• There are other sources of revenue to consider. Public libraries

can obtain limited support for innovative library programs in
the humanities
• sum of money given by an organization, especially a
government, for a particular purpose.
• Corporations and foundations are also good sources of additional
funds. Information on what is available can be obtained from
various foundation directories, periodicals, etc. available through
the library.
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 5. Internal Markets
• For academic and enterprise setting, funds are allocated
and managed internally, through business units, cost
centers and other arrangements, sometimes leaving the
information service entirely dependent.

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 “the funding for an information service comes primarily from the
parent funding agency, be it local government, academic budget,
association resources or other source… Fees for service are
directed toward special services and are therefore not an integral
part of general operating revenue. The health of the organization is
determined by the primary funding agent. Other resources enrich a
program but do not maintain its viability.”
(Ann Prentice, 1996)

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 Budget
planning and
procedures

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The budget process contains EIGHT (8) basic steps (vary from
one library to another) :

1. Planning the request ( yearly)

2. Formulating the request (by identify the needs and
financial plan) by conducting the research/survey
3. Reviewing the request (dicussion,forecast and feedback)
4. Defending the request
(When the budget request is finalized, it is presented to
the funding source (finance committee) for
consideration and approval).
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5. Approving the request
- The funding source approves the budget, with or without
modifications
- Funds are allocated for a given period
6. Monitoring the budget
- Monitoring the burden, expenditures and balances
- The monitoring process provides for the comparison of actual
expenditures against budgeted estimates

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7. Modifying the budget
- The budget is modified as necessary
- Provide improved cost figures for future estimates and budget
requests

8. Closing out the books

- Upon completion of a budget period
- The RM allocated and the RM expended are equal and the
remaining balance is zero
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 FORMS/TYPES OF BUDGETING:
Line Item
Budgets

Zero-Based Formula
Budgeting (ZBB) Budgets

Planning
Programming Lump-sum
Budgeting Budgets
System (PPBS)

Performance Program
Budgeting Budgeting

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 LINE ITEM BUDGETS

• Most common type of budget and easy to prepare

• a.k.a incremental budget (add on)
• Divides objects of expenditure into broad input classes or categories,
such as salaries and wages, materials and supplies, equipment, capital
expenditures, etc. with further subdivisions within those categories
• Most are done by projecting current expenditures to the next year,
taking cost increases into account
• Easy to understand and to justify because it can be shown that the
allocated funds were spent in the areas for which they were budgeted

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LINE ITEM BUDGETING

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Advantages of Line Item Budgeting
• Easy to prepare
• Most are done by projecting current expenditures to the next year, taking cost increase into
account.

• Easy to understand and justify

• It can be shown that the allocated funds were spent in the areas for which they were budgeted.

Disadvantages of Line Item Budgeting

• No relationship between the budget request and the
objectives of the organization.
• For more explanation refer:
LICM/Robert D. Stueart. pg.365-366.

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 Formula Budgets
• Uses predetermined standards for allocation of monetary resources
• In the past this approach has been adopted by several large
library systems, particularly academic libraries and state library
agencies for appropriating state funds
• It become popular because after the criteria for budget requests
had been established, they could be applied across the board to all
units within the library system

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 The popularity of a formula budget is reflected in several
factors:

• A formula budget is mechanical and easy to prepare

• After the criteria for budget request has been established, it can
be applied across the board to all unit within library system.
• Governing bodies have a sense of equity because each institution
in the system is measured against the same criteria
• Fewer budgeting and planning skills are required to prepare and
administer a formula budget

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Additional advantages of Formula Budget

• Facilitate inter-institutional comparison.

• Facilitate comparisons from year to year.
• Reduce paperwork in the budgeting process.
• Eliminate extraneous details.
• Provide a systematic, objective allocation techniques.

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 Lump-sum Budgets
• Group them together into one around figure
• The funds are allocated in total to the library
• The library administrator decides how the sum is divided
into categories
• Provides great flexibility and allow allocation of funds on
goals and objectives of the library

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 Program Budgeting

The program budget approach identifies

It is similar to the Planning Programming
Concerned with the organization’s the total cost of each service unit/
Budgeting System (PPBS), but it is more
activities and performance. component and set spending levels and
flexible.
priorities.

A program budget emphasized the

library’s activities so that monetary
figures can be assigned to programs or Based on the total program and its
services provided. Eg: if public library In this way, one can see exactly what the objectives, one can decide whether to
system provides bookmobile service for bookmobile service costs continue, to modify, or to delete the
the community, the total cost of that service
service (staffing, materials, maintenance,
etc.) is calculated

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Program Budget sheet

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 Performance Budgeting

These functions
Techniques of are broken down
It classifies
cost-benefit into basic units of
expenditures on
It measures analysis are work, so that a
the specific Could be called
quantity rather required to unit cost or work
activities, the no. “outcome
than quality of measure the measurement can
of units budgeting”
service performance and be applied to the
performed, and
to establish total number of
their costs.
norms units needed for
each activity

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Planning Programming Budgeting System (PPBS)

• PPBS differs from traditional budgeting processes by

focusing less on an existing base, with consideration of
annual incremental improvements, and more on objectives
and purposes with long-term alternative means of
programming.

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• The PPBS approach combines the best of both
program budgeting and performance budgeting
• A management technique that seeks to obtain the greatest value for
the money spend in terms of satisfying human needs, based on the
economic assumption that there are unlimited resources.
• It emphasizes the cost of accomplishing program goals set by the
library.
• It combines the function of planning, programming and budgeting
into one.

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• The steps important in PPBS are:
1. Identifying the objectives of the library.
2. Presenting alternative ways to achieve those objectives, with cost benefit
ratios presented for each.
3. Identifying the activities that are necessary for each program.
4. Evaluating the result so that corrective actions can be taken.
County of:
Program Summary

Operating Budget: (Year)

Program : (Title of program)

Goals: (Brief of operational goal)

Description: (Brief description of

program)

Headings for a PPBS Summary sheet 32

 Zero-Based Budgeting (ZBB)
• Purpose - ZBB is to reevaluate and reexamine all
programs and expenditures for each budgeting cycle by
analyzing workload and efficiency measures to determine
priorities or alternative levels of funding for each
program or expenditure.Efficiency and effectiveness are
key considerations

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The ZBB:
i. Assist managers in allocating and reallocating resources to
their most effective uses
ii. Help managers achieve strategic objectives in response to
need, risk or opportunities
iii. Consist of decision package for objectives to be achieved

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• The ZBB combines corporate planning and decision making with budgeting
• Prior to the budget, the objectives and activities of the program are examined
• Advantage of retaining the program or not is considered
• Programs are grouped into series of decision packages. Each package responds
to a statement of purpose and is accordance with the library / information
center goals and objectives
• They are ranked according to their cost-benefit by management

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COST/BENEFIT ANALYSIS

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 Cost
• In economics, business, and accounting, a cost is the value of
inputs that have been used up to produce something, and hence
are not available for use anymore.
• In business, the cost may be one of acquisition, in which case
the amount of money expended to acquire it is counted as cost.
• In financial management case, money is the input that is gone
in order to acquire the thing for the library.

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• Cost-benefit is an important technique for project
appraisal: the process of weighing the total expected
costs against the total expected benefits of one or more
actions in order to choose the best or most profitable
option.

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 Basic costing Model
1. Decide the focus & level of the costing exercise
• the product/service, process or system which will be the subject of study or cost objective

2. Determine a sensible activity or period base

• Unit measures of output, or time units (eg. Hour, day, week, month, year)

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3. Identify all the relevant cost components
• Gather available data & plan how to collect data not readily available (eg. Staff time spent
on various tasks)

4. Classify the costs according to their type

• Direct/indirect, fixed/variable – establish behavior patterns of variable & any stepped
costs.

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5. Calculate (estimation/measurement)
• Estimation/measurement & allocate the direct costs

6. Group or aggregate the indirect,

• Base on their homogeneity or similar causal relationships with the cost objective
to form cost pools.

• An activity cost pool is a set of costs which express the cost of goods and
service allocatable within a business or organizations.

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7. Cost driver
• Relating costs to objectives, select a method for (re) distributing overheads & apportion
the indirect costs.

8. Consolidate the data & choose a suitable form of

presentation.

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 Discussions.
• Select one of the budgeting techniques
reviewed. Consider its best applicant to
a type of library. Write the justification
for selecting it.

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