Upgrading Systems for Output Budgeting by Tarun Das

8/14/2019 Upgrading Systems for Output Budgeting by Tarun Das

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Output Budgeting Session-2 by Tarun Das 1

Output Costing and OutputBudgeting

Part-2: Upgrading InfrastructureProfessor Tarun Das


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Contents of this

presentation Role of output budgeting in

Public Administration of

Mongolia An overview of output costing

and output budgeting

Upgrading infrastructure forcosting and budgeting


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1.Role and Benefits ofOutput Budgeting

in Mongolia


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1.1 Role of output budgetingin Public Administration

To identify the nature, quantity and qualityof outputs that can be produced within theGovernments fiscal limits;

To identify strategies to reduce costs; forexample, to eliminate or privatize non-

essential or non-value-adding activities;To monitor performance of each activity;To project the future costs of outputs for the

medium term;

To renegotiate the quantity of the outputs toensure budget constraints;


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2. An Overview of OutputCosting and OutputBudgeting

2 1 S K S i O


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2.1 Seven Key Steps in OutputCosting

and Output Budgeting

a) Determine the outputs to be budgetedb) Define the required costing structure.

c) Review the existing costing systems.

d) Select costing methods andtechniques.

e) Design costing system changes.

f) Cost outputs and prepare reports.

g) Use the output costing information.


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2.2 Step-1:Identify Cost Objects

The first step in any costing exercise is toidentify the relevant Cost Objects.

A Cost Object is anything for which a separatemeasurement of cost is required.

Under output budgeting, the Cost Objects can bea cost centre, an output class, an output, a sub-

output or an activity that an agency is expectedto deliver under the Strategic Business Planendorsed by the government.

These outputs will be funded by thGovernment.

Agencies are required to cost these outputs as abasis for their budget allocation.


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2.3 Step-2:Define the Required Costing Structure

The costing structure depends on the following

factors:The purpose of the costing system- to

provide management with detailedinformation about costs at all activity levels

The costs to be assigned through thesystem- to arrive at the fully costed outputs,the total costs of the agency must berelevant, accrual based and fully attributed.

The existing cost structure -The existing cost

structure should be examined to ensure thatthe cost elements meet these criteria.


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2.4 Step-3:Review the Existing Costing System

Basic purpose is to keep theimplementation cost of output costing asminimum as possible; and to avoidfrequent and unnecessary changes.

The review should also take into accountsystems changes so as to take benefits ofimproved cost management and to makethe output budgeting consistent withsystems development.

2 5 St 4


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2.5 Step-4:Select Costing Methods and

Techniques By this stage, agencies have a good

understanding of their existing costcollection and assignment systems. They know how they would mee

requirements for output budgeting. It is now necessary to devise ways to

bridge the gaps between the existingsystems and the output budgeting needs.

The Governments requirement is that anagencys costing methods must providean accurate estimate of the total cost ofdelivering each output.

In larger agencies, it may be appropriateto use a variety of costing methodsincluding Activity Based Costing (ABC).


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2.6 Step-5:Design Costing System Changes

Necessary changes in the existing costingsystem may be designed for collection andassignment of the costs according to thecosting methods selected.

The choice of data collection and assignment

tools depend upon: the existing system;

the results of a cost-benefits analysis ofintroducing new costing systems; and

The availability of financial resources andtechnical manpower to implement andoperate new costing systems.


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. ep :Use the Output Costing

Information Output costing can deliver vital information

to management for effective decisionmaking. It can provide information on:

cost of outputs for budget submissions; required changes to the funding of outputs;

actors responsible for variances betweenbudgeted and actual costs;

value-adding activities; how processes can be changed to make the

agency more effective and efficient; How the agency can improve service

delivery within given resources.


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2.8 Step 1 Determine CostObjects

- the Outputs to be Costed


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2.9 Step 2 Define the RequiredCosting Structure-The level and

purpose of

the costing system

2 0 S 3 i d


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2.10 Step 3 Review andUpgrade the Existing Costing

System


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2.11 Step 4 Select AppropriateCosting Methods and

Techniques


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2.12 Step 5 Design CostingSystem Changes


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2.13 Step 6 Cost Outputs andPrepare Reports


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2.14 Step 7 Use the OutputCosting Information


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2.15 ABC attributes significant coststo outputs and sub-outputson a cause-and-effect basis


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2.16 Benefits of ABC-Helps in decision making


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3.1 Upgrading Infrastructure

Output costing becomes successful in an

agency only if senior management iscommitted to its introduction and keypersonnel are actively involved in theprocess.

However, the following steps need to betaken for its successful implementation:

Changes associated with output costing inan agency should be introduced in aphased, progressive, and manageable way.

Staff should be trained and briefed on thebasic concepts and methodology for outputcosting and output budgeting.


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3.2 Upgrading Infrastructure

Detailed guidelines with explanations and

examples need to be prepared and given to thestaff indicating how to identify activities andoutputs and to link these to inputs and costs.

The benefits of the system should be explained

to staff in addition to giving them opportunitiesto raise questions and concerns and to indicateconstraints.

Skills need to be developed to interpret theinformation produced by the costing system.

Variances between actual and budget outputcosts need to be accounted for.


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Thank you

Have a Good Day

Upgrading Systems for Output Budgeting by Tarun Das

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