2.

A good budget increases the probability that the AAA has the resources to provide planned services. If properly prepared and used throughout the year, the budget can serve as an early warning system to tell managers that the program is off course and that adjustments are necessary; for example, when coupled with actual expense data, the budget will reveal when:

The AAA is earning more revenue than anticipated. Without this information on a timely basis, the AAA will lose the opportunity to use this additional revenue to the best advantage.

The AAA is spending more than planned. Again, without this information on a timely basis, the AAA will find itself unable to cover costs and to meet service objectives by year end.

(2) Is There A "Correct" Way To Plan And Budget?

Many managers avoid planning and budgeting because they think they can't do it, that it is a complicated technique mastered only by "management scientists." For example, managers may come across such planning and budgeting strategies as Management by Objectives (MBO), Programming, Planning, and Budgeting System (PPBS), and Zero-base Budgeting (ZBB). Although these strategies differ slightly in emphasis and process, all involve the same basic steps displayed in Exhibit I-1. This manual does not subscribe to any particular theory but, rather, applies the most practical strengths of each to the AAA setting.

PLANNING AND BUDGETING-DISPELLING THE MYTHS

Equally important as a discussion of what planning and budgeting are, is a discussion of what they are not. Among the most commonly expressed misunderstandings of the budgetary and planning processes are these:

Plans and budgets should be developed once a year and then forgotten until the next budget period-Planning and budgeting should be done thoroughly once a year (more often if necessary) and the resulting documents should serve as measurements of AAA operations throughout the year (i.e., on at least a quarterly, preferably a monthly, basis). Budgets are prepared for the Federal government or some other funding/regulatory agency-While it is true that "external" organizations require submission of budgets, the primary purpose of the budget is to meet "internal" needs by establishing financial parameters for the coming period. A budget that is responsive to internal needs almost always will provide the more aggregate information necessary for reporting to others.

We just get a specified amount of money each year anyway, so it is futile to plan or budget-Obviously, the area plan must take into consideration the amount of resources anticipated. Ironically, only organizations with unlimited resources can afford not to plan. When resources are limited it becomes increasingly important to have a detailed plan of how they will be allocated.

We are in the business of serving people. Budgeting is a mechanical process that is inconsistent with our mission-What is really inconsistent with the mission of serving people is having to close down or cut back on services before year end because of insufficient funds. Planning and budgeting assures that the AAA can provide as many services as possible to as many clients as possible, with available resources. Planning and budgeting take too much time-It is true that planning and budgeting take time. But with a properly organized "system" the process can be relatively efficient (especially relative to scrambling for funds at the end of the year or being unable to make the payroll).

DESIGNING A PROGRAM STRUCTURE FOR PLANNING, BUDGETING,
AND ACCOUNTING

Each AAA needs a program structure that describes what services will be performed and the way in which resources will be organized to provide the services. The program structure basically sets out the AAA mission and goals and can be reflected in a chart such as that shown in Exhibit I-2. This chart indicates how staff and other resources will be organized. Budgets and plans are developed for each cost center "box" in the program structure, then aggregated to the funding title level. Likewise, through the MAS,* actual financial data are collected about each cost center "box" (and in some cases, each location and service activity) and can be aggregated to the funding title level; the plan and budget will contain entries explaining what services will be provided by each component of the program structure (i.e., each box on the Exhibit) and how much it will cost. Since both plan/budget data and actual accounting data are based on the same program structure, AAAs can monitor variances in expenditure and plan data throughout the year.

Exhibit I-3 shows a worksheet that can be used to define the goal of each funding title. Each goal and corresponding objective is defined, the service delivery strategy (i.e., "make or buy") is determined, specific service activities are listed, and the beneficiary group is targeted.

Of course, not all AAAs are alike, and each needs to develop its own program structure. Chapter XII provides details on the Management Account Structure and lists the OAA funds, functional cost centers, and related service activities on which a program structure can be based. It serves as a point of departure for each AAA to develop its own program structure and Management Account Structure codes. This program structure is consistent with the required program perfor mance reporting categories for OAA Titles III through VI; it incorporates the functional cost categories required by AoA's Financial Status Reports 269-272 as well as the service activities defined in NASUA/N4A's "Uniform Descriptions of Services For The Aging." It also is generally consistent with the Management

Otherwise known as the Chart of Accounts. See Chapter XII.

Account Structure in the recently published Nutrition Service Providers' Guide, Volume III, Accounting and Financial Management.*

The following list discusses general guidelines for designing a program structure:

Focus On Major Goals-The program structure should highlight the AAA's fundamental goals for providing service under each funding title and, under each title, for each functional cost center.

Include All Service Activities-All service activities should be reflected in the program structure regardless of whether they are performed directly by AAA staff or under contract or subgrant.

Keep It Simple-Avoid letting the development of the program structure become an end in itself. There is no such thing as a "perfect" program structure. So long as the structure is logical, comprehensive and realistic, it need not be elaborate.

Be Flexible-Be prepared to modify the program structure as funding titles, functional cost centers, or service activities change. Keep in mind, however, that changes to the program structure may necessitate changes to the Management Account structure to facilitate the collection of consistent financial data.

Basically, then, planning involves:

Defining the program structure, i.e., identifying the functional cost centers and associated service activities under each funding title.

For each funding title and functional cost center, defining a broad program goal. The goal explains why a particular group of services is to be supported by the AAA.

Then, also for each funding title and functional cost center, specifying the particular operational objectives needed to provide services. The objectives explain how the AAA will pursue its goal.

These planning tasks are the subject of Chapter II.

Op. Cit. Page 3.