Effective Budgeting for an Effective Decision Making

Are you having problem with construction of an effective budgeting?

Are each department in your organization understand the importance of an effective budgeting?

Are they aware that budgeting is one of the key organization successes?

How do you make budgetary control effective?

The last question to ask yourself is your team know the right process of budget preparation?

We have the answers, and we have assisted many organizations out there varying sizes from state Inc. to large corporations

Budgeting at glance

Many organization use budgeting and forecasting as a means of providing and updating tactical operating plans and controlling costs, but world-class organizations use these, and other powerful tools, within a framework specifically designed to develop and execute business strategy and manage organizational performance.

But most managers are trained for their functional roles, not for finance. Yet every manager is expected to understand finances  well enough to make realistic budgets, manage cash, and hit his or her targets. This power-packed training course will provide you with the skills and tools to do this, with the aim of achieving your organization’s overall goals.

A budget is a plan to:

  • control your finances
  • ensure you can continue to fund your current commitments
  • enable you to make confident financial decisions and meet your objectives
  • ensure you have enough money for your future projects

It outlines what you will spend your money on and how that spending will be financed. However, it is not a forecast. A forecast is a prediction of the future whereas a budget is a planned outcome that your business wants to achieve.

Budgeting – The concept

i- A budget is a financial plan for future activities. It is a plan for saving, borrowing and spending.

Ii- The budget use in business often include a sales or revenue budget detail by products or services, production budget, budget for each department, subsidiaries of the company. Cash budget, capital expenditure budget etc.

Iii- The combination of all the budgets is referred to as the company’s Master Budget or Profit Plan.

Iv- It is prepared in advanced and is derived from the long-term strategy of the organization.

 

Value Proposition Budgeting

This approach to budgeting looks at each line-item or budget category to find out why money is being spent in certain areas and what value it provides to customers, employees, or other stakeholders.

The greatest value proposition examples usually include a headline, sub-headline, or short paragraph and a visual to add extra interest, such as an image, video, or illustration. After reading value propositions, customers should have no misunderstandings about what a brand stands for and what it can offer them.

Checking Mechanism

Outcome Based Budgeting (OBB) at glance

This approach begins with using priority outcomes as a focal point for budgeting and connects resources necessary to achieve those outcomes by using performance data and evidence to make budget decisions. In addition, this approach will foster collaboration between departments and reward services that obtain results by shifting dollars away from programs that are ineffective and focusing on the return on investment.

When allocating resources under this approach, budgeting maximizes the value that are spent:

  • Funds are allocated by Priority Outcome vs Department
  • Outcomes are the starting point vs. last year’s budget
  • Program budget proposals vs. department budget submission
  • Foster collaboration to get the most out of your services
  • Budget Team Review (Office of Management and Budget)

 

A move to focus on outcomes rather than inputs or outputs means that the focus of agencies becomes about delivering outcomes, and for the ultimate benefit of the citizens. This then ultimately changes the relationship between federal government and agencies from one of forensic micro management of spend to one that is collaborative and focused on whether outcomes are being achieved.

This shift away from a shopping list of wishes from agencies to a prioritised budget that is focused on the delivery of outcomes is vital if government is to remain relevant to the wants and needs of the consumer – the citizen.

Our Budgeting Program at Glance

Effective Outcome Based Budgeting (OBB) for 79 Senior Management of Majlis Agama Islam Negeri Sembilan (MAINS)
Effective Budgeting and Cash Flow Management for 20 Start-ups at MaGIC MRANTI Cyberjaya
Effective Budgeting for Decision Making for 45 Leaders in 11 subsidiaries for Permodalan Menteri Besar Kelantan (PMBK)

At FMC. We want to listen to your aspiring Budget story and growth plan for future relevance and market expansion. Trainings, advisory and consulting are our area of interest. We look forward to hear your aspiration. Reach us at admin@faisalmalikco.com

 

 

 

ESG Sustainability Reporting for SMEs and SMPs. An opportunity or a threat?

Environmental, Social, and Governance (ESG) Sustainability Reporting regulatory standards have come on our shores and will soon be put into effect.

The Small and medium enterprises (SMEs) must urgently embrace carbon transition targets or risk being removed from the global supply chain, to assist this transition, the Small and Medium Practices (SMP) firms’ expects to be well-equipped in facilitating the SMEs. Are you ready with the Mega-trend?

“Business must be run with the goal of achieving profit, otherwise it will go out of business. But when anyone runs a business with the goal of making a profit by neglecting social responsibility to society, then that business will not last long, because it is not sustainable and relevant to last long”. Henry Ford (Ford Motor)

Almost a hundred years since then, these words of wisdom show their truth. Excessive and uncontrolled profit-making activities regardless of the public interest and the environment, contributed to the financial crisis and the downfall of the world’s giant companies.

As risks abound, the Environmental, Social and Governance (ESG) agenda will become more urgent and complex in the coming years, making it critical for SMPs and SMEs to equip themselves to become more sustainable and to seize opportunities from being part of the vast supply ecosystem of listed companies and large multinationals.

Investing and compliance in ESG is now gaining traction among investors, while impact and sustainable ESG compliance reporting becomes major concern for both regulators and investors around the world.

The process of compliance with regulations and competitive ESG performance involves a large investment of time and resources in addition to the lack of specialist personnel who provide this service especially to small and medium enterprises (SMEs). Another major constraint is that we still do not have a uniform Reporting Standard and Framework around the world, especially for the SME sector.

However, with high compliance by companies listed on Bursa Malaysia in particular, a clear standard must be followed which is the ‘IFRS Sustainability Disclosure Standards, the S1 & S2 has been issued by the ‘International Sustainability Standards Board (ISSB)’ which is a standard aimed at harmonizing accounting reporting globally and improving transparency in the financial market especially public listed companies.

The implications of this compliance benefit the company not only in terms of avoiding business hazards, but also in terms of the opportunity to enter new markets from leading corporate clients especially listed entities. It is a opportunity for SMEs with high aspirations to explore prospects as part of the supplier ecosystem to listed firms by implementing proactive ESG compliance and transparent reporting procedures in their business processes.

ESG reporting standards and regulations evolved rapidly and whether they will directly or indirectly impact SMEs to remain relevant and competitive. SMEs need to ensure they embrace ESG initiatives by also minimising their involvement in greenhouse gas emission activities, taking care of the welfare and rights of workers, as well as practicing transparent business governance practices and and abstaining from unethical behavior.

Some SMEs are beginning to feel pressure from regulators who are more detailed in the monitoring and reporting of environmental compliance audits, customers who emphasize environmental, safety, and employee welfare elements, and the financial sector, which is beginning to impose certain compliance conditions on sectors seeking financial facilities. This includes listed companies that have started using ‘Integrated Reporting’ reporting and full compliance with ISSB reporting standards that emphasize their supply chain ecosystem from among SMEs through ESG data and risk reports. If not prepared, SMEs will be threatened.

   
Recent 2023 MIA International Conference on the topics of “EQUIPPING SMES FOR SUSTAINABILITY – THE ROLE OF SMPS”
Moderated by: Mohamad Faisal Abdul Malik, Vice President and Chairman of SMPC of MIA.
Panellist:  CA. (Dr.) Debashis Mitra, Immediate Past President and Council Member ICAI. CA. Dayaniwas Sharma, Council Member ICAI. CA. Sripriya Kumar, Council Member, ICAI. Dr. Nurmazilah Dato’ Mahzan, Member of the IFRS Foundation Integrated Reporting and Connectivity Council (IRCC)

According to 2021 OECD report on Facilitating the green transition for ASEAN SMEs. The Small and Medium Enterprises (SMEs) make up the vast majority of firms and provide the majority of employment (OECD/ERIA,2018[3]). They are also responsible for a significant portion of industrial pollution, and they are less heavily regulated than large enterprises. The environmental performance of SMEs will thus be critical to putting ASEAN economies (and most others around the world) onto a more sustainable development path.

SMEs face unique challenges in adopting greener practices. – access to finance, regulatory barriers, and information deficits. There are also additional barriers to SMEs looking to go green.

Let’s take a look from Malaysia’s point of view. The majority of SMEs (mid and big) are unaware of this, let alone of its implementation. Even public interest organizations go to big corporations for assistance.

SME Association secretary-general said up to 90% of SMEs were still unprepared to make the move given that they are still under pressure to recover losses incurred during the periodic lockdowns to curb the spread of Covid-19 in 2020 and 2021.  24 FMT Business report cited Sustainable Finance Institute Asia Ltd statement that 80% of MNCs had already made plans to remove suppliers that failed to meet their carbon transition target by 2025, and as a result Malaysia stood to lose up to US$65 billion (RM291.6 billion) in revenue.

For SMEs, the readiness to embrace green business practices also depended on their profitability.

Mohamad Faisal Abdul Malik, Vice President of the Malaysian Institute of Accountants (MIA) discusses why SMPs and SMEs should prioritise sustainability in order to enable their business continuity and be future fit in an increasingly challenging environment.

For more information on MIA’s Initiatives for SMPs, please visit https://mia.org.my/…/public-practice/initiatives-for-smps/

Our Governance and risk leader provides advisory, mentoring, and training for commercial organisations conform with the prudent management. Reach us at admin@faisalmalikco.com

Pemakaian ESG kepada PMKS: kelestarian jangka panjang perniagaan 

Pengenalan

“Perniagaan mesti dijalankan dengan matlamat untuk mencapai keuntungan, Jika tidak ia akan gulung tikar. Tetapi apabila sesiapa menjalankan perniagaan dengan matlamat untuk mengaut keuntungan semata-mata dengan mengabaikan tanggungjawab sosial kepada masyarakat, maka perniagaan itu tidak akan bertahan lama, kerana ia tidak mampan dan relevan untuk bertahan lama”. Henry Ford (Ford Motor)

Hampir seratus tahun sejak itu, kata-kata hikmat ini menunjukkan kebenarannya. Aktiviti mengaut keuntungan yang berlebihan dan tidak terkawal tanpa mengira aspek kepentingan umum dan persekitaran, menyumbang kepada kemelesetan kewangan dan kejatuhan kepada syarikat-syarikat gergasi dunia.

ESG merupakan singkatan bagi Environmental, Social dan Governance dan juga dikenali sebagai prinsip alam sekitar, sosial dan tadbir urus (ESG). Pelaburan dan pematuhan dalam ESG kini semakin mendapat tarikan dari kalangan pelabur, manakala Impak dan pelaporan pematuhan ESG yang mampan menjadi perhatian utama kepada kedua-dua pengawal selia dan pelabur di seluruh dunia.

ESG dan PKS

Proses pematuhan peraturan dan prestasi ESG yang kompetitif melibatkan pelaburan masa dan sumber yang besar disamping kekurangan tenaga pakar yang menyediakan perkhidmatan ​ini ​terutamanya kepada perusahaan kecil dan sederhana (PKS). Disamping ini, kekangan utama lain adalah kita masih belum punyai Standard dan Rangka Kerja pelaporan yang seragam diseluruh dunia khususnya kepada sektor PKS.  

Namun, dengan pematuhan yang tinggi oleh syarikat yang tersenarai di Bursa Malaysia khususnya, standard yang jelas perlu dipatuhi iaitu ‘IFRS Sustainability Disclosure Standards’ yang dikeluarkan oleh ‘International Sustainability Standards Board (ISSB)’ iaitu standard bertujuan untuk menyelaraskan pelaporan perakaunan secara global dan meningkatkan ketelusan dalam pasaran kewangan khususya syarikat senarian awam.  

Implikasi pematuhan ini membawa impak positif kepada syarikat bukan sahaja dapat mengelakkan risiko perniagaan, tetapi juga potensi teroka pasaran baru dari kalangan pelanggan korporat terkemuka. Ianya merupakan peluang kepada PKS yang mempunyai aspirasi timggi untuk meneroka peluang sebagai sebahagian dari ekosistem pembekalan kepada syarikat-syarikat tersenarai dengan mengambil langkah proaktif dalam pematuhan dan pelaporan telus ESG dalam amalan perniagaan mereka.

Tindakan PMKS

Piawaian dan peraturan pelaporan ESG berkembang pesat dan samada secara langsung dan atau tidak akan memberi kesan kepada PKS untuk kekal relevan dan berdaya saing, PKS perlu memastikan mereka meraikan inisiatif ESG dengan turut sama mengurangkan penglibatan dalam aktiviti pelepasan gas rumah hijau kepada yang terlibat secara langsung dengan sektor ini, menjaga kebajikan dan hak pekerja, serta mengamalkan amalan tadbir urus perniagaan yang telus dan tidak terlibat dengan amalan salah laku.

Sebahagian PKS mula merasakan tekanan daripada sebahagian pengawal selia yang lebih terperinci dalam pemantauan dan pelaporan audit pematuhan alam sekitar, pelanggan yang menitik beratkan elemen persekitaran, keselamatan dan kebajikan pekerja, sektor kewangan yang mula meletakkan syarat-syarat pematuhan tertentu kepada sektor yang ingin mendapatkan kemudahan kewangan.

Ini termasuk kepada syarikat tersenarai yang telah mula menggunapakai pelaporan ‘Integrated Reporting’ dan pematuhan penuh kepada standard pelaporan ISSB yang menitik beratkan ekosistem rantaian bekalan mereka dari kalangan PKS melalui laporan data dan risiko ESG. Sekiranya tidak bersedia, PKS bakal terancam dan tidak punyai masa yang untuk terus alpa. ‘Banyak yang perlu dilakukan dalam tempoh masa yang sangat singkat.’

Saranan panduan ringkas awalan kepada PMKS:

i- Selaraskan visi, prinsip dan nilai syarikat. Mulakan langkah dengan melihat kembali objektif dan nilai penubuhan syarikat melalaui perubahan polisi syarikat. Penyuburan pembudayaan dalaman kepada setiap warga kerja dengan mandakap prinsip UNSDG terhadap cakna persekitaran, hak kebajikan pekerja dan masyarakat, ketelusan amalan tadbir urus dan anti rasuah demi memastikan aktiviti pembudayaan syarikat kearah budaya cakna ESG lebih fokus dan lestari.

ii- Wujudkan governan ESG dan pengawasan risiko. Mewujudkan sistem dan proses pengawasan yang berkesan terhadap risiko dan prestasi ESG di peringkat lembaga pengarah dan pengurusan kanan. PKS juga boleh menubuhkan jawatankuasa ESG, menambah tanggungjawab kepada jawatankuasa sedia ada ataupun menjemput pakar luar untuk sama-sama memantau perkembangan pembudayaan dan pematuhan ESG. Seterusnya mengintegrasikan pamatuhan ESG ke dalam sistem dan proses pengurusan risiko perusahaan (ERM) sedia ada untuk mempertingkatkan daya tahan syarikat dan tidak terdedah kepada risiko ketidakpatuhan.

iii- Membina kapasiti pematuhan dalaman. Melatih kakitangan utama dari pelbagai peringkat khususnya pasukan kewangan syarikat untuk lebih memahami aspirasi pematuhan dan pelaporan yang selari dengan standard laporan ESG. Pasukan kewangan lebih bersedia ekoran dari pemahaman terhadap proses dan kawalan pematuhan proses didalam syarikat.

iv- Libatkan pemegang taruh. Mulakan langkah-langkah berhubung dengan pembekal dan pelanggan utama syarikat setelah langkah pematuhan peringkat dalaman bertambah baik. Komunikasi ini penting untuk memberikan indikasi positif kepada pemegang taruh utama terhadapa keseriusan perniagaan anda kearah Langkah pematuhan. Dapatkan data dan kongsikan aspirasi perniagaan anda, sekiranya bernasib baik, perniagaan anda mungkin mendapat panduan dan bimbingan dari pelanggan-pelanggan utama dari kalangan syarikat yang tersenarai yang mempunyai kepakaran dalaman.

v- Berhubung dengan rakan industri anda. Tiada perniagaan mampu bergerak jauh dengan sendiri, berhubung dengan jaringan sesama industri dengan menyertai dan menyokong aktiviti kumpulan yang berkaitan. Di sinilah bermulanya kerjasama dengan pembekal dan pelanggan untuk menunjukkan sokongan terhadap perundangan kemampanan yang progresif.

Kehadapan

Pematuhan ESG dan pelaporan mampan merupakan satu megatrend, Perniagaan yang mempunyai aspirasi untuk terus kekal relevan akan melihat pematuhan ESG berbaloi dan memberi nilai tambah kepada syarikat, tanpa mengira samada konglomerat mahupun PKS. Konglomerat akan mendapat reputasi penjenamaan imej yang positif disamping pematuhan, manakala PKS pula akan menikmati akses kewangan yang baik dari institusi kewangan yang sememangnya patuh kepada piawaian ESG melalui inisiatif ‘Value-Based Intermediation (VBI)’, manfaat lain pula adalah seperti peluang perniagaan yang lebih luas didalam ekosistem pembekalan syarikat-syarikat tersenarai, dilihat lebih berketrampilan dan dipercayai, mampu menarik lebih ramai bakat muda yang punyai kesedaran ESG yang tinggi untuk berkhidmat bersama-sama mengembangkan organisasi.

Pandangan peribadi FMC. Beliau boleh dihubungi melalui faisal@faisalmalikco.com

ESG Awareness and Shared Prosperity