With this posting, I am closing my blogging efforts at Microsoft, coincident with my leaving Microsoft.
I started this blog seeking to find out what it takes to be a good blogger. Clearly, one of the critical things that it takes is quality time—something that I feel as if I have not had lately.
But, I am going to continue to blog at http://jhuschka.blogspot.com/ in the hopes that my job change will perhaps provide me with more time as well as some excellent blogging topics.
I want to close this blog by saying how much I have loved working at Microsoft. There is so much press about Microsoft—much of it controversial and uncomplementary—but I think it is truly a great company. Among the things that I will miss are the people and the culture of knowledge and excellence.
I will say that I’m not falling too far from the tree: I am going to be working for a Microsoft partner, using Microsoft technology, and I am looking forward to new opportunities and challenges.
Bye bye, my love.
Can anyone tell me what the plural of the word "Prius" is?
Fill-in the empty space: "Wow Karen! Look at all those _________ (many Prius)!"
Subtitle: "An Incredibly Simple Example of Budget Modeling"
Most budget versus actual comparisons reduce down to the comparison of two fully-qualified account balances:
Although there are many variations, a “fully-qualified account” is defined within most business accounting systems as a combination of an organizational identifier called a “cost center” and a financial “bucket” called an “account”.
Many of your reading this probably have some concept of a budget. Your budget probably has one cost center such as “Ward’s House”, and it probably has multiple accounts such as “Automotive Expense”, “Food Expense”, and “Income”.
Now, think about what is going through your mind as you are building your budget for the next year. You almost certainly do not automatically know what the charges to your “Automotive Expense” account are going to be each month. Rather, something like the following is probably going through your head:
Ok. It looks like the cost of gasoline is going to be coming down a bit. Therefore, I can probably plan for a bit less fuel expense per month ($125).
But, the Toyota is about to hit 100,000 miles, so we are going to have to get its scheduled maintenance ($725) in February…and it looks like it is going to need tires ($350) around March.
Welcome to the world of budget modeling.
You are taking the facts that you know (scheduled maintenance required for the Toyota in February) and translating them into account activity ($725 in “Automotive Expense” in February).
After February is history, you will be able to see how much you actually spent on “Automotive Expense” and compare it to your budget.
Well, businesses do the same thing.
Let’s assume that “Generic Corporation” has two employees for which it wants to budget. (It will ultimately need to budget for all its employees, but let’s focus on these two.)
|
|
Position |
Annual Salary |
|
Joe Acme |
Developer |
$50,000.00 |
|
Frank Smith |
Analyst |
$65,000.00 |
Both employees work for the “Information Technology Department”, cost center 5200.
Since Generic Corporation tracks results for each month, the first step of our modeling is to translate annual salary to monthly salary. (Remember, we need to compare actual to budget for the same time periods.)
|
|
January |
February |
March |
April |
May |
June |
July |
August |
September |
October |
November |
December |
|
Joe Acme |
$4,166.67 |
$4,166.67 |
$4,166.67 |
$4,166.67 |
$4,166.67 |
$4,166.67 |
$4,166.67 |
$4,166.67 |
$4,166.67 |
$4,166.67 |
$4,166.67 |
$4,166.67 |
|
Frank Smith |
$5,416.67 |
$5,416.67 |
$5,416.67 |
$5,416.67 |
$5,416.67 |
$5,416.67 |
$5,416.67 |
$5,416.67 |
$5,416.67 |
$5,416.67 |
$5,416.67 |
$5,416.67 |
One of the accounts that we need to calculate is “Salary Expense”, account 3201. This one is pretty straightforward. It is the sum of the salaries:
|
|
January |
February |
March |
April |
May |
June |
July |
August |
September |
October |
November |
December |
|
Joe Acme |
$4,166.67 |
$4,166.67 |
$4,166.67 |
$4,166.67 |
$4,166.67 |
$4,166.67 |
$4,166.67 |
$4,166.67 |
$4,166.67 |
$4,166.67 |
$4,166.67 |
$4,166.67 |
|
Frank Smith |
$5,416.67 |
$5,416.67 |
$5,416.67 |
$5,416.67 |
$5,416.67 |
$5,416.67 |
$5,416.67 |
$5,416.67 |
$5,416.67 |
$5,416.67 |
$5,416.67 |
$5,416.67 |
|
Salary Expense |
$9,583.33 |
$9,583.33 |
$9,583.33 |
$9,583.33 |
$9,583.33 |
$9,583.33 |
$9,583.33 |
$9,583.33 |
$9,583.33 |
$9,583.33 |
$9,583.33 |
$9,583.33 |
So, for example, the fully-qualified budget for cost center 5200, account 3201, for February is $9,583.33.
Another account that we need to calculate is “Retirement Tax”, account 3205. It is charged at a rate of 1.45%, for the employee’s initial $55,000 of income. (For those of you acquainted with Social Security, this is similar to Social Security, but I have intentionally not made it exactly the same.)
|
|
January |
February |
March |
April |
May |
June |
July |
August |
September |
October |
November |
December |
|
Joe Acme |
$4,166.67 |
$4,166.67 |
$4,166.67 |
$4,166.67 |
$4,166.67 |
$4,166.67 |
$4,166.67 |
$4,166.67 |
$4,166.67 |
$4,166.67 |
$4,166.67 |
$4,166.67 |
|
YTD Salary |
$4,166.67 |
$8,333.33 |
$12,500.00 |
$16,666.67 |
$20,833.33 |
$25,000.00 |
$29,166.67 |
$33,333.33 |
$37,500.00 |
$41,666.67 |
$45,833.33 |
$50,000.00 |
|
Retirement Tax |
$60.42 |
$60.42 |
$60.42 |
$60.42 |
$60.42 |
$60.42 |
$60.42 |
$60.42 |
$60.42 |
$60.42 |
$60.42 |
$60.42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Frank Smith |
$5,416.67 |
$5,416.67 |
$5,416.67 |
$5,416.67 |
$5,416.67 |
$5,416.67 |
$5,416.67 |
$5,416.67 |
$5,416.67 |
$5,416.67 |
$5,416.67 |
$5,416.67 |
|
YTD Salary |
$5,416.67 |
$10,833.33 |
$16,250.00 |
$21,666.67 |
$27,083.33 |
$32,500.00 |
$37,916.67 |
$43,333.33 |
$48,750.00 |
$54,166.67 |
$59,583.33 |
$65,000.00 |
|
Retirement Tax |
$78.54 |
$78.54 |
$78.54 |
$78.54 |
$78.54 |
$78.54 |
$78.54 |
$78.54 |
$78.54 |
$78.54 |
$12.08 |
$0.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Retirement Tax |
$138.96 |