The Capital Budget and The Capital Budget Payroll Forecast The benefits of increasing the council’s employee compensation include, most importantly, motivation. This will encourage the employees to become more productive. The management should however keep in mind that compensation should not be overused as a motivator because what really motivates good employees is the ability to achieve successful completion of their projects. It will also be hoped that this increase will enhance team cohesion when awarded to teams, hence increasing the productivity level. Furthermore, better compensation increases the employee morale, generally, given that the increases is awarded in an equitable manner.
In other words, employee morale is boosted if the increase in compensation is awarded in respect to the level of productivity of individual employees rather than granting a blanket increment Figure 1: Projected increase in Revenue to to increase in compensation Trend Analysis As shown in figure 2, annual expenditure has been greater than revenues for the past several years until 2002 when an opposite trend was observed. Generally, the expenditure has been declining since 2008.
This rate of decline has been most drastic from 2011, but the management seems to be effectively controlling the operating expenses because the gap between revenues and expenditure seems to be closing up. It is very important for the management to ensure that, as the cost declines, good measures should be put to ensure that the contribution margin does not decline as well (City of Cincinnati Ohio, 2012). 2008 2009 2010 2011 2012 Expenditure 365,000,000 356,000,000 356,000,000 354,000,000 334,000,000 Revenue 357,500,000 338,500,000 337,000,000 337,000,000 337,000,000 Table 1: Expenditure trend Figure 2: Expenditure Trend Expenditure Forecast The health expenditure, which finances the services by the city’s health clinics to those patients that are qualifying has been declining since 2010 and it is expected to maintain a slight decline to 2017.
This cost should be approached because, although it consumes a substantial proportion of the council’s budget, health services are very fundamental and furthermore the decline shows that the council’s has been undertaking a cost cutting measure (City of Cincinnati Ohio, 2012). 2010 2011 2012 2013 2014 2015 2016 2017 Health 23,574,570 19,450,210 20,128,510 19,256,458 19,126,895 19,100,568 18,458,000 18,456,123 Fire 92,832,430 98,662,160 94,358,450 93,125,145 92,125,256 92,125,365 91,125,458 90,125,456 Public servivce 22,291,010 20,015,980 19,963,240 19,256,125 18,125,456 18,125,100 17,124,896 17,100,125 police 139,110,860 146,175,220 132,888,620 135,568,456 125,456,256 120,124,562 119,136,100 118,256,362 Figure 2: Four of the highest expenditure (5 years forecast) The fire expenditure, also, seem to be consuming a very big proportion of the council’s budget, however, this expenditure has reduced since 2010 and the forecast exhibits the same trend of reduction.
Therefore, this budget will be approved. Public services have a trend very similar with health and the cost cutting measures are evident, therefore, it is likely to be approved. Finally, the police take the highest share of the council’s budget. Given that security is very essential as it determines the success of all other activities, the high budget is justifiable. It is also evident that this figure has been on the decline since 2012 and there it is likely to be approved (Weiss & Mark, 1989). Capital Budget There are two methods of predicting the cost of needed repairs including qualitative and quantitative methods.
The qualitative forecasting methods make of use judgements to predict cost. This method is most suitable when used in situations where the historical data is not available. Furthermore, availability of historical data is sometimes considered irrelevant because of significant changes that takes place in the environmental conditions afflicting the pertinent time time. For instance, it would be irrelevant to forecast the cost of repairs using the past data if other factors such as the price of building materials change suddenly and hence becoming highly important.
The subjective method is also advantageous because it allows decision makers to express their personal experiences, feelings and ideas. These methods are commonly conducted in the form of “brainstorming sessions” whereby managers, employees, executives bring their ideas together in order to solve common problems. Alternatively, the subjective methods can take the form of survey whereby those who are concerned with the repair of the buildings in questions are asking relevant questions that are likely to shed right into the cost of repairs and hence making it possible to make projections.
However, the disadvantage of this approach is that those who are concerned with repairs of buildings may tend to give higher or lower estimates in order to serve their own interests (Sanders, 1997). Quantitative forecast approach, which is recommended in this case, is used because historical data is available and because it is considered to be less subject to bias.
Examples of Quantitative forecasting methods include simple moving methods, weighted moving methods, exponential smoothing methods, and trend adjusted exponential smoothing method. Quantitative forecasting methods make use of statistical data and numbers, and their aim is to assess numerical data from the present and the past, while forecasting of the future. This method allows the decision makers to forecast an anticipated value, while taking into account the impact of market adjustments and changing trends and time periods (Brealey & Stewart, 1991).
The simple moving technique, which is recommended in the study, depends on an a variable set period, which remains unchanged. Every month, the oldest month is substituted with the newest month, hence updating the assessment period. For instance, if a one-year period starting January and ending December is being assessed, January’s number is removed in the subsequent year’s January and replaced with the latest January. This method gives equal weight to each month of the period that is being reviewed. Basically, simple moving average attempt to approximate the subsequent period’s value by taking the average of the last few periods.
To estimate the cost of building repairs using this method, we shall take the available data for the last two years; that is, the cost of repairing buildings in the health department in 2011 was $ 283, 300 and in 2012 it was $ 273,700. To estimate the cost of repairs for 2013, we take the average of the two years as follows: [$283,300 + $273, 700]/2 = 278,500 Therefore, based on the costs of 2011 through 2012, it is predicted that the costs of 2013 will be $ 278, 500.
Once the actual costs for 2013 is incurred, the average of this value with that of 2012 is averaged to get the forecast for 2014. As discussed earlier, the figures used to predict the future cost are based on the past data and hence not subject to bias (Chase, 2000). References Brealey, R.A. , & Stewart, C. M. (1991). Principles of Corporate Finance. New York: McGraw- Hill. Chase, C.W. (2000). Composite Forecasting: Combining Forecasts for Improved Accuracy.
Journal of Business Forecasting. Summer 2000. City of Cincinnati Ohio. (2012). Biennial Budget: Approved 2011/12. Retrieved from: http: //www. cincinnati-oh. gov/finance/linkservid/92523F3B-D3E. . Sanders, N. R. (1997). Measuring Forecast Accuracy: Some Practical Suggestions. Production and Inventory Management Journal. Winter 1997. Weiss, J., & Mark E. G. (1989). Production and Operations Management. New York: Allyn and Bacon.