INTRODUCTION
Facilities management (FM) in a business function that helps in the coordination of people, space, infrastructure and organization. It is mostly used in the administration of schools, universities, shopping complex, office blocks, hotels, hospitals, shipping and manufacturing units.
FM includes range of activities like finance, operations and maintenance, quality, technology, real estate and human factors. It facilitates the integration of various processes in an organisation to develop support and effectiveness. It is a continuous process and it aims to reduce cost and increase the value of the business. The present report is based on Marks and Spencer (M&S) and its financial reporting system.
M&S is a British multinational company which specialises in the selling of clothes and luxury food products (M&S, 2012). Furthermore, it includes capital and revenues budgets and management of cash flow in the company.
TASK 1
A. Process of creating annual budget for supplying Facilities Management (FM)
Cost centre is a division of a company that does not generate profits but increases the cost of the company. There are two types of cost centres in M&S are production and service cost centre. For examples, it includes Marketing department, HR, Research and development, Quality assurance department etc .
The employees of the cost centre have to keep their costs below the budgeted expenses. The performance of a cost centre is measured by comparing the actual costs with the budgeted costs. Devolved budgets involves delegations of manager’s responsibility to the lower level. It has been found that people who are close to the product or services are in a better position to decide the budgets (M&S Annual Report, 2017). It is essential to maintain proper control on the budget and make changes in it according to the needs of M&S.
Process of creation and approval of annual budgets in FM
Budgets are prepared according to the priorities of the M&S. They have formulated plan A which has included different business units in the budgeting process. They found that central budgeting process was not helpful in the organisation and the business units were not scrutinising their costs (Accountability and audit – Marks & Spencer – Annual Report, 2009). The budgets have shifted from central to operational.
It is now held by the units locally and it has helped them to understand the investment and commitments of their unit in the company. In order to accomplish this M&S director has ensured that the plans are reviewed by the senior managers in regular intervals. The budgets are devolved with the help of a financial analyst and other members. The performance of each business unit is reviewed in every six months with the help of financial analyst of the company (The key lessons from the Plan A business case – Marks & Spencer, 2007). For example, the marketing department of M&S as changed their strategy and they have been following the budgets. They have reduced the cost of printing on papers and electricity.
It has helped the company to save more than £550,000 in 2016-17. The budgets of marketing department has to be approved by the senior management. It allows facility manager to adjust the funds according to the strategic planning. It is essential for all the business units to follow the approved budgets. A facility manger ensures that he has identified all the factors that enable the control of a budget. He has to compare the actual performance with the budgeted expenditure to analyse the effectiveness (Andrew and Pitt, 2016). FM plays an important role in increasing the productivity of the employees. It makes changes in the design and provides flexible workplace to the employees.
It integrates HR and IT to help the workforce to perform better in their various activities.
Example
| Business functions | Performance measures | FM measures |
| Marketing | · Customer satisfaction
· Repeat business growth rate · Referrals rate |
· Capital renewal expenditure
· FM satisfaction · Facility condition |
| HR | · Staff satisfaction
· Recruitment cost · Retention of employees |
· Employee satisfaction
· FM staff skill index · Gross sq m per employee |
Difference between capital and revenue budgets
| Capital expenditure | Revenue expenditure |
| Capital expenditure is the amount spent to purchase or improve long term assets like buildings, equipments etc. | Revenue expenditures are routine or recurring in nature. For example, wages, rent, salaries etc. |
| It has less scrutiny and cost cutting | More scrutiny and cost cutting |
| Less control by facility manager. | More control over revenue budgets by a facility manager |
| Allocation is done on the specific department. | Portions of the annual operating budget are allocated to each department according to the day to day requirements. |
| Capital budgets are sensitive on how the revenue budgets are managed. | Revenue budgets have to be modified due to changes in the equipments and assets. |
| Depreciation reduced the amount of tax on the assets. | Revenue expenditures are are fully tax deductible. There is no role of depreciation on the revenue items so it is not included in the budgets. |
Combination of Incremental and Zero based budgeting techniques
Incremental budgeting technique uses the data from the previous year and the incremental amounts are added to the value. It does not take into account the changing circumstances in the business. On the other hand, Zero base budgeting which analyses each and every function separately. It helps in achieving the specific goal of the organisation and it does not take into consideration the previous year’s budget.
It is essential for the facility manager of M&S to combine both the budgets together. It will help him to reduce the costs and expenses of the goods. Furthermore he, can compare the performance of the various business units to their previous year’s budgets. It will help the managers of each department to operate their functions in an effective manner (Zero Based Vs. Incremental Budgeting, 2018). It will help the facilities manager to adopt to the changes in the business.
For example, M&S has planned to produce clothes form their waste cloth materiel (David A. Aaker, Damien McLoughlin ,2010). In order to accomplish they have to make changes in their production department. Furthermore, the marketing department has to change their polices so that they can promote theses goods. In this situation M&S cannot use Incremental budgeting technique because it will not give good results.
They have to combine incremental and zero based budgeting to accomplish this task. Facilities manager has to arrange training programmes and provide the employees with all the facilities so that they can sell the products in the market Zero-based budgeting will allow them to analyse each item in the budget individually while incremental budgeting will allow them to compare the performance from the previous year’s data.
M&S have to increase the expenditure of the marketing department by 10 %. It will allow the facility manager to take into consideration inflation, changed strategy, better communication and coordination in the company etc.
B. Use of cost centres in budget management and budget approval cycle
Budget approval process
Budget approval process can be complex for the facilities manager as he has to take approval form the senior management. The steps involved in budget approval cycle for M&S Company is as follows:
Establishing project budget: The first step of facility manager is to meet with all the parties involved in the project (How to create a project budget, 2018). A project can take a few days or weeks and may involve external parties like engineers, architects etc. It is essential for the facility manager to keep extra funds for any contingency or unforeseen conditions that may arise in the project.
Approval: The facility manager has to take approval from different departments and the board of directors to start the project. He has to make sure that the finance department allots enough funds in order to complete the project. Some projects especially construction projects may require involvement of external parties to study or to design the plan. (Budget Approval Process, 2017)
Design process: Small projects require few people while big projects require help from various departments and external parties . A facility manager designs plans, objectives, services, equipments, furniture or any spatial relationships.
Authorizing: The next step of the Budget approval process is to authorize the project and obtain the funds (Angie Mohr; 2007).
Implementation: After the implementation of the project, a presentation can be given to the employees and the management about the changes in the organisation (Robert W. Bradford and J. Peter Duncan; 2000).
Cost centre in FM
Cost centres can be very helpful in FM and they can be used for budget management. It will allow the manager to ascertain the budgets of each department separately. It will help M&S to analyse the cost and expenses in a particular cost centre (Jones and et.al., 2015). They can evaluate the benefits of the changes done in them easily. If the changes have not increased the efficiency and productivity of the cost centre then it has been waste of resources and funds.
Indirect costs in FM includes all those expenses incurred in the internal management of the contracts (external) and the training and development of the personnel in the company (Moving FM from a cost center to a value center,2018). Apart from this, competencies, permit to work, approved persons regime, technology used etc. should be recorded. Financial administration should also be included in the cost of the project. For example, less number of material and labour costs means cost reduction. On the other hand, many and frequent contract may affect the invoice processing activity. Direct cost can be easily ascertained. It can be calculated in a better way then indirect costs. It includes salaries, wages, benefits etc.
TASK 2
A. Management of cash flow by facilities manager
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