WEBVTT 00:00:08.375 --> 00:00:08.808 All right. 00:00:08.808 --> 00:00:09.175 Welcome. 00:00:09.175 --> 00:00:13.113 Thanks for, joining and listening in on, this, lecture. 00:00:13.413 --> 00:00:16.249 Just wanted to spend some time today talking 00:00:16.249 --> 00:00:19.252 about, effective budgeting in the laboratory. 00:00:19.586 --> 00:00:20.754 And practical tips. 00:00:20.754 --> 00:00:21.788 My name is Ian McNeil. 00:00:21.788 --> 00:00:24.791 I work for AP laboratories as a director of finance. 00:00:25.258 --> 00:00:29.462 And, let's kind of get into some of the what I hope we want to cover. 00:00:29.462 --> 00:00:32.032 And in here is just talking about how budgeting 00:00:32.032 --> 00:00:35.068 is, is really a key component to running a lab. 00:00:36.002 --> 00:00:38.538 You know, being able to set, 00:00:38.538 --> 00:00:42.242 goals and to plan for what, how you plan to, to, 00:00:42.242 --> 00:00:46.413 to operate your, your lab and, being smart about that. 00:00:46.413 --> 00:00:49.382 And so budgeting is, is a really important part to, 00:00:49.716 --> 00:00:52.986 anticipating and trying to, look for the things that are going 00:00:52.986 --> 00:00:56.256 to be coming down the pipeline, for the next year. 00:00:56.289 --> 00:00:58.091 How are you budget. 00:00:58.091 --> 00:01:00.660 And, so a budget, you know, 00:01:00.660 --> 00:01:03.663 basically telling your money where to go instead of wondering where it went. 00:01:03.696 --> 00:01:07.233 That's really, you know, a key piece of this you're wanting to 00:01:07.233 --> 00:01:08.802 and that's from Dave Ramsey. 00:01:08.802 --> 00:01:11.905 You know, you want to you want to give yourself instructions 00:01:11.905 --> 00:01:15.175 to tell the money where it's going to go and have that plan. 00:01:16.443 --> 00:01:19.412 You know, an interesting note is the word budget is the derived 00:01:19.412 --> 00:01:24.250 from the word budget, an old French word or bush, or pouch or small bag. 00:01:24.250 --> 00:01:27.554 So it's, you know, there is a there is a reason or there's a source somewhere. 00:01:27.554 --> 00:01:30.190 That word, came from, 00:01:30.190 --> 00:01:33.193 so a budget is a detailed plan outlining, 00:01:33.293 --> 00:01:36.162 the use of financial resources for a defined period of time. 00:01:36.162 --> 00:01:40.500 That's kind of the the textbook answer for for what a budget is. 00:01:40.700 --> 00:01:41.968 It's a plan to outline 00:01:41.968 --> 00:01:44.971 how we're going to use financial resources for a period of time. 00:01:45.939 --> 00:01:47.507 You know, and, 00:01:47.507 --> 00:01:52.312 that this picture shows kind of an example of maybe like a personal budget. 00:01:52.312 --> 00:01:56.015 You may have, you know, you have income on one side, my salary, 00:01:56.583 --> 00:01:59.085 you know, real estate income, and then you have expenses, 00:02:00.220 --> 00:02:01.187 you know, so that's kind of what 00:02:01.187 --> 00:02:04.290 your budgeting, for your expense for, for the month 00:02:05.325 --> 00:02:09.329 and, variance is the difference between the actual 00:02:09.529 --> 00:02:14.267 and the projected or the budget, whether it be volume, revenue or expense. 00:02:14.267 --> 00:02:17.937 And when I say volume, what I'm referring to is, is, you know, the the samples, 00:02:18.271 --> 00:02:21.841 the level of activity, you know, how many test are we doing? 00:02:22.709 --> 00:02:26.246 And so the variance is the difference between what you budgeted for, 00:02:26.246 --> 00:02:28.515 what you planned on and what actually happened. 00:02:28.515 --> 00:02:31.651 And, those that relationship between those two is really important 00:02:31.951 --> 00:02:36.990 because it allows you to under, you know, if you see a significant variance, 00:02:37.290 --> 00:02:41.361 it gives you an action to go after and identify and figure out, did something 00:02:41.361 --> 00:02:43.997 go wrong? Do we have an error? 00:02:43.997 --> 00:02:47.066 Or is there a larger issue as a company that we need to address 00:02:47.267 --> 00:02:50.270 to get back into to budget with what we expected? 00:02:51.104 --> 00:02:52.305 A variance can be positive. 00:02:52.305 --> 00:02:54.240 Negative, which one's best? 00:02:54.240 --> 00:02:57.110 You know, a lot of times everyone focuses on the negative variance, 00:02:57.110 --> 00:02:58.711 which is absolutely correct, 00:02:58.711 --> 00:03:00.980 that, you know, we should identify those negative variances. 00:03:00.980 --> 00:03:05.151 But often too, the positive variances can be an issue as well. 00:03:05.552 --> 00:03:09.856 If if you plan to spend, you know, $1,000 on supply expense 00:03:09.856 --> 00:03:12.859 and you only spent $50, you know, yeah, that's great. 00:03:12.859 --> 00:03:13.993 You underspent the budget. 00:03:13.993 --> 00:03:17.330 But I would question that and say, is there something else that's missing? 00:03:17.330 --> 00:03:19.065 Did did we not, 00:03:20.333 --> 00:03:22.368 receive something or something happened? 00:03:22.368 --> 00:03:24.304 So why we didn't spend what we had budgeted. 00:03:24.304 --> 00:03:28.007 So you need to focus on both the positive and the negative variances. 00:03:30.543 --> 00:03:33.413 So a budget to remain viable, hospitals will need to become 00:03:33.413 --> 00:03:37.450 even more business oriented, placing an increased emphasis on quality. 00:03:37.450 --> 00:03:41.821 The cost of non quality and the bottom line budgeting and the variances 00:03:41.821 --> 00:03:45.425 will be scrutinized more closely in an effort to track and control costs. 00:03:45.692 --> 00:03:49.929 The point is, is you know, the hospitals are are going to be coming. 00:03:50.129 --> 00:03:52.932 They are business oriented, but they're going to become more as time 00:03:52.932 --> 00:03:56.135 progresses to try and identify and focus on the bottom line 00:03:56.135 --> 00:03:59.138 that the earnings, the profit, the margin, whatever it may be. 00:03:59.906 --> 00:04:03.643 And so the budget variances is a key to helping understand that 00:04:03.943 --> 00:04:07.113 to, to know the bottom line, you know, where where are we spending too much? 00:04:07.113 --> 00:04:09.182 Where are we not spending enough. 00:04:09.182 --> 00:04:10.717 Where do we need more revenue. 00:04:10.717 --> 00:04:14.988 So the budget is a helpful tool to, help start that discussion. 00:04:14.988 --> 00:04:19.225 And dialog and to, you know, have action to go after after it. 00:04:19.726 --> 00:04:25.198 So, a lot of times, you know, it's can be helpful to use the term financial plan, 00:04:26.266 --> 00:04:27.900 you know, which be which 00:04:27.900 --> 00:04:31.504 is more descriptive and in some cases less negative than the term budget. 00:04:31.504 --> 00:04:33.539 You know, when you say budget, you know, a lot of times 00:04:33.539 --> 00:04:35.708 people roll their eyes or like, oh, no budget. 00:04:35.708 --> 00:04:38.511 You know, it's just like an awful word. 00:04:38.511 --> 00:04:41.748 But the financial plan is really more succinct and saying, you know, hey, we 00:04:41.948 --> 00:04:46.352 we have a plan and it's a financial plan to understand how we're going to spend, 00:04:46.386 --> 00:04:49.389 you know, get our revenue and our expenses and our margin. 00:04:49.589 --> 00:04:54.927 So oftentimes it's good to use that word instead to really be more descriptive and, 00:04:54.927 --> 00:04:59.432 and not create this negative connotation that's often associated with with budget. 00:05:01.167 --> 00:05:05.371 And so, you know, it's important to, you know, the question is, why 00:05:05.371 --> 00:05:08.474 develop a financial plan, the importance of to live within your means? 00:05:09.475 --> 00:05:12.211 You know, both in our personal lives, but and in a business, 00:05:12.211 --> 00:05:13.646 you know, you need to live within your means. 00:05:13.646 --> 00:05:16.649 If you don't have the money there, you can't spend it. 00:05:17.517 --> 00:05:18.885 If you don't, that it can be. 00:05:18.885 --> 00:05:20.086 It can be troublesome. 00:05:20.086 --> 00:05:23.089 Live within your means and then, 00:05:23.323 --> 00:05:24.023 or die. 00:05:24.023 --> 00:05:25.892 If you don't live within your means, you know a company will die. 00:05:25.892 --> 00:05:27.794 So here's just a quick snippet. 00:05:27.794 --> 00:05:32.231 A couple of years ago, of the Verity Health System, and you have public 00:05:32.231 --> 00:05:36.402 information and and so, you know, this is the situation we want to avoid. 00:05:36.602 --> 00:05:39.605 We want to manage and to have a financial plan, 00:05:40.273 --> 00:05:42.709 so that we don't risk the company, you know, having go 00:05:42.709 --> 00:05:45.712 bankrupt or whatever it may be. 00:05:45.712 --> 00:05:49.048 So it's important to have this budget to give us direction. 00:05:51.150 --> 00:05:52.885 And, you know, 00:05:52.885 --> 00:05:56.556 going back to or going to this example, if you don't have any margin, 00:05:56.556 --> 00:05:58.825 you don't have any mission, you know, a hospital or a lab. 00:05:58.825 --> 00:06:01.227 You know, our mission is patient care. 00:06:01.227 --> 00:06:04.831 And we love that mission, that that's it's just a great thing 00:06:04.831 --> 00:06:07.834 to help people get better and healthier. 00:06:07.867 --> 00:06:09.702 But you have to have margin two. 00:06:09.702 --> 00:06:12.705 Now, when I say margin, I mean like profit earnings, 00:06:13.172 --> 00:06:15.608 income, whatever, whatever you want to call it. 00:06:15.608 --> 00:06:17.410 If you don't have margin, we don't have a mission. 00:06:17.410 --> 00:06:21.381 We have to earn money in order to keep our, our mission going. 00:06:22.315 --> 00:06:25.118 To keep being able to provide that patient care. 00:06:25.118 --> 00:06:28.554 And so having a budget helps us maintain that margin. 00:06:28.554 --> 00:06:33.359 And ensure that we do have the earnings to continue to thrive as a business. 00:06:34.460 --> 00:06:36.896 So why develop a financial plan? 00:06:36.896 --> 00:06:39.899 The financial plan is, is a map to get you where you intend to go 00:06:40.299 --> 00:06:43.302 and not another snippet from Dave Ramsey. 00:06:43.936 --> 00:06:45.571 Excuse me. You must have a game plan. 00:06:45.571 --> 00:06:48.574 If you aim at nothing, you will hit it every time. 00:06:49.041 --> 00:06:52.211 And then Benjamin Franklin, if you fail to plan, you are planning to fail. 00:06:52.712 --> 00:06:53.713 And so these are. 00:06:53.713 --> 00:06:57.483 I know these are totally cliche, but, you know, there's a lot of truth 00:06:57.483 --> 00:06:58.050 given in them. 00:06:58.050 --> 00:07:01.320 If you don't set up a plan, you know you're going to be just going 00:07:01.320 --> 00:07:04.290 aimlessly and not have a direction of where you're going. 00:07:04.357 --> 00:07:07.360 Especially a financial plan. 00:07:07.427 --> 00:07:08.761 So again, why are we do it? 00:07:08.761 --> 00:07:10.363 We want to control expenditures. 00:07:10.363 --> 00:07:13.132 We want to manage it and follow them. 00:07:13.132 --> 00:07:16.369 We want to assign specific responsibilities and expectations. 00:07:17.270 --> 00:07:21.140 We want to identify economic problems and opportunities before they occur. 00:07:21.774 --> 00:07:26.879 For example, you know, the Covid pandemic that we've experienced, from, you know, 00:07:26.879 --> 00:07:31.017 2020 to 2021, you know, we there's no way anyone could budget for that. 00:07:31.017 --> 00:07:32.552 No one knew what was going to happen. 00:07:32.552 --> 00:07:36.055 And so going into the pandemic, you know, a lot of people just just think 00:07:36.055 --> 00:07:37.924 were out of budget because just things happen 00:07:37.924 --> 00:07:41.928 that weren't expected going into the next year as companies, you know, 00:07:41.928 --> 00:07:45.898 they, after the pandemic was was going companies had to budget differently. 00:07:45.932 --> 00:07:49.502 Now that we know all these economic or different things are happening externally, 00:07:49.802 --> 00:07:51.637 you know, how are we going to budget differently 00:07:51.637 --> 00:07:54.507 based on the new set of circumstances that we have? 00:07:54.507 --> 00:07:57.877 And so with the budget, you want to as best you can, you know, try 00:07:57.877 --> 00:08:00.880 and identify things that you think are going to be coming in the future 00:08:00.980 --> 00:08:04.183 that you want to adjust for and budget 00:08:04.417 --> 00:08:07.220 appropriately before they happen. 00:08:07.220 --> 00:08:11.624 It encourages, and enables forward thinking and preparation and, 00:08:13.860 --> 00:08:17.864 so the financial plan, it kind of it feeds into, 00:08:17.997 --> 00:08:21.534 you know, most companies will have a strategic plan and operational plan 00:08:21.534 --> 00:08:26.739 and a financial plan, these, these three plans, kind of help drive 00:08:26.739 --> 00:08:31.177 the company forward, move the company forward to the next phase or next chapter. 00:08:31.644 --> 00:08:35.414 And so, you know, I'll just kind of briefly explain some of the these plans. 00:08:35.448 --> 00:08:38.484 A strategic plan is, developed by, 00:08:38.484 --> 00:08:42.455 you know, upper management, executives, whatever may be to set priorities. 00:08:42.455 --> 00:08:44.257 You know, what do we as an organization, 00:08:44.257 --> 00:08:47.260 what do we want to accomplish in the next 5 to 10 years? 00:08:47.960 --> 00:08:52.598 You know, we want to do we want to improve patient care by turning around our, 00:08:52.632 --> 00:08:57.236 our results quicker, you know, or maybe what are our, what's our strategy? 00:08:57.403 --> 00:08:59.672 How are we going to survive and keep going as a company? 00:09:00.606 --> 00:09:01.607 And then an operational 00:09:01.607 --> 00:09:05.545 plan is usually going to be your mid to lower level management. 00:09:05.878 --> 00:09:06.479 They're going to be 00:09:06.479 --> 00:09:10.049 the ones that are based on what the executive or leadership wants. 00:09:10.082 --> 00:09:12.985 They want to to lower turnaround time okay. 00:09:12.985 --> 00:09:16.155 Now middle management is kind of tasked with executing that. 00:09:16.355 --> 00:09:19.792 How are we going to to improve our turnaround time of these results. 00:09:20.026 --> 00:09:21.727 We're going to do X, Y and Z. 00:09:21.727 --> 00:09:23.029 That is going to kind of speed it up. 00:09:23.029 --> 00:09:27.433 And we're going to have an operational plan to help, support 00:09:27.433 --> 00:09:30.903 the the strategic plan, the strategies that the executive leadership. 00:09:31.304 --> 00:09:34.307 So both the strategic plan, the operational plan, 00:09:34.540 --> 00:09:37.276 both of those function with the help of the financial plan. 00:09:37.276 --> 00:09:39.845 And so that's you know, that's kind of where the triangle comes in. 00:09:39.845 --> 00:09:42.648 The budget is going to allocate the financial resources. 00:09:42.648 --> 00:09:47.019 So if if executives they want to improve turnaround time and the 00:09:47.019 --> 00:09:52.558 the operational team, they're going to want to add another staff or two. 00:09:52.592 --> 00:09:56.195 They're going to want to add an instrument to improve this turnaround time. 00:09:56.462 --> 00:09:59.498 The financial plan, the budget is going to allocate. 00:09:59.699 --> 00:10:03.302 We're going to give budget to this lab to have more people 00:10:03.302 --> 00:10:04.837 to have another instrument. 00:10:04.837 --> 00:10:07.840 And so the budget plays in these all are interrelated 00:10:08.107 --> 00:10:11.110 to help the success of a company. 00:10:11.110 --> 00:10:11.777 Go forward. 00:10:13.245 --> 00:10:15.114 So there's a couple different types. 00:10:15.114 --> 00:10:16.382 And this is not all inclusive. 00:10:16.382 --> 00:10:18.918 These are just a couple. 00:10:18.918 --> 00:10:21.921 There's a couple, a couple, a few different ways to budget. 00:10:22.822 --> 00:10:26.325 There's an incremental versus zero base, top down versus bottom up, 00:10:26.325 --> 00:10:31.230 capital versus operating, a program budget, and an appropriation. 00:10:31.530 --> 00:10:34.500 And, we'll kind of speak to a bunch of these, 00:10:34.500 --> 00:10:37.169 as we go on through this, this presentation, 00:10:37.169 --> 00:10:39.972 the, an incremental, 00:10:39.972 --> 00:10:44.276 it only changes, like new equipment, new positions and new programs. 00:10:44.276 --> 00:10:46.879 It assumes all current operations are essential. 00:10:46.879 --> 00:10:50.983 So the current operations, for the process and working at its peak. 00:10:51.417 --> 00:10:54.453 So the base uses the most recent results. 00:10:54.920 --> 00:10:57.490 And then you're going to add either a growth rate or known or, 00:10:57.490 --> 00:11:00.493 or change other known factors. 00:11:01.027 --> 00:11:04.697 So this is a good approach. 00:11:04.997 --> 00:11:05.898 The one thing it doesn't do, 00:11:05.898 --> 00:11:08.901 it doesn't provide incentive to develop new ideas, to innovate. 00:11:09.068 --> 00:11:12.338 It assumes that all existing operations are essential to continue. 00:11:13.239 --> 00:11:16.342 You know, so if we're doing these types of programs or these types of test, 00:11:17.009 --> 00:11:19.445 we're we're just kind of saying, hey, what we did in the past, we're 00:11:19.445 --> 00:11:22.815 going to continue to do in the next year, and it doesn't really encourage, 00:11:23.516 --> 00:11:25.351 you know, hey, do we really need this anymore? 00:11:25.351 --> 00:11:27.787 Maybe we can cut this out. 00:11:27.787 --> 00:11:30.756 And have that additional budget available for maybe something new 00:11:30.756 --> 00:11:32.591 that we should, should experiment with. 00:11:32.591 --> 00:11:33.693 So the idea with incremental is 00:11:33.693 --> 00:11:36.829 you take your existing and kind of add a little bit here and there. 00:11:37.463 --> 00:11:39.765 Incrementally assuming everything stays the same. 00:11:41.667 --> 00:11:42.935 And only change, let's see. 00:11:42.935 --> 00:11:46.605 So here's kind of an example of, you know, could be some financials, 00:11:47.873 --> 00:11:49.775 where we're only changing a little bit. 00:11:49.775 --> 00:11:52.945 So I give you a second to look at, look at those numbers where in that middle 00:11:52.945 --> 00:11:56.749 column, the increment percentage, you're just going to increment your, 00:11:56.749 --> 00:12:02.021 your prior year, increment it up ten five 15%. 00:12:02.021 --> 00:12:03.589 And then that becomes your new budget. 00:12:03.589 --> 00:12:03.856 Again. 00:12:03.856 --> 00:12:06.859 It's assuming everything stays the same. 00:12:07.259 --> 00:12:09.862 The zero based budget is a little bit different, 00:12:09.862 --> 00:12:13.332 where you're just basically starting at ground zero every year. 00:12:13.365 --> 00:12:16.435 You don't have you're not relying on prior year history. 00:12:16.635 --> 00:12:17.937 You're just saying, hey, 00:12:17.937 --> 00:12:20.973 I'm going to spend this much dollars and in these different categories. 00:12:21.841 --> 00:12:24.810 So you just add your expected activity. 00:12:26.278 --> 00:12:30.182 The, the nice thing about the zero based budget is it is it doesn't 00:12:30.182 --> 00:12:33.786 assume your prior activities is maybe they're not productive or effective. 00:12:33.986 --> 00:12:35.521 It doesn't assume that those are going to continue. 00:12:35.521 --> 00:12:37.890 It's it's kind of like you start with a clean slate every year. 00:12:39.024 --> 00:12:42.394 The challenge with this kind of in the lower section in blue is measurement 00:12:42.394 --> 00:12:46.232 may feel demotivated on this process due to the large amount of time 00:12:46.232 --> 00:12:48.367 spent in the budget process because you're starting from zero. 00:12:48.367 --> 00:12:49.068 So you're 00:12:49.068 --> 00:12:50.770 you're basically hitting the reset button every year 00:12:50.770 --> 00:12:54.039 and trying to determine the budget for these different areas without just 00:12:54.039 --> 00:12:57.042 carrying forward the prior year information. 00:12:59.779 --> 00:13:01.981 So here's, you know, just an example. 00:13:01.981 --> 00:13:03.482 Excuse me, 00:13:03.482 --> 00:13:05.851 where you have the prior information, but you're kind of ignoring 00:13:05.851 --> 00:13:06.552 the prior information. 00:13:06.552 --> 00:13:09.989 You're just kind of in the next year, in 2015, you're just going to plug 00:13:09.989 --> 00:13:12.992 in different numbers of what you think you'll spend. 00:13:13.292 --> 00:13:15.227 It may or may not, result. 00:13:15.227 --> 00:13:17.930 But, you know, she's taking a fresh look at it again. 00:13:17.930 --> 00:13:21.867 It can be time consuming, but it also is it gives a fresh 00:13:21.867 --> 00:13:25.504 look where you can take stuff out that maybe you didn't want to carry forward, 00:13:26.505 --> 00:13:27.773 etc.. 00:13:27.773 --> 00:13:31.610 So, another example is kind of a is a top down, 00:13:32.311 --> 00:13:34.947 this financial plan is created by management. 00:13:34.947 --> 00:13:37.983 And it's based on historical run rates, percentages. 00:13:38.284 --> 00:13:41.754 And, your current management is kind of pushing this number down. 00:13:41.754 --> 00:13:46.158 We're saying, hey, we expect to do this much in revenue, this much in expenses 00:13:46.325 --> 00:13:47.493 and in margin. 00:13:47.493 --> 00:13:48.861 This is what we think we're going to spend. 00:13:48.861 --> 00:13:52.364 So it's management kind of dictating what they think the figures are going to be. 00:13:53.399 --> 00:13:55.201 And then doing a top down forecast, 00:13:55.201 --> 00:13:58.204 you're going to have, you know, multiple year forecast. 00:13:59.171 --> 00:14:02.908 It's it's a tool that this, this tool helps manage expectations 00:14:02.908 --> 00:14:06.579 of if management is kind of saying, hey, this is the budget we're allotting. It 00:14:06.579 --> 00:14:10.616 helps manage expectations of, management board employees and other stakeholders. 00:14:13.485 --> 00:14:14.520 So here's just a 00:14:14.520 --> 00:14:18.324 snippet of, of a budget, for example, where the projected is, you know, 00:14:18.324 --> 00:14:19.024 hey, work 00:14:19.024 --> 00:14:20.292 the management's going to push down 00:14:20.292 --> 00:14:23.662 these numbers for salaries, wages, overtime commissions, etc.. 00:14:23.929 --> 00:14:26.799 We're going to give these numbers as a budget. 00:14:26.799 --> 00:14:29.668 From the top down. 00:14:29.668 --> 00:14:32.671 Another way to to do a budget is a bottom up. 00:14:33.539 --> 00:14:36.542 That is a detailed line by line projection, 00:14:36.542 --> 00:14:40.446 prepared by various department managers and rolled up to a summary format. 00:14:40.779 --> 00:14:43.682 So the supervisors and managers are preparing these, these plans 00:14:43.682 --> 00:14:47.987 that kind of the bottom level or the at the detailed level at the department 00:14:48.354 --> 00:14:51.690 and it's based, they base it on their recent operating results 00:14:51.957 --> 00:14:54.827 and expected department changes. 00:14:54.827 --> 00:14:58.631 And you know, so what, what it can be 00:14:58.631 --> 00:15:01.800 effective is actually using the bottom 00:15:01.800 --> 00:15:04.937 up and the top down together in one budget. 00:15:05.671 --> 00:15:07.439 That there's, there can be success in doing that 00:15:07.439 --> 00:15:11.176 because you have the top down management is kind of setting the bar 00:15:11.310 --> 00:15:14.313 that they're setting the expectations for the budget amounts. 00:15:14.413 --> 00:15:17.416 It's not going to be perfect, but they're just setting kind of an expectation. 00:15:17.449 --> 00:15:20.185 And then from the bottom up that the detail level, the departments, 00:15:20.185 --> 00:15:23.188 they kind of present what they think should be the budget. 00:15:23.222 --> 00:15:25.557 And then you have this comparison of the two. 00:15:25.557 --> 00:15:29.161 And so here's an example in what's highlighted in the red 00:15:29.161 --> 00:15:31.830 circle is the requested. So this is the bottom up. 00:15:31.830 --> 00:15:35.034 And remember on the right hand side under projected as the bottom down. 00:15:35.034 --> 00:15:39.538 So you have these two sitting side by side the bottom the top down 00:15:39.538 --> 00:15:42.241 and the bottom up. And you look at those side by side. 00:15:42.241 --> 00:15:45.911 And then on the far right under that purple heading analysis, 00:15:46.345 --> 00:15:48.948 that's where the discussion happens, 00:15:48.948 --> 00:15:51.951 is wherever there's a variance negative or positive, 00:15:52.051 --> 00:15:55.287 that's where you have a discussion to say, okay, let's let's focus on salaries. 00:15:55.788 --> 00:15:58.791 Management is going to give me 482,000. 00:15:59.024 --> 00:16:01.827 But I'm expecting 540,000 from 00:16:01.827 --> 00:16:04.830 from the manager and the supervisor level at the department level. 00:16:05.030 --> 00:16:06.999 Why are we different by the 57,000. 00:16:06.999 --> 00:16:11.103 So that becomes a dialog point where the manager's supervisor 00:16:11.103 --> 00:16:15.240 may say, hey, you guys use 482 based on the history. 00:16:15.407 --> 00:16:19.311 What you don't know is that next year we have a new assay that's coming live, 00:16:19.545 --> 00:16:22.548 and it's going to require the addition of one more person. 00:16:22.681 --> 00:16:26.418 And so we have to add an additional salary and wage for that additional person. 00:16:26.852 --> 00:16:28.153 And so that dialog happens. 00:16:28.153 --> 00:16:30.990 And then at that point management acknowledges and says okay yeah 00:16:30.990 --> 00:16:31.924 you're right. 00:16:31.924 --> 00:16:34.927 If you guys know you're going to be adding this test, this assay 00:16:34.994 --> 00:16:36.395 and you need another person, 00:16:36.395 --> 00:16:39.264 you know, then let's go with your number instead of ours. 00:16:39.264 --> 00:16:42.935 And so that's that's the benefit of this top down versus bottom up is 00:16:42.935 --> 00:16:47.072 you have this working relationship where we compromise and, you know, 00:16:47.439 --> 00:16:51.410 we speak honestly about, you know, what's going to be happening at the budget. 00:16:52.845 --> 00:16:55.114 And so that that's a good, 00:16:55.114 --> 00:16:59.251 dialog that can happen on the flip side to let's, let's, let's say, for example, 00:17:00.119 --> 00:17:03.255 on the salaries and wages that they've come in requesting 00:17:03.255 --> 00:17:07.126 540 and management says 42 and management say, well, what 00:17:07.226 --> 00:17:10.362 how come you're asking for additional labor, 57,000 more. 00:17:10.729 --> 00:17:13.465 And if they don't have a good explanation, you know, 00:17:13.465 --> 00:17:17.403 we just thought we needed more money, you know, to activate our employees. 00:17:18.003 --> 00:17:21.840 In our department manager may come back and say, you know, we can't do that 00:17:21.840 --> 00:17:23.675 because we're not doing it for the rest of the company. Why? 00:17:23.675 --> 00:17:24.543 Why would we do it? 00:17:24.543 --> 00:17:28.113 Why can we do it just for your department add you know, give them raises 00:17:28.113 --> 00:17:29.782 and we're not doing it for the rest of the company. 00:17:29.782 --> 00:17:31.917 And so management would say, well, 00:17:31.917 --> 00:17:34.553 you've put the 540, but we're going to still do 482. 00:17:34.553 --> 00:17:35.621 We're going to give you for an 82, 00:17:35.621 --> 00:17:38.424 because that's being consistent with the rest of the company. 00:17:38.424 --> 00:17:41.427 And so it can go either way if there's a variance. 00:17:41.460 --> 00:17:44.930 Either we can the the department can explain why there's a variance 00:17:45.230 --> 00:17:47.066 or they may not be able to explain it, 00:17:47.066 --> 00:17:49.368 and they may just go with the top down number. 00:17:49.368 --> 00:17:52.404 So it's a give and take, in that, in that process. 00:17:53.639 --> 00:17:56.075 Now kind of changing gears a little bit, 00:17:56.075 --> 00:18:00.379 the operating, versus capital budgeting, the operating 00:18:00.379 --> 00:18:03.382 as a tool for laboratory managers to use, throughout the year. 00:18:03.515 --> 00:18:08.220 Simply put, it is the calculated single, calculated best guess estimate of revenue 00:18:08.220 --> 00:18:10.956 and expenditures the laboratory is expected to realize 00:18:10.956 --> 00:18:13.959 for a 12 month period of time, the fiscal year. 00:18:14.993 --> 00:18:17.996 And so the operating budget is, again, 00:18:18.030 --> 00:18:20.999 at the departmental level, the managers, what are they going to do 00:18:20.999 --> 00:18:24.970 to execute the strategies that the executive team may have? 00:18:25.237 --> 00:18:28.574 And so their budget, like in the example I gave before, you know, 00:18:28.807 --> 00:18:32.144 maybe adding this additional equipment is going to improve their turnaround time. 00:18:32.144 --> 00:18:35.147 Adding this additional person is going to add improved turnaround time. 00:18:35.380 --> 00:18:39.651 And so this operational budget is meant to address the strategies 00:18:40.652 --> 00:18:42.020 that executive team may have. 00:18:42.020 --> 00:18:45.090 A capital budget is a plan for the acquisition of land, 00:18:45.090 --> 00:18:46.959 buildings and equipment. 00:18:46.959 --> 00:18:49.962 That's the difference between those two. 00:18:50.329 --> 00:18:52.564 So, you know, budgeting is just always 00:18:52.564 --> 00:18:55.801 a challenge, doing a financial plan because it's hard to predict the future. 00:18:55.801 --> 00:18:56.401 We just don't know. 00:18:56.401 --> 00:18:58.570 I mean, you know, two years ago, 00:18:58.570 --> 00:19:01.807 or, you know, before 2020 happened in the pandemic, 00:19:01.974 --> 00:19:04.510 the Covid pandemic hit, you know, no one knew that I was going to have it. 00:19:04.510 --> 00:19:07.646 No one knew. And I had far reaching effects. 00:19:07.980 --> 00:19:12.017 And so you just, you know, we just as a given that with budgeting, 00:19:12.017 --> 00:19:13.585 you just don't know all the answers. 00:19:13.585 --> 00:19:16.955 You try your best to predict and so, you know, 00:19:16.955 --> 00:19:21.160 predicting the future is, you know, what you want to do is use past experience 00:19:21.660 --> 00:19:24.596 and you want to add to that any known or estimated changes. 00:19:24.596 --> 00:19:27.566 So, these two little a little gray chart 00:19:27.566 --> 00:19:30.569 show below, you know, you're looking at historical operating results 00:19:30.569 --> 00:19:34.173 and then estimated or known changes could be department growth rates. 00:19:34.806 --> 00:19:39.478 Adding a new assay, or maybe getting rid of one that has become obsolete. 00:19:39.478 --> 00:19:42.548 So it's taking past experience and then adjusting up or down 00:19:42.848 --> 00:19:45.584 based on any known changes that you may have. 00:19:46.985 --> 00:19:49.988 So a, just here's some, 00:19:50.255 --> 00:19:53.759 identifying what can make a successful financial planning process. 00:19:54.359 --> 00:19:55.761 You want clear goals and objectives 00:19:55.761 --> 00:19:57.796 that can guide you through the resource allocation, 00:19:57.796 --> 00:20:00.933 you know, the finances that we have, how do we allocate it appropriately? 00:20:02.000 --> 00:20:05.704 We want to project volume, or obtain projection from senior management. 00:20:05.871 --> 00:20:07.639 What do we expect? 00:20:07.639 --> 00:20:10.642 If, you know, we've been doing a thousand units a month, 00:20:10.642 --> 00:20:12.611 what do we think we'll be doing in the next year? 00:20:12.611 --> 00:20:15.247 Will it be 1200 units a month? 00:20:15.247 --> 00:20:19.351 So trying to project the volumes that we anticipate that will get, into our lab. 00:20:20.419 --> 00:20:23.722 You want to convert volumes, into revenue? 00:20:24.189 --> 00:20:26.925 You want to kind of understand that relationship with with the volumes 00:20:26.925 --> 00:20:27.526 and the revenue. 00:20:27.526 --> 00:20:31.029 So if we're expecting 200 more per unit, 200 units 00:20:31.029 --> 00:20:34.233 more this upcoming year, how does that translate to revenue? 00:20:34.233 --> 00:20:38.070 We need to take our per unit on revenue and multiply it and say, well, 00:20:38.070 --> 00:20:41.073 that results in X amount of dollars of additional revenue. 00:20:41.206 --> 00:20:43.976 If we know the volume is going to change, the next year, 00:20:45.210 --> 00:20:46.678 you want to convert volumes into expenses. 00:20:46.678 --> 00:20:49.748 So if, if we have 200 more units coming in per month, 00:20:50.015 --> 00:20:53.018 that means I'm going to be having a lot more supply usage. 00:20:53.051 --> 00:20:56.054 I may have more labor, to do that volume. 00:20:56.255 --> 00:20:57.522 I may need additional instruments. 00:20:57.522 --> 00:21:03.061 So, you know, the volume plays, is a key part of helping to translate 00:21:03.061 --> 00:21:06.498 what additional revenue, or expenses you need in your budget. 00:21:07.733 --> 00:21:11.503 You want statistical data, you want, you know, charts or graphs to kind of help 00:21:11.670 --> 00:21:14.973 give a, prior year history to, to help you, 00:21:15.707 --> 00:21:18.076 understand what to expect, 00:21:18.076 --> 00:21:21.079 and, understanding existing and potential clients, 00:21:22.414 --> 00:21:25.384 a defined budget period and procedures for development of the budget. 00:21:25.384 --> 00:21:26.952 So you want to kind of get a structure. 00:21:26.952 --> 00:21:30.122 And when are we going to when is the budget process going to start? 00:21:30.122 --> 00:21:31.256 When is it going to end? 00:21:31.256 --> 00:21:32.858 You know, so the people 00:21:32.858 --> 00:21:36.228 the people in the labs can kind of know what to expect so that it's not taking up 00:21:36.328 --> 00:21:37.162 all of their time. 00:21:38.263 --> 00:21:39.031 And then you want to provide 00:21:39.031 --> 00:21:43.502 reports that give information, in comparison to help people understand, 00:21:44.369 --> 00:21:47.272 how the budget is, is, is, 00:21:47.272 --> 00:21:49.141 how to plan effectively for the budget 00:21:49.141 --> 00:21:52.811 if they can have these additional supplementary reports. So, 00:21:54.012 --> 00:21:56.581 you know, financial planning law logic, as you bring in 00:21:56.581 --> 00:21:59.618 more revenue, it's going to drive your operating and support costs. 00:21:59.618 --> 00:22:01.720 It's going to move them up or down. 00:22:01.720 --> 00:22:05.724 And, as sales volume goes up, it drives the demands of cost, 00:22:05.957 --> 00:22:09.361 which derived drives the support cost and the overhead. 00:22:10.195 --> 00:22:12.931 So all these, you know, your volume and revenue drive, 00:22:12.931 --> 00:22:15.901 a lot of other things in cost in the, in the company. 00:22:16.501 --> 00:22:19.471 So, predicting revenue, 00:22:19.571 --> 00:22:20.339 can be hard. 00:22:20.339 --> 00:22:22.174 And it's really hard, actually. 00:22:22.174 --> 00:22:26.011 But, ways you can do it is you can look at your existing clients. 00:22:26.945 --> 00:22:27.479 And then in 00:22:27.479 --> 00:22:30.482 that little cloud area, you can see in the graphic, 00:22:30.482 --> 00:22:34.252 you look at your new clients, maybe any clients that you expect may go away. 00:22:35.187 --> 00:22:38.190 And then kind of develop that, that growth rate. 00:22:38.423 --> 00:22:42.394 Then, you take that, that growth rate and you look at your department 00:22:42.394 --> 00:22:45.397 specifically, hey, based on this additional volume, 00:22:45.397 --> 00:22:48.700 maybe certain clients, you're going to have more of certain of a certain test, 00:22:49.434 --> 00:22:52.504 more infectious disease work or more genetic work. 00:22:52.838 --> 00:22:57.242 And so by developing that, we can know the volume coming in for this client, 00:22:57.709 --> 00:23:01.546 and then, look at the department mix, and that'll drive the department. 00:23:01.546 --> 00:23:03.715 Hey, if, if, if this client is going to send us 00:23:03.715 --> 00:23:07.919 additional work, the genetics department, they better increase, you know, a budget 00:23:07.919 --> 00:23:10.922 for more supplies or for more labor or instrument. 00:23:11.656 --> 00:23:13.959 So all this, this kind of is interrelated. 00:23:14.926 --> 00:23:18.163 So when predicting we talk about predicting revenue 00:23:18.163 --> 00:23:20.999 now and predicting expenses. 00:23:20.999 --> 00:23:22.134 Are this a little bit easier. 00:23:22.134 --> 00:23:24.536 But it's still not, you know, not a perfect 00:23:24.536 --> 00:23:27.606 there's not a perfect answer or end all to, to figure that out. 00:23:27.973 --> 00:23:30.842 But for wages, you want to look at your current actual 00:23:30.842 --> 00:23:33.512 and anticipate that if there's going to be new employees, 00:23:33.512 --> 00:23:37.282 you may anticipate raises and, you know, additional benefits. 00:23:37.582 --> 00:23:41.553 So you look at your existing wages and then adjust for these other things 00:23:41.553 --> 00:23:45.357 that could happen new employees, employees that leave raises and benefits. 00:23:45.357 --> 00:23:46.658 So that's that's a way to help you budget 00:23:46.658 --> 00:23:50.395 for wages, supplies, look at your current supply spend 00:23:50.629 --> 00:23:53.632 and then determine your department growth rate or the company growth rate. 00:23:53.865 --> 00:23:57.569 If we're going to grow 10% in volume, then I probably ought to grow my supply 00:23:57.569 --> 00:23:59.271 budget by 10% as well. 00:24:00.372 --> 00:24:01.640 Send out you know what send out? 00:24:01.640 --> 00:24:03.475 Meaning, you know, what do we send other labs 00:24:03.475 --> 00:24:07.078 or other to do the testing for us if we can't do that testing. 00:24:07.412 --> 00:24:09.748 And so again, you can look at your current spend 00:24:09.748 --> 00:24:12.751 and look at maybe a reference market growth rate, 00:24:13.351 --> 00:24:15.720 logistic, you know, you kind of see a pattern here. 00:24:15.720 --> 00:24:18.356 We're looking at our current spend historical spend. 00:24:18.356 --> 00:24:22.561 And then you add on another factor of other other things that may be happening. 00:24:23.428 --> 00:24:26.965 Building and equipment, you know, existing plus new existing 00:24:26.965 --> 00:24:28.667 plus new current plus new. 00:24:28.667 --> 00:24:31.837 So that's kind of the the pattern you want to follow when looking at your expenses, 00:24:32.671 --> 00:24:37.142 is you anticipate that these expenses will continue on and then adjust up or down, 00:24:37.776 --> 00:24:41.012 for any things that, that, you know, that will cause these expenses to go up 00:24:41.012 --> 00:24:41.413 or down. 00:24:43.415 --> 00:24:44.716 Then, you know, 00:24:44.716 --> 00:24:47.319 coming back to the to or going to this graphic, we have revenue. 00:24:47.319 --> 00:24:48.520 Expenses equals net margin. 00:24:48.520 --> 00:24:51.523 That's just a simple calculation, 00:24:51.656 --> 00:24:53.058 of of what was left over. 00:24:53.058 --> 00:24:57.362 So if if you ask this question in the blue box, you know, what? 00:24:57.362 --> 00:25:01.466 If the volume falls short, what if what if instead of doing 1200 units 00:25:01.466 --> 00:25:06.071 next year, we do 800 units a month as opposed to the 1000 we're doing now? 00:25:06.538 --> 00:25:08.640 How do we adjust as a company? 00:25:08.640 --> 00:25:11.910 You know, and I think many, many labs had to ask that question. 00:25:11.910 --> 00:25:13.778 You know, through the Covid pandemic, 00:25:13.778 --> 00:25:16.615 you know, if volumes going up or down, how do we budget properly. 00:25:16.615 --> 00:25:21.219 If it's come down, do we need to do we need to cut back on expenses? 00:25:21.219 --> 00:25:22.921 Do we, you know, lay off? 00:25:22.921 --> 00:25:25.924 Do we, cut back the hours? 00:25:26.191 --> 00:25:28.660 Do we not hire, you know, if someone leaves a company, 00:25:28.660 --> 00:25:30.028 do we not backfill their positions? 00:25:30.028 --> 00:25:32.197 So all these questions, you have to kind of ask yourself 00:25:32.197 --> 00:25:37.202 if the volume were to decrease or increase, you know, how do we pivot? 00:25:37.202 --> 00:25:38.036 How do we change, 00:25:38.036 --> 00:25:41.439 how do we manage our company based on this new set of circumstances? 00:25:42.274 --> 00:25:45.277 If we have lower volume than we typically have in the past? 00:25:48.380 --> 00:25:48.880 Let's see. 00:25:48.880 --> 00:25:52.817 So an important aspect of the budgetary process to consider 00:25:52.817 --> 00:25:55.820 is that individuals who prepare the budgets and develop 00:25:56.054 --> 00:26:00.025 assumptions rarely have the final word, meaning approve their budgets. 00:26:00.225 --> 00:26:03.061 No matter how carefully the budget is analyzed and prepared, 00:26:03.061 --> 00:26:06.932 it is not possible to prevent a superior from changing the budget. 00:26:08.533 --> 00:26:10.201 Yes, that is absolutely true. 00:26:10.201 --> 00:26:13.238 You know, as much as as department level manager supervisors 00:26:13.538 --> 00:26:15.307 go through the budget and get it correct. 00:26:15.307 --> 00:26:19.210 You know, the overall company, as as we roll all the departments together, 00:26:19.244 --> 00:26:22.247 we look at our final budget as a whole company in aggregate. 00:26:22.581 --> 00:26:25.784 You know, it still may not be the target that we can hit. 00:26:25.784 --> 00:26:29.821 And so there may be adjustments, cuts or changes need to happen. 00:26:30.288 --> 00:26:32.891 And so there's always going to be this back and forth 00:26:32.891 --> 00:26:36.161 trying to to determine the final budget number. 00:26:38.096 --> 00:26:40.832 And additionally the budget I love this slide. 00:26:40.832 --> 00:26:44.035 The budget should be a tool, not for blame, but for improvement. 00:26:44.502 --> 00:26:48.807 And, you know, a lot of times in the finance department is, as we are 00:26:49.307 --> 00:26:52.310 working with the lab people to look at their budget, 00:26:52.344 --> 00:26:54.279 you know, the approach shouldn't be 00:26:54.279 --> 00:26:56.314 you guys are overspending, you know, what are you doing wrong there? 00:26:56.314 --> 00:26:59.150 It should be. Hey, what's going on here? 00:26:59.150 --> 00:27:00.151 What do we need to change? 00:27:00.151 --> 00:27:03.088 You know, how can we learn from this? 00:27:03.088 --> 00:27:04.322 Is the overspending? 00:27:04.322 --> 00:27:05.790 Is is there a reason behind it? 00:27:05.790 --> 00:27:07.425 Maybe we under budgeted. 00:27:07.425 --> 00:27:10.428 Maybe we just were too aggressive in in what we put in the budget. 00:27:11.062 --> 00:27:13.565 But the budget is a great tool 00:27:13.565 --> 00:27:17.168 to just create a dialog and, seek improvement. 00:27:17.168 --> 00:27:18.570 Not not blame at all. 00:27:20.572 --> 00:27:21.673 So here's some, some 00:27:21.673 --> 00:27:25.844 tips, wherever you may go in your lab experience 00:27:25.844 --> 00:27:28.847 as you go through financial planning process, just some tips you can follow. 00:27:29.347 --> 00:27:32.050 You know, follow the organizational format, ensure 00:27:32.050 --> 00:27:34.119 the data used to develop the budget is accurate. 00:27:34.119 --> 00:27:36.187 Hopefully that you can rely on your finance people 00:27:36.187 --> 00:27:37.789 to make sure that that's accurate. 00:27:37.789 --> 00:27:39.457 But you also have a role, 00:27:39.457 --> 00:27:42.661 you know, to play if if they give you a budget and it's way off 00:27:42.661 --> 00:27:45.697 from what you've been doing the last few months or the past year, 00:27:45.997 --> 00:27:48.900 then maybe they, the finance team did something wrong in your budget. 00:27:48.900 --> 00:27:51.903 So, you know, just ensure the data is right. 00:27:52.103 --> 00:27:53.805 Make sure you have evidence to support your data. 00:27:53.805 --> 00:27:58.710 So if if you are going to add a new assay, you know, have some support. 00:27:58.710 --> 00:28:01.346 Hey, well, you know, this test is going to go live. 00:28:01.346 --> 00:28:03.114 And here's the cost of the equipment. 00:28:03.114 --> 00:28:04.349 Here's the cost of the labor. 00:28:04.349 --> 00:28:07.652 So you can justify and speak to why you're going to add a new person. 00:28:07.652 --> 00:28:09.287 Why are you going to add a new instrument. 00:28:09.287 --> 00:28:12.524 You want to have the supporting documents to give you credibility. 00:28:12.524 --> 00:28:15.427 You're not just adding a number. You've got something to support it. 00:28:16.428 --> 00:28:18.463 Practice, practice, practice, you know, so review your budget 00:28:18.463 --> 00:28:21.466 and just know where everything is coming from. 00:28:22.267 --> 00:28:24.402 So, as I at a, at a company 00:28:24.402 --> 00:28:27.706 level, here are some elements of effective financial planning. 00:28:27.706 --> 00:28:29.374 You want to have a budget committee. 00:28:29.374 --> 00:28:31.342 You want to have a capital equipment committee, 00:28:31.342 --> 00:28:35.313 a salary wage and benefit committee, and a space committee. 00:28:35.313 --> 00:28:38.783 These these committees kind of work in, in harmony with each other. 00:28:39.150 --> 00:28:41.720 The budget committees developing the overall financial plan, 00:28:41.720 --> 00:28:44.723 the Capital Equipment Committee, they're they're determining, okay, 00:28:44.823 --> 00:28:47.425 as a company, we've budgeted for X amount of dollars 00:28:47.425 --> 00:28:50.428 to buy capital equipment to buy instruments, assets. 00:28:50.595 --> 00:28:54.332 And so the capital equipment is committee is charged with using that 00:28:54.332 --> 00:28:57.368 that pool of money and giving it out to the projects 00:28:57.368 --> 00:29:00.505 that have the highest need that make the most financial sense. 00:29:01.005 --> 00:29:04.476 The salary, wage and benefit committee, that's the committee that determines 00:29:04.476 --> 00:29:07.812 who are we hiring, you know, what position are we feeling, what new positions, 00:29:08.580 --> 00:29:09.647 you know, getting the right, 00:29:09.647 --> 00:29:13.051 appropriate mix of your employees based on the workload. 00:29:13.585 --> 00:29:16.321 And then the space committee would be a in a lab, 00:29:16.321 --> 00:29:18.556 you know, how are we allocating our building? 00:29:18.556 --> 00:29:21.159 Where are we putting lab space, benches, equipment, 00:29:21.159 --> 00:29:22.861 you know, using that effectively? 00:29:24.362 --> 00:29:25.964 An economically to use 00:29:25.964 --> 00:29:28.967 the space for the labs that we need. 00:29:29.901 --> 00:29:31.903 And, you know, let's see, continuing 00:29:31.903 --> 00:29:36.274 on, regular budget to actual reporting in a familiar format, easily accessible. 00:29:36.274 --> 00:29:38.943 So what's that saying is, you know, 00:29:38.943 --> 00:29:41.746 finance your finance, people should be providing a tool 00:29:41.746 --> 00:29:45.216 that allows you to compare your actual to budget on a regular basis, 00:29:45.950 --> 00:29:48.386 that's accessible and familiar and 00:29:48.386 --> 00:29:51.389 hopefully somewhat easy to understand. 00:29:52.223 --> 00:29:54.492 Typically the organization has a financial system 00:29:54.492 --> 00:29:56.094 capable of providing the laboratory 00:29:56.094 --> 00:29:58.797 and other departments with various financial reports. 00:29:58.797 --> 00:30:02.467 The reports functions as tools identifying how well the department is achieving 00:30:02.467 --> 00:30:03.668 the identified goals objectives. 00:30:03.668 --> 00:30:06.404 So what that's saying is, you know that again, 00:30:06.404 --> 00:30:09.407 the finance department should have some type of financial tool, 00:30:09.541 --> 00:30:12.977 a system, an IT system and that may facility 00:30:13.011 --> 00:30:16.781 that should facilitate the, leaders, the lab leaders 00:30:16.781 --> 00:30:19.784 across the company to be able to review their, 00:30:20.552 --> 00:30:23.321 their financials and determine that, you know, we're achieving the goals, 00:30:23.321 --> 00:30:26.691 the strategies that the executive team has, has tasked us with. 00:30:27.926 --> 00:30:30.094 So here's just a quick snippet 00:30:30.094 --> 00:30:34.933 that, just provides a budget to actual variance tool 00:30:35.333 --> 00:30:38.002 that allows, supervisors and leaders 00:30:38.002 --> 00:30:41.005 to kind of look at their, 00:30:41.039 --> 00:30:45.009 the activity in the, in the department to look at the actual revenue, 00:30:45.009 --> 00:30:47.679 the actual expenses versus the budget expenses, 00:30:47.679 --> 00:30:51.516 and then to look at the variances and, you know, the variances in that 00:30:51.516 --> 00:30:56.120 in the column, they help to identify where there could be either errors 00:30:56.120 --> 00:30:59.958 or there could be problems, something larger that's going on 00:30:59.958 --> 00:31:03.695 that needs to be addressed by the leader, or the leaders of the company. 00:31:04.495 --> 00:31:07.966 So having a tool that shows actual the budget, 00:31:08.166 --> 00:31:12.670 the variance is, is really paramount to helping lab supervisors 00:31:12.670 --> 00:31:15.773 be able to do their job and kind of understand what's happening in their labs. 00:31:17.508 --> 00:31:19.911 And, yeah. 00:31:19.911 --> 00:31:25.149 So talking about the variance analysis, the variance is, it's a timing difference. 00:31:26.150 --> 00:31:27.118 I'm trying to think of understand 00:31:27.118 --> 00:31:30.288 the variance is, is a timing difference that will disappear in the coming months. 00:31:30.288 --> 00:31:31.055 No action is needed. 00:31:31.055 --> 00:31:34.292 So what this is saying is when there is a variance, 00:31:34.592 --> 00:31:37.128 what are some explanations for this variance. 00:31:37.128 --> 00:31:38.730 What what's causing this variance. 00:31:38.730 --> 00:31:40.198 So in this first one 00:31:40.198 --> 00:31:43.101 it's a timing difference and will disappear in the coming months. 00:31:43.101 --> 00:31:45.470 So if 00:31:45.470 --> 00:31:49.741 we, we opened a box of supplies and you know, we, 00:31:49.741 --> 00:31:52.010 we expensed it all in one month, 00:31:52.010 --> 00:31:54.979 but we're going to use those supplies over the three months, you know. 00:31:54.979 --> 00:31:58.483 So it may be that first month may have a high supply span 00:31:58.483 --> 00:32:01.953 because we we opened the box and we, we we pulled it out of inventory. 00:32:02.287 --> 00:32:04.822 But really we're going to use that supply over three months. 00:32:04.822 --> 00:32:05.924 And so it's a timing difference. 00:32:05.924 --> 00:32:09.027 So if you look at the whole three three months together, 00:32:09.193 --> 00:32:10.929 you know it'll kind of even itself out. 00:32:12.830 --> 00:32:15.633 The variance is correct and corresponds to a change in the volume. 00:32:15.633 --> 00:32:19.404 So if if our volume increases 20% 00:32:19.771 --> 00:32:25.209 and our supply span goes up 20%, you know, yeah, we would expect the supply expense 00:32:25.209 --> 00:32:29.681 to go up if we're processing more test and using more reagents to do that. 00:32:29.681 --> 00:32:31.916 Testing. 00:32:31.916 --> 00:32:33.751 The assumption in the budget was wrong. 00:32:33.751 --> 00:32:36.254 As proven by the negative variance. The budget should be revised. 00:32:36.254 --> 00:32:37.588 So in that instance, 00:32:37.588 --> 00:32:40.925 you know, maybe the budget didn't plan for this assay to come live. 00:32:42.093 --> 00:32:43.895 And so we're spending more. 00:32:43.895 --> 00:32:45.263 But, you know, we didn't budget for it. 00:32:45.263 --> 00:32:47.498 So in that in that case, the budget was wrong. 00:32:47.498 --> 00:32:51.602 And that that happens all the time, that the budget can actually be wrong. 00:32:51.869 --> 00:32:53.905 I know finance people don't like to admit it, but yeah. 00:32:53.905 --> 00:32:56.908 So sometimes we can do, you know, we can budget incorrectly. 00:32:58.810 --> 00:33:00.211 There was an error in the process 00:33:00.211 --> 00:33:03.381 that incorrectly assigned revenue or expense to the wrong account or sub count. 00:33:03.381 --> 00:33:06.150 So, you know, this is beneficial if you have multiple departments 00:33:06.150 --> 00:33:11.322 in a company and maybe one department got charged for expenses that shouldn't have. 00:33:11.622 --> 00:33:14.559 And so as the department is reviewing this variance analysis, they identify, 00:33:14.559 --> 00:33:17.895 hey, why am I getting charged, you know, 20,000 more than I should have. 00:33:18.196 --> 00:33:19.197 And they're looking at the detail. 00:33:19.197 --> 00:33:21.933 I'm like, oh, this is not my this is not my supply. 00:33:21.933 --> 00:33:23.401 I don't use this in my lab. 00:33:23.401 --> 00:33:25.236 And so at that point, the finance can go in 00:33:25.236 --> 00:33:27.238 and make the correction to move that expense, to 00:33:27.238 --> 00:33:30.441 transfer it out of your department into the other department where it 00:33:30.475 --> 00:33:31.709 appropriately belongs. 00:33:33.077 --> 00:33:34.512 Expenses are not being controlled. 00:33:34.512 --> 00:33:37.515 Corrective action is needed to eliminate the unfavorable trend. 00:33:37.915 --> 00:33:40.918 So this is the one we hope is not the case, but it happens. 00:33:41.052 --> 00:33:43.388 You know, we're we're just spending like crazy. 00:33:43.388 --> 00:33:44.622 And we need to address that. 00:33:44.622 --> 00:33:47.892 You know, if, if, if volume went down 10% 00:33:47.892 --> 00:33:51.662 and our labor went up 50%, you know, we've got a problem. 00:33:51.662 --> 00:33:54.632 You know, we've got too many, too many cooks in the kitchen. 00:33:54.632 --> 00:33:57.001 And we've got to make a change with our labor. 00:33:57.001 --> 00:34:00.004 You know, maybe people are getting too much overtime, either variety of things. 00:34:00.004 --> 00:34:03.541 And so when you see a variance in that, it can result in a corrective action. 00:34:03.541 --> 00:34:06.411 You know, we gotta make a change to help improve this. 00:34:06.411 --> 00:34:08.146 It's nothing to do with the budget being incorrect, 00:34:08.146 --> 00:34:09.781 nothing to do with timing, you know. 00:34:09.781 --> 00:34:12.283 So we need to we have to have make some corrective action. 00:34:14.452 --> 00:34:17.455 And then another thing that's important to tie to financial planning 00:34:17.722 --> 00:34:21.692 is, is tying to incentives, you know, creating some type of incentive 00:34:22.026 --> 00:34:24.929 for employees so that if they meet the budget or exceed 00:34:24.929 --> 00:34:27.999 it, you know, that, that they get some type of benefit. 00:34:28.499 --> 00:34:32.236 It endears them to, to manage and watch these things, 00:34:32.236 --> 00:34:34.172 to watch their variance analysis. 00:34:34.172 --> 00:34:39.377 If there's some type of incentive tied to their behavior, then it encourages 00:34:39.377 --> 00:34:43.681 them to take responsibility and to, to take ownership of what's happening. 00:34:44.582 --> 00:34:47.585 So having some type of incentive, helps build a good culture 00:34:47.585 --> 00:34:52.590 and, helps encourage, responsible management of the budget. 00:34:52.590 --> 00:34:54.559 And the company operations. 00:34:54.559 --> 00:34:57.562 And, that is is all I have to share today. 00:34:57.929 --> 00:34:59.163 In regards to budget. 00:34:59.163 --> 00:35:02.133 And hopefully there's, you're able to glean some type of information 00:35:02.133 --> 00:35:05.103 from this that'll help help you to understand a little bit more, 00:35:05.636 --> 00:35:08.940 about the importance of financial planning and budgeting in a lab setting. 00:35:09.340 --> 00:35:10.108 Thank you very much.