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implements its plan within the budget period; it also involves the analysis of trends and
anticipated changes within business categories, such as operations and capital
expenditures. The adoption of a relatively detailed annual budget is a key element in
improving the Utility’s effectiveness.
The budget is prepared by management, usually during the last quarter of the year, and
should be approved by the Board before being endorsed to the stakeholders or general
assembly and to the regulatory bodies like NWRB, CDA or LWUA.
The basic components of a Budget are:
1. Statement of Objectives
2. Operation and Maintenance Budget
3. Capital Expenditure Budget; and
4. Financial Statements, including the Cash Flow and Income Statement
2. Statement of Objectives
For an on-going business, the first step in any budgeting process is generally an analysis
of the current year’s actual expenditures as compared with the approved budget, and
the presentation of objectives and goals for the coming calendar year. The deviations
between the actual estimated21 disbursements and budgeted amounts for the current
year have to be explained, and related to the Utility’s performance in terms of the
current year’s objectives.
1. These analyses need to be presented to the Board, which needs to
appreciate and evaluate whether the objectives set for the following year are
the right ones, are worth the budgetary outlays proposed, and are realistic in
the sense that they can be supported by the revenues to be realized by the
business. In other words, management should state the reasons (objectives)
for having a budget.
2. Depending on management’s presentation and the Board’s appreciation of
the budgetary proposal, the Board may request management to make the
modifications it deems necessary, or approve the budgetary plan outright.
3. It generally takes a minimum of 2 to 3 Board meetings before the Board
approves the budget.
3. Operation and Maintenance Budget
The O&M cost is the total estimated cost required to manage, operate and maintain the
water supply system. The projection of the O&M Budget usually is fairly straightforward,
unless major deteriorations of the facilities have created expectations of unpredictable
21
Called actual estimated because the presentation could be made in Oct or Nov while the figures will
cover up to December.
Page 10.2
Chapter 10: Financial Aspects