The key cost element of programs is people. Accurately calculating the costs of the staff of an organization is an essential skill of a competent budget analyst. Proper analysis of staffing costs is the foundation of the contribution that budgeting makes to management of an agency and its operating components. Conclusions reached from analysis lead to management action. A detailed example of PC&B calculations with explanations is provided, as well as examples of payroll cost items as well as an example of what can happen when it is not done well.
Agency organizational components tend to fall in the smaller sizes, so the focus of this example is a small organization of about 230 people. The assumption is that this organization has been in existence for some time so there is historical information on what the costs of staff are. It is also assumed that the calculation is being made a few months before the start of the fiscal year in question. Therefore, there is no need for detailed computations of various levels of pay and benefits since they are available from the accounting reports. The calculation is for a full Federal fiscal year, i.e., October 1 through September 30. Various known and assumed changes in the composition of the staff and their costs are illustrated in this example. The estimated per full-time equivalent (FTE) cost for the year, based on the accounting data assumed to be available, is $86,000. The dollar amounts are in thousands. Certain aspects of the calculation (or estimate) are explained below. This table includes more detail than would be appropriate for briefing management - it is more of a worksheet for the analyst than a tool for communication with management.
Communication with management is an essential part of making a proper PC&B calculation, both before the analysis and to present the results. Certain assumptions for the calculation can only be obtained by discussing them with management; examples include plans for reorganization and staff changes as well as bonus and cash award policies.
Congress tells an agency that it has "...directed a reduction in payroll costs" - this is a lesson for the analyst – Know you PC&B numbers, and know them well. In addition to knowing them, make sure that your legislative body is given your accurate numbers. Not knowing them and not communicating them will result in severe repercussions. The Appropriations Committee has one basic way to send a message: It cuts your budget. When this happens, the agency better pay attention and get its PC&B computations and analyses in order, or it will cease to exist.
There are many types of payroll costs that can be accounted for in an accounting system and that may have to be budgeted for by an analyst. The following illustrates what these types of costs can be.