Budgeting Quick Guide

Key Decisions for Drawing Up a Budget

What is a Budget?

• A budget is a financial plan for a defined period (usually one year).
• It is prepared after setting strategic objectives and annual goals.

Why Use a Budget?

• Benefits:
  • Communicate and set financial targets.
  • Maximize and allocate resources.
  • Establish a system of control.
• Limitations:
  • Can dominate and restrict thinking and decision-making.

When to Use a Budget?

• Budgeting is essential after determining strategic objectives and annual goals.
• Translates plans into financial terms.

Key Activities in Budgeting

1. Forecasts:
   • Ask questions like, "It cost XXXX last year, will it cost the same this year?"
   • Gather complex information from the planning process.
2. Reviews:
   • Avoid incremental budgeting that carries forward mistakes.
   • Regularly review activities to ensure relevance and appropriateness.
3. Evolving Adjustments:
   • Adjust budgets to reflect new circumstances during the year.
   • Prevent budgets from becoming unrealistic.
4. Clarify Accountability:
   • Identify who is responsible for different parts of the budget.
   • Allocate responsibility to budget holders.
5. Create Clear Timescales:
   • Set realistic deadlines for budget completion.
   • Ensure timing matches funders' decision-making processes.
6. Scheduling:
   • Integrate budgeting into the organization’s annual schedule.
   • Start budgeting six months before the new budget year.
7. Technical Support:
   • Finance officer sends out budget worksheets to be completed by budget holders.
   • Finance officer compiles and approves budgets.
8. Take Decisions:
   • Decide on a balanced, deficit, or surplus budget.
9. Budgetary Control:
   • Provide timely reports comparing actual results with the current year.
   • Use this information for corrective actions and new budget planning.
10. Variance Reports:
    • Compare actual results with budgeted expectations.
    • Use variance analysis for new budget planning.
11. Exception Reports:
    • Explain large variances.
    • Avoid overwhelming with unnecessary information on small variances.