Budget Planning
Colin Roberston offers some advice around planning a budget
In planning a budget it’s important to see how it fits within an organisation’s overall planning process. First of all why are you budgeting? This might be an obvious question but it’s worthwhile reflecting on. Many would respond “because we have to” or “because we always have” (or even “because our funders require it”). Reasonable enough answers but it’s worth reflecting that the budget is an interpretation in monetary terms of future plans. It is one of the ways of understanding your organisation and needs to fit into the wider planning framework.
Step 1. Look to the future Develop your strategic and business plans
Step 2. Set your objectives A budget stems from the organisation's objectives
Step 3. Plan your services How are you going to achieve your objectives, what resources do you need?
Step 4. Budget planning What expenditure will be necessary to achieve your objectives? How can you match this with income?
Step 5. Budget approval Submit your draft budget for approval by the board or committee
Step 6. Budget monitoring Report actual to budget comparisons to the board/and reporting committee on a regular basis (monthly or quarterly)
Producing the budget
First decide if your are going for a zero based or an incremental budget. Zero based budgets do not assume the need for any particular budget heading or activity but look at each item on their merits (from base zero). An incremental budget would look to last year’s figures and decide what additions are needed in line with any developments in the strategic plan or external developments, e.g. inflation or SP funding levels. It is unlikely you will create your total budget on a zero basis unless it’s a new service or organisation, but you are strongly encouraged to look at as many areas as possible assessing their importance to your strategic objectives.
Next make an assessment of costs, building up the budget from its detailed elements, e.g. staffing, training, heat and light etc. You need to take account of whether costs are fixed or variable. Fixed costs are those that do not change in the short term according to levels of activities and are often a contractual obligation such as; staff salaries, office rental and the standing charge of utility bills. Variable costs are those that do change according to levels of activity, e.g. printing and stationery, staff training and the variable element of utility bills.
Once you’ve set your expenditure budget you will need to look to see if you can afford it. After you look at your projected income you may need to go back and trim or even radically re-evaluate elements of your budget. If you are aiming at a balanced budget have you included an element for building up reserves? If you’re not aiming to make a surplus in the coming year how does that fit in with your short and long term viability? (Whilst there are Value for Money pressures you also need to think about your long term viability).
Once you’ve set your organisation budget you will need to tie elements of the expenditure budget to direct income streams dividing your budget by cost centres e.g. Supporting People, housing management (further divided between service charges and core rents), care etc. In doing so, you need to make decisions not just on direct costs to these various cost centres but overhead allocation as well.
