Budget for betterWorkshop 2: TDR

Project, AAH, June2014

Based on :

Project budgeting

By John Cammack,

How To guide

July 2010

Why bother with budgeting

• Budgeting is one of the best tools for planningand monitoring. It keeps our finances in goodorder and, more importantly, helps to achieve ourobjectives.

• Good budgeting means good development.

• If the project or organisation relies on outsidefunding, budgeting is essential.

• A funding proposal will require a planned budget,and most donors want to see regular monitoringreports.

What are budgets used for?• Plan and implement our objectives

• Calculate estimated income and expenditure

• Maximise donor funding

• Co-ordinate activities

• Communicate plans

• Set clear targets

• Work out much resources and people needed toachieve them

• Monitor, review and evaluate actual performance

• Be accountable to partners, beneficiaries and donors

Who is responsible for a budget?

• Staff

• Managers

• Community

• Accountant

Planning a budget

• Seven simple steps

1. Identify project or organisational objectives.

• Involve a range of staff and stakeholders inthis.

2. Decide on limitations

• Identify any limits to resources and fundsavailable at the start.

3. Gather data

• For example:

– Previous year’s budget and latest information onactual income and expenditure

– The best estimates of running costs, income andgrants

– External factors influencing income andexpenditure

4. How much will be received (income)?

• Be as realistic as possible. Show lowerestimates of donations and charges.

• Only include guaranteed grant income.

5. Decide how much will be spent(expenditure)

• Separate items into types. This may need tofollow your own organisation’s and/or yourdonor’s standard list of budget headings.

6. Construct the budget

– List the budget item by item, making sure thatincome is at least as much as expenditure.

– Provide a note of calculations to justify them.

7. Obtain approval

• Obtain approval from your own organisation’strustees and any donors involved.

Monitoring a budget

• After approval, and before the project periodstarts, tell everyone who needs to know thebudgeted figures. This should be open tomany.

• If funded by an outside donor, make sure youwill be able to report in their format.

• After you startreceiving and spendingmoney to implementyour programme, it isessential to monitorregularly how close theactual income andexpenditure is to thebudget.

Stages in budget monitoring

1. Prepare or receive the informationcomparing the budget with ‘actual’

2. A comparison of the budget to ‘actual’income and expenditure is normally preparedmonthly or quarterly. It is sometimes called a‘budget and actual’ statement,‘management, ‘budget report’ or ‘variancereport’.

Stage 3 in budget monitoring

3. Ask questions and take action

• The notes with the budget and actualstatement provide an explanation for some ofthe differences.

• The variance/budget % column shows howimportant the different is. As a guide, if thisfigure is over 10%, or if below 10% and a largeamount, it is worth asking for a reason if notexplained in the notes.

In the example we could ask….

• How certain is all the estimated grant incometo come in during the year?

• What does ‘other income’ include other thanfundraising?

• Why was fundraising income more in thisquarter? How likely is this to continue at thislevel over the rest of the year?

• What are the ‘use by’ dates of the medicalsupplies/drugs bought in advance?

More on monitoring

• In all budgets:

• Ask why each actual figure is different fromthe budget. Predict what would happen if thecurrent trend continues for the rest of thebudget period

• If necessary, reduce costs, cut back on, orexpand a planned programme, increase feesor fundraising

• If spending too much or too little, talk withyour donor, otherwise the donor may notrelease all the money promised

• Take no action if the actual figure istemporarily incorrect, but will right itself inthe next period, but make sure it does

• Continue monitoring the budget and makesure any action has been effective

Producing documents at year end

• At the end of the financial year, the ‘actual’part of the final budget and actual statementbecomes the basis of the annual accountingstatements.

• Internationally two statements show whathas happened during the year:

• Receipts and payments account

– This shows what has been received and paid,without adjustment for what is outstanding orpaid in advance. At the end of the year it will showhow much money remains in cash and at thebank. It is relatively simple to prepare but onlysuitable for small organisations.

• Income and expenditure account (Incomestatement)

– A more technical document, which uses the‘actual’ information and adjusts it for outstandingitems, payments in advance and other items. Theaim is to produce a document which covers twelvemonths’ income and expenditure.

– It compares like with like, and the account canshow whether there is a ‘surplus’ or ‘deficit’.

Budgeting checklist 1

• Involve a range of staff and stakeholders in theplanning stage

• Use objectives as the starting point

• Add notes to explain and justify calculations

• Be as realistic as possible

• Prepare well before the start of the period

Budgeting checklist 2

• Check that your accounting systems can producedonor reports

• Get authorisation for the budget from yourorganisation and donors

• Communicate budget information to everyonewho needs to know

• Produce ‘budget and actual statements’ quicklyafter period end

• Add notes to the statement to explain variances

Budget checklist 3

• Monitor regularly, review and take action

• Negotiate with donors as soon as anyunder/over spending is likely

• Compare the budget to the income andexpenditure account figures

• Learn by doing

– Project budget

– Family budget