This checklist is designed to help you create a budget quickly and efficiently that enables you to achieve your financial target. It gives a broad based six-step process you need to work through to come up with a budget figure that is acceptable to the needs of your department or team and meets the financial target you have been given.
Being able to use a spreadsheet is essential management skill that makes the task of manipulating the figures that make up your budget easy and quick. This allows you the flexibility to create several versions of how you could allocate your budget between different cost centers or budget holders. One of its most useful functions is the opportunity to assess what impact on expenditure and performance a reduction in your overall budget would have and importantly your ability to attain the set target.
Many managers are responsible for managing a variety of devolved budgets and this adds additional steps to the process above. This template can be used for devolved budget creation by altering the name of additional sheet current referred to as ‘Version 1, Version 2 & Version 3’ to ‘Budget Name Unit 1, Budget Name Unit 2 & Budget Name Unit 3’. If you require further spreadsheets it is easy to add them to this template with one click.
Being responsible for several budgets requires you to be meticulous in your budget management and different templates for creating, monitoring and forecasting will be invaluable tools. They also provide you with the ideal tool to ask your unit budget holders to use in when they are sending their forecasts and expenditure reports back to you. The diagram below shows a typical process of how an overall budget is allocated out to lower level business units and their respective budget holders.
Having been assigned your new budget figure your first action should be to assess how well your current budget is performing. You need to ask such questions as:
• Is your budget on track?
• Any areas that you expect to come in under budget? How can these best be reallocated?
• If not, are you going to exceed budget? Can you do this or do you need to make cuts to stay within budget?
• What events occurred that took you by surprise, but were necessary or should have been avoided or scaled down?
This process will highlight where your forecasting has been on target and where it has missed the mark. Knowing how well you’ve predicting expenditure in the past will give a clear indication of how stable your market place is and your ability to foresee key events.
Once you have the information that tells you how your current budget is performing against your expectations you can start formulating your new budget figure and the spend per cost centre. You can begin to assess how the new financial targets will impact current and projected plans for expenditure. The typical areas to address are:
• Will you need more or less headcount?
• Will you want to make more use of contractors, internships, agencies etc.?
• Do you need to consider additional training for all or specific members of your team?
• Is it likely that you’ll need to alter the activities, events or supplier services to meet the target you’ve been given?
This information will give you a good indication of what items you will need to include in each of your costs centers and whether or not you need to change or add news ones to the budget. You can now put together your first draft budget often referred to as your desired budget. This will inevitably be trimmed down by the various iterations your budget will go through before being approved but it’s a good place to start.
A key element of any budget is to have a degree of contingency built into it. This allows you to weather the several iterations and usual reductions that the budgetary process will inevitably have. Your superiors will expect you to have added some protection into your budget to ensure you can meet your target and therefore be able to attain your target as they ask you to do more with less!
Now you have arrived at a budget figure you are confident to submit to your manager for approval. This budget should enable you to achieve all or the majority of activities and tasks that are necessary for you to achieve the set target. It is often advisable to include a one page summary with each submission that provides a justification of the proposed budget figures and how you’ll achieve your target. If there are any implications to your team / department / division these need to be highlighted in this summary too.
When you get your detailed budget back make sure at each stage that you are not being charged for expenses that are not your own and that all your expense are still taken into account i.e. overtime has been removed which is essential to meet targets without additional headcount. It is very easy for inappropriate or incorrect expenses to find there way into your budget so check everything carefully e.g. copier materials, servicing, agency services. Once its been approved you then become responsible for the expenditure in your budget!