ABCs for Managers Who Lead: B is for Budget

Budgeting is an important tool for Managers who Lead. Think of a budget as a guide to what you can do, rather than telling you what you can’t do. Incoming funds are always more limited than the countless ways you could spend these funds, and so you must choose what you want most – what is most important for you to spend your (always limited) resources on. It works that way for personal budgets and it works that way for organizational and project budgets.

A budget asks what resources are needed to achieve the results you want. Such resources include staff time, equipment, supplies, infrastructure, and anything else that costs something. Budgets are made when the mission, vision, strategies and activities are established. The budget presents the cost of implementing these activities. A balanced budget means that the money you need is (or will be) available.

Why does budgeting matter? Without a financial roadmap you could end up anywhere – and it might not be where you intended to go! Budgeting will also help you calculate (and obtain if necessary) the required financial, human and other resources to achieve your goals. If budgeting is integrated into the work of a team (rather than delegated to accounting staff), you may see a benefit in terms of accountability as your staff may understand better what it costs to do the work of the organization, and sharing responsibility for good stewardship of resources.

Budgeting matters because a good budget allows you to monitor progress on your activity, look at actual versus hoped for results and point to activities that may be costing more or less than expected. This means that budgets are not written and then put on a shelf. They are living documents that you must use to monitor the activities and results of your organization.

Budgeting well

• Check assumptions. During the budgeting process, test your assumptions about what it costs to implement the proposed activities. These assumptions are important to make calculations: to conduct such and such activities you need this many staff of such and such level, transport, lodging, printing, purchase of materials, etc. You can look at past expenses or make a good guess. When more than one person looks at the budget you can catch errors or correct your assumption to avoid painful surprises during implementation.
• Be realistic. Although one cannot exactly predict what will happen, over time you can reduce the tendency to under-estimate or over-estimate your costs. What would it mean if you under-estimated a project? The main thing to remember is that underestimating is a huge risk for your organization as it will most certainly lead to losses, unless there is a responsive and understanding donor. But overestimating result can be a problem too. When people add extra padding to their budgets and then cannot spend the money they may get less next year or are seen as poor implementers.
• Budgeting is for everyone. Ideally, budgeting is not just the responsibility of the accountants in your organization. Depending on what the specific purpose of the budget is (e.g. for proposal writing, as a management and documentation tool for the the central level of the Ministry of Health, your own management purposes, etc), it is important that the project/program implementation staff as well as the financial management staff be involved in estimating time, infrastructure and materials needed to do their jobs.
• Take into account the overhead costs. Depending on the type of organization you represent and the reason you are preparing the budget, you may find that you need funds to cover overhead costs, e.g.office space rental, power and water, cleaning, drivers and cars, etc. Not all of these costs will be covered by one project or even two, but each project can certainly include the proportion of the overhead costs relative to the size of the project.
• Use the budget to monitor activities. Your budget is a “living” document. By comparing the budget you have created to your organization’s actual expenses, you can use it to review progress on implementation of a single activity or to review whether or not your team is on track. Often you will find that funds need to be reallocated or that the budget needs to be adjusted to reflect changes in the technical plan.
• Be confident – you can learn to do it. You don’t have to be a financial genius to prepare a budget. Even having a simple budget can give you confidence that you are watching your activities and monitoring the progress from a financial vantage point so as not to be surprised by spending more or less than you have.

Invitation to collaborate

We welcome your thoughts about budgets. Please use the comment form below to share your experiences, successes, and lessons learned with regards to budgeting.

Stay tuned! We will be blogging here on all the other letters of the alphabet for Managers Who Lead in the weeks and months to come.