The document discusses budgeting basics, including that a budget is a projected financial plan that links an organization's goals and resources. It explains the budgeting process from planning to implementation and management. Additionally, it covers budget types, mechanics, and how budgets can be used as management tools for direction, control, and coordination within an organization.

2. Budgeting Basics
Vicky Hsu
February 18, 2011

3. What is Budgeting?
 A projected financial picture
of an organization that links
to its plan with a number of
goals.
 Shows what it takes
(expenditures) to achieve
these goals and what it is
expected to make (incomes)
when carrying them out.

4. Purpose of a Budget
 To provide a blueprint that the
organization follows to allocate its
resources
 To provide a target to measure
against the actual result and
recheck the direction the
organization is taking
 To hold people who are responsible
for executing the plan accountable

5. Financial Planning and
Budgeting
An effective budget:
 Provide the projected financial impact (input and output)
of a plan for the duration of interest
 Start from and link to the strategic and business plans
 Prevent crisis and stay on top of the activities
 Identify what resources are needed and how to obtain
and develop the resources to achieve the goals
 Lay all feasible options on the table and help decision
making for major changes

6. What Makes a Good Budget?
• Bring attention to where it’s needed
• Clear
• Flexible
• Informative
• Involve the right people
• Links objectives and resources
• Realistic
• Right amount of details
• Timely
• Understandable

7. Types of Budget
 Zero-based versus incremental
 Comprehensive versus references to current
 Advantages and disadvantages
 Organizational versus programmatic
 Operational versus tying to specific programs or funding sources
 Consideration of non program-related costs
 Bottom-up versus top-down
 Visions and consolidations
 Advantages and disadvantages
 Master, operating, capital, cash flow, balance sheet

8. Budgeting Process
Ws: what, how, when, who
Planning
 Identify the coordinator and persons involved
 Agree on the key definition, assumptions, and document
formats
 Set timelines and key deadlines
 Determine and schedule training or meetings

9. Budgeting Process (cont.)
Coordinating
 Communicate responsibilities, expectations and
deadlines to everyone involved
 Explain and distribute forms, templates and assumptions
 Share information and avoid duplication of effort
 Establish formal procedure to solve problems and
reconcile competing interests

10. Budgeting Process (cont.)
Goal setting
 Identify program goals and objectives
 Evaluate alternative courses of action
 Determine available resources and resources required
 Set selection criteria
 Agree on goals and assumptions

11. Budgeting Process (cont.)
Information gathering and compilation
 Research and gather information about income and
expense based on program goals and assumptions
 Construct budget details by program
 Have one person compile all information and review it for
consistency and redistribute to everyone involved

12. Budgeting Process (cont.)
Review and Approval
 Have the finance committee and other appropriate
personnel review the budget draft and key assumptions
 Allow plenty of time for review and revisions
 Be sure to address all questions and recommendations
and revise accordingly
 Distribute budget draft along with program goals and
supporting information

13. Budgeting Process (cont.)
Implementation and management
 Communicate budget, program goals and timelines to
personnel involved
 Line up financial reporting according to budget
 Review actual income and expense compared to the
budget on periodically and discuss any variances
 Evaluate unexpected circumstances and need for re-
direction
 Update and revise the budget as necessary

14. Operating:
 Revenue – expense = surplus or deficit
 Comprehensive and corresponds to income statement
 Sources of revenue: contribution, dues, fees, sales,
royalties, investment earnings
 Type of expense:
 Fixed or variable
 May or may not have cash impact
Budgeting Mechanics

15.  Example of expense:
 Personnel (salaries, benefits, training)
 Purchased services, professional fees
 Rent, utilities, telephone, internet, maintenance
 Insurance
 Printing, shipping, postage
 Supplies, minor equipment
 Travel, meeting, meals
 Taxes, interest
 Depreciation
Budgeting Mechanics (cont.)

16. Budgeting Mechanics (cont.)
 What should not be included in the operating
budget?
 Capital : purchase or sale of land, buildings,
fixture, equipment, furniture, or computers
 Investments
 Financing: proceeds or principal payments on
loans
 Items that belong to other periods

17. Budgeting Mechanics (cont.)
Cash:
 Beginning Balance
 Plus: Receipts
 Minus: Disbursement
 Equals: Surplus/Deficit from operation
 Financing: borrowings and repayments for the period

18. Making it Realistic and Accurate
 Investigate, analyze, research
 Past experience
 Similar organizations
 Vendor quotes
 Involve knowledgeable personnel
 Document and evaluate key assumptions and formulas
 Assess likelihood and probability

19. Decision Making and Priorities
 Effects or impacts of different scenarios:
 Level of activities
 Buy or lease
 Borrow
 Delays
 With or without external funding
 What is important? What is optional?
 Relationship between programs
 Sensitivity
 Capacity building

20. Budgeting as Management Tool
 Direction: supervise the activities so that they are carried
out in an effective and efficient manner and within time
and cost constraints
 Control: measure the progress of resources and
personnel in accomplishing the desired objective by
comparing the actual results and budgeting estimates to
identify problems needing attention
 Coordination: build consensus, decide on activities, and
communicate allocation of resources across the
organization

21. Question 1
What is not a purpose of budgeting?
A. To communicate plans and expectations
B. To allocate resources and control spending
C. To compare actual results at the period’s end
D. To put strategies into action
E. To guide and motivate managers

22. Question 2
What is budget analysis about?
A. Compare the actual results to its budget independent of
the implementation of strategies and activities
B. Identify the implication of actual results on the
underlying assumptions
C. Exclusively focus on the sources of unfavorable
variances and what drove them
D. Disregard whether a program covers its cost if the
organization makes money
E. Expect actual results conform to budget despite
significant changes in circumstances

23. Question 3
What is part of the budget process?
A. Motivating
B. Controlling
C. Organizing
D. Decision making
E. All of the above

24. Question 4
What should be included in the operating budget?
A. Unconditional contribution pledged previously to be
received
B. Equipment purchase that meets capitalization threshold
C. Principal payment of loans
D. Value of professional services to be provided by
vendors free of charge
E. Cash to be invested in stocks, mutual funds, and bonds