TT03 Budgeting

Guide to Financial Management

Top Tips 3

Budgeting

“Failing to plan is planning to fail!”

1. Be organised

The process of preparing a meaningful and useful budget is best undertaken as an organised group exercise with beneficiaries, programme and finance staff working together. It can’t be just “left to the accountant”! The budget process involves asking a number of questions:

  1. What are the objectives of the project?
  2. What activities will be involved in achieving these objectives?
  3. What resources will be needed to perform these activities?
  4. What will these resources cost?
  5. Where will the funds come from?
  6. Is the result realistic?

Have all of the information that you need to answer these questions ready. If you want to encourage participation and a sense of local ownership, then it can really help if representatives of your beneficiary groups are actively involved in setting the budget. This is good practice for NGOs.

2. Set up a timetable

There are several stages involved in constructing a budget. For instance, you may have to gather information together, discuss activities with different members of staff and beneficiaries, estimate costs, negotiate with funders, see how different team budgets fit together across the organisation and finally have the budget approved by senior staff or donors.

It makes sense to prepare a budgeting timetable and start the process early. This could be four to six months before the start of the financial year, depending on the size of your organisation and the approach you plan to take.

3. Write down all your notes and assumptions

Many different people will need to use the budget for different purposes. So they should all be able to pick it up and understand it without any additional explanation. It is crucial to present your information clearly, particularly if staff change during the life of a project. You must keep notes on all budgeting assumptions and how calculations have been made, and attach them to the budget.

4. Use consistent budget headings

When you are setting up or reviewing a budget, it is important to pay attention to the budget headings. This is because the budget items also appear in your NGO’s financial accounts and reports. If the budget items and accounting records use the same descriptions and budget headings, then it will be much easier to produce regular budget monitoring reports

One way of achieving consistency is to prepare a budget outline. For instance, this could list all of the main types of income and expenditure that a project or department might have in a typical year. It can help jog people’s memories and remember all the relevant costs.

5. Estimating costs

It is important to be able to justify your calculations when you are estimating costs. Last year’s budget can be very helpful as a starting point; but it might also be misleading and contain inaccuracies.

One approach is to make a list of all the things you will need for each specific activity, and then work out the number and unit cost of each item. From this detailed working sheet it is simple to produce a summarised budget for each budget heading. It is also very easy to update if quantities or unit costs change.

To demonstrate this approach, here is an extract from a sample budget worksheet for a training workshop:


 

6. Take care with contingencies

Try to avoid adding a ‘bottom line’ percentage for so-called ‘contingencies’ on the overall budget. Generally, donors do not like to see this and it is not an accurate way of calculating a budget. It is better to calculate and include a contingency amount for separate items in the budget – e.g. a salaries contingency or fuel contingency, if needed.
Remember that every item in your budget must be justifiable – adding a percentage on the bottom is difficult to justify – and also difficult to monitor.

7. Forgotten costs

Don’t forget the forgotten costs! There is a tendency in NGOs to under-estimate the true costs of running a project for fear of not getting a project funded. Here are some of the most often overlooked costs:

  • Staff related costs (e.g. recruitment costs, training, benefits and statutory payments)
  • Start-up costs (e.g. publicity)
  • Overhead or core costs (e.g. rent, insurance, utilities)
  • Transport costs (e.g. moving goods around the country)
  • Vehicle running costs
  • Equipment maintenance (e.g. for photocopiers and computers)
  • Governance costs (e.g. board meetings, AGM)
  • Audit fees

If you don’t include them in the budget, then you may not have enough funds to pay for them!

8. Ask for help!

Find yourself a ‘budget buddy’ to check your draft budget with a critical eye. This could be a work colleague or someone doing a similar role in another NGO.

Want to learn more?

View our calendar of courses around the world here: www.mango.org.uk/training/opentrainingprogramme

See Mango’s Guide to Financial Management for NGOs for free advice and tools,including a section on budgeting

Mango: All about Money and NGOs
Mango helps NGOs to make more of their money by: running practical training, supporting people in finance roles, advising NGOs and donors, and publishing free tools and guides: www.mango.org.uk