SESSION 7 : FINANCE 1 , BUDGETING

EMANUEL SOUVAIRANMARCH 2014

Practical Approaches to Managing International Development Projects in the

Face of Complexity

T H I S P R E S E N T A T I O N W I L L B E M A D E A V A I L A B L E T O S T U D E N T S V I A S L I D E S H A R E

Budgeting

What is a Budget for?

Planning A budget is necessary for planning a new project, so that managers can build

up an accurate idea of the project’s cost. This allows them to work out if they have the money to complete the project and if they are making the best use of the funds they have available.

Fundraising The budget is a critical part of any negotiation with donors. The budget sets

out in detail what the NGO will do with a grant, including what the money will be spent on, and what results will be achieved.

Project implementation An accurate budget is needed to control the project, once it has been started.

The most important tool for on-going monitoring is comparing the actual costs against the budgeted costs. Without an accurate budget, this is impossible. Because plans sometimes change, it may be necessary to review the budget after a project has started.

Monitoring and evaluation The budget is used as a tool for evaluating the success of the project, when it

is finished. It helps to answer the question: ‘Did the project achieve what it set out to achieve?’

1. THE INCOME AND EXPENDITURE BUDGET

2. THE CAPITAL BUDGET 3. THE CASHFLOW FORECAST

Three main types of budget

T H I S I S A S P E C I A L F O R M O F Z E R O - B A S E B U D G E T I N G A N D I S F R E Q U E N T LY U S E D I N T H E N G O S E C T O R T O C R E AT E P R O J E C T B U D G E T S A N D I S FAV O U R E D B Y M A N Y D O N O R S .

Z E R O - B A S E B U D G E T I N G ( O R Z B B ) I G N O R E S P R E V I O U S E X P E R I E N C E A N D S TA R T S W I T H N E X T Y E A R ’ S TA R G E T S A N D A C T I V I T I E S . Z B B R E Q U I R E S T H E W R I T E R O F T H E B U D G E T T O J U S T I F Y A L L T H E R E S O U R C E R E Q U I R E M E N T S .

T H I S P R O C E S S M A Y S U I T O R G A N I S AT I O N S G O I N G T H R O U G H A P E R I O D O F R A P I D C H A N G E A N D T H O S E , L I K E N G O S , W H O S E I N C O M E I S A C T I V I T Y- B A S E D . Z E R O -B A S E D B U D G E T S A R E S A I D T O B E M O R E A C C U R AT E S I N C E T H E Y A R E B A S E D O N T H E D E TA I L O F P L A N N E D A C T I V I T I E S . H O W E V E R , T H E A P P R O A C H D O E S I M P O S E A M U C H G R E AT E R W O R K L O A D O N M A N A G E R S T H A N I N C R E M E N TA L B U D G E T I N G .

Activity based budgeting

W R I T I N G A B U D G E T I N V O LV E S A N S W E R I N G A N U M B E R O F Q U E S T I O N S , T H AT C A N O N LY B E A N S W E R E D B Y P R O G R A M M E S TA F F A N D F I N A N C E S TA F F W O R K I N G T O G E T H E R : T H E Y S TA R T W I T H P L A N S A N D G O A L S , N O T N U M B E R S :

1. W H AT   O B J E C T I V E S   A R E W E T R Y I N G T O A C H I E V E ?2. W H AT   A C T I V I T I E S   W I L L B E I N V O LV E D I N A C H I E V I N G T H E S E

O B J E C T I V E S ?3. W H AT   R E S O U R C E S   W I L L W E N E E D T O C A R R Y O U T T H E S E

A C T I V I T I E S ?4. W H AT W I L L T H E S E R E S O U R C E S   C O S T ?5. W H E R E W I L L T H E F U N D S C O M E F R O M ? W H AT W I L L

T H E   S O U R C E   B E ?6. I S T H E R E S U LT   R E A L I S T I C ?

T H I S M I G H T L O O K L I K E H A R D W O R K , B U T W E A C T U A L LY W O R K T H R O U G H T H E S E Q U E S T I O N S E V E R Y D A Y, W H E N W E H A N D L E O U R O W N P E R S O N A L M O N E Y. . .

Writing a budget

T H E E X T R A C T D E S C R I B E S T H E I N P U T S N E E D E D F O R A 4 - D A Y W O R K S H O P F O R 2 0 PA R T I C I PA N T S W I T H T W O T U T O R S . T H E TA B L E D E TA I L S I T E M S R E Q U I R E D F O R T H E W O R K S H O P, T H E Q U A N T I T Y A N D T H E C O S T P E R U N I T. T H E F I N A L C O LU M N P R O V I D E S T H E B U D G E T F O R E A C H I T E M .

Using a budget worksheet

Budget worksheet columns

Choosing unit types...

Take care with contingencies

T RY T O AVO I D A D D I N G A ‘ B O T T O M L I N E ’ P E R C E N TA G E F O R S O - C A L L E D ‘ C O N T I N G E N C I E S ’ O N T H E O V E R A L L B U D G E T. G E N E R A L LY, D O N O R S D O N O T L I K E T O S E E T H I S A N D I T I S N O T A N A C C U R AT E WAY O F C A L C U L AT I N G A B U D G E T.

I T I S B E T T E R T O C A L C U L AT E A N D I N C LU D E A C O N T I N G E N C Y A M O U N T F O R S E PA R AT E I T E M S I N T H E B U D G E T – E . G . A S A L A R I E S C O N T I N G E N C Y O R F U E L C O N T I N G E N C Y, I F N E E D E D.

R E M E M B E R T H AT E V E RY I T E M I N Y O U R B U D G E T M U S T B E J U S T I F I A B L E – A D D I N G A P E R C E N TA G E O N T H E B O T T O M I S D I F F I C U LT T O J U S T I F Y – A N D A L S O D I F F I C U LT T O M O N I T O R .

D O N ’ T F O R G E T T H E F O R G O T T E N C O S T S ! T H E R E I S A T E N D E N C Y I N N G O S T O U N D E R - E S T I M AT E T H E T R U E C O S T S F O R F E A R O F N O T G E T T I N G A P R O J E C T F U N D E D . H E R E A R E S O M E O F T H E M O S T O F T E N O V E R L O O K E D C O S T S :• S TA F F R E L AT E D C O S T S ( E . G . R E C R U I T M E N T C O S T S ,

T R A I N I N G , B E N E F I T S A N D S TAT U T O R Y PA Y M E N T S )• S TA R T- U P C O S T S ( E . G . P U B L I C I T Y )• O V E R H E A D O R C O R E C O S T S ( E . G . R E N T, I N S U R A N C E ,

U T I L I T I E S )• T R A N S P O R T C O S T S ( E . G . M O V I N G G O O D S A R O U N D

T H E C O U N T R Y )• V E H I C L E R U N N I N G C O S T S• E Q U I P M E N T M A I N T E N A N C E ( E . G . F O R

P H O T O C O P I E R S A N D C O M P U T E R S )• G O V E R N A N C E C O S T S ( E . G . B O A R D M E E T I N G S , A G M )• A U D I T F E E SI F Y O U D O N ’ T I N C LU D E T H E M I N T H E B U D G E T, T H E N Y O U M A Y N O T H AV E E N O U G H F U N D S T O PA Y F O R T H E M !

Forgotten costs

FI ND YOURSELF A ‘BUDGET BUDDY’ TO CHECK YOUR DRAFT BUDGET WITH A

CRI T I CAL EYE . THI S COULD BE A WORK COLLEAGUE OR SOMEONE DOING A S IMILAR

ROLE IN ANOTHER NGO.

Ask for help!

• T H E P E R S O N W I T H T H E R E S P O N S I B I L I T Y F O R I M P L E M E N T I N G A B U D G E T I S C A L L E D A ‘ B U D G E T H O L D E R ’ , A N D I S U S U A L LY A P R O G R A M M E O R P R O J E C T M A N A G E R , N O T A F I N A N C E P E R S O N..

• T H E Y U S E T H E B U D G E T T O G U I D E T H E I M P L E M E N TAT I O N, C H E C K I N G B E F O R E S P E N D I N G T H AT I T E M S A R E B U D G E T E D F O R , A N D A L L O C AT I N G E X P E N D I T U R E T O A P P R O P R I AT E B U D G E T L I N E S . 

• B U D G E T H O L D E R S S H O U L D F O C U S O N   D E L I V E R I N G T H E P R O J E C T O B J E C T I V E S   W I T H I N T H E T O TA L B U D G E T R AT H E R T H A N O N S P E N D I N G A L L T H E C A S H O U T L I N E D I N T H E B U D G E T. 

• O V E R O R U N D E R S P E N D I N G   W I T H I N R E A S O N A B L E L I M I T S   I S N O T A P R O B L E M A S L O N G A S T H E R E A R E G O O D E X P L A N AT I O N S ( B U T C H E C K Y O U R G R A N T C O N D I T I O N S , A S S O M E C A N B E M O R E R E S T R I C T I V E T H A N O T H E R S ) .

Implementing the budget