Access the essential membership for Modern Managers
You may be the one responsible for creating your budget but that doesn’t mean that you will have all the information to hand and know everything that needs to go in it straight away. There needs to be a bit of detective work first where you go on a fact-finding mission. Use the guide below to find out how you should go about gathering information for your budget.
Be Clear on Your Remit
Before you even begin pulling together information, you need to be sure what you are trying to achieve by budgeting and what type of budget you are going to create. For instance, your briefing is that you need to keep your team’s expenditure to £45,000 this year and you have to create a budget accordingly. The goal of the budget would therefore be to draw up a plan of expenditure for the next 12 months that does not exceed £45,000 and that makes the best use of your resources. As such, the type of budget you will need to create is a team expenditure budget.
Be Clear on the Level of Detail Required
There is no point setting off to create a very detailed budget that lists expenditure down to the individual items if you have only been expected to provide high-level, broad-brush information. Being clear on the level of detail that you will need to go into will help you gather information from the right sources, influence any assumptions or estimates that you make and impact on the amount of time you will need to spend gathering your information.
Be Aware of Time
Be realistic in the amount of time involved in this stage of budgeting. Gathering information may involve accessing data from different sources or contacting different people. This may take some time. You will also have to be mindful of other people’s work commitments and when they are likely to be able to report back to you. Once you have actually collected your data you will need to review and analyze it, making decisions, assumptions and performing calculations. This all takes time and won’t necessarily be a quick job.
Start With Your Previous Budget
If you have access to the previous budget, it is a useful starting point in terms of gathering information. That is not to say that you are just going to copy it. Budgeting can be as much about not doing the same as what you did last time as it is about doing the same as you did before.
Ignoring the figures for the moment, the previous budget can give you an idea of the budget items that were included last time. From this list you can add any items that you will need this year or remove any that are no longer necessary.
Decide Between Incremental and Zero Base Budgeting
Now it is time to decide what you are going to use as a base for your figures. If you have access to the previous budget, you might want to consider making incremental adjustments to those figures. Or perhaps you will want to start with a ‘clean slate’ and use a zero base approach. You will need to ask yourself the following questions to help you decide:
- Have my team’s activities changed much from the previous budget period?
- What are my team’s objectives and the organization’s strategy for the period ahead?
- How accurate is the data in the previous budget?
- Were there major variances (where the actual figures were different to those budgeted) last time?
- What were the assumptions used to produce the budget?
If things have changed a lot from last year, or last year’s budget was not very realistic or accurate, it will probably be a good idea to start again with a zero base approach. If things are likely to be much the same as before, an incremental approach might be suitable. You should also consider how much time you have to gather information and create your budget. A zero base approach will probably take you much longer than making incremental adjustments to last year’s budget. For a full guide to both types of budgeting you will find the document ‘Linking Your Budget To Your Strategy’ helpful.
Make Use of the Finance Department
Even if you are only making incremental changes to the previous budget, you should consider speaking to your finance staff to get some advice on what changes to make. You may know how your activities are likely to change but can you accurately quantify what this change will look like numerically? If you are going to take on an extra staff member, for example, you will need to know what the overall impact on staff costs will be. It will be more than just their gross salary. There will be National Insurance, PAYE, pensions and perhaps expenses or benefits too.
Not only will the finance department be able to help you by providing more accurate data based on their accounting systems, they will be able to help you calculate your estimate and give you a second opinion on how sensible some of your assumptions will be. They will also be able to advise you on more technical matters such as the implications of Value Added Tax (VAT) or capital expenditure.
Review Your Team’s Knowledge
If you are drawing up a budget for your whole team, there may well be activities that colleagues know more about than you do and they will be able to give you a better estimate of what the costs or revenues are likely to be. The more information you have available to you the better. Your team will not think that you are lacking in knowledge if you ask them to help you draw up information for the budget. In your management role you are expected to have a good overview of your team’s activities and responsibilities. You cannot be expected to know all the detail of all the tasks that everyone does. You can always learn a bit more by talking to the people who manage and control the different parts of activities.
Evaluate Your Team’s Suggestions
Your team will be able to give you many suggestions and opinions but at this stage the information is just that. You must consider its accuracy, assumptions, estimates and the motivations of your team members. Perhaps people are over-optimistic in what they can achieve while some might want to create some slack in the budget.
