Almost every organization uses some sort of budget at some time
or another. Unfortunately, many do so only to give the appearance of
completely the financial process properly, while really ignoring many of
the important reasons to use an effective budget.
Obviously, no one can accurately predict the future, especially financially, one hundred percent of the time. What a budget should do however, is be a guide to fiscal responsibility. It should be prepared in a worst case scenario, by underestimating the anticipated revenues, while looking at expenses from a standpoint of the worst that might happen. Organizations should never be satisfied going through the motions, and then just fudging the numbers to come up with whatever picture the want to portray. Doing that is merely an exercise in futility, and a waste of time. Organizations should rarely count on substantial fund raising increases to balance a budget, or make up for a deficit.
In the budget process, formulators should look at all expenses, and evaluate the value received from each, and whether or not there might be a better or more cost- effective method of achieving the goals, while reducing costs. A properly formed budget is a balance between the needs, goals, mission and objectives of an organization, and fiscal responsibility. Budgets must be constantly monitored through their active period, to assure compliance with the budgetary guidelines. I have served on, and observed, far too many organizations Board of Trustees or Board of Directors, where budgets are passed, and then the Board just continues passing addendums to the budget throughout the year, that render the budget useless.
Budgets should always be created using "zero-based" budgeting." This concept means that merely because an organization spent monies previously in a certain manner, that this cost is not merely carried over from cycle to cycle. Each expenditure should be examined and considered based on cost/ value basis, and various methodologies and alternatives should be examined. In my three decades of working on organizational budgeting, one of the thought processes that has disturbed me the most, is when I hear someone say that cutting a "small amount in" a particular area "won't make any difference." That reasoning is what I refer to as partially correct reasoning. If a small cut was made in only one area, it might not "make a dent," but if a series of small savings are discovered in numerous areas, the overall result might be substantial.
Budgets must be considered far more than mere exercises. Used correctly, a budget can be one of the most important documents an organization ever creates. The extra time and effort of using zero-based methods, is well worth it!
Obviously, no one can accurately predict the future, especially financially, one hundred percent of the time. What a budget should do however, is be a guide to fiscal responsibility. It should be prepared in a worst case scenario, by underestimating the anticipated revenues, while looking at expenses from a standpoint of the worst that might happen. Organizations should never be satisfied going through the motions, and then just fudging the numbers to come up with whatever picture the want to portray. Doing that is merely an exercise in futility, and a waste of time. Organizations should rarely count on substantial fund raising increases to balance a budget, or make up for a deficit.
In the budget process, formulators should look at all expenses, and evaluate the value received from each, and whether or not there might be a better or more cost- effective method of achieving the goals, while reducing costs. A properly formed budget is a balance between the needs, goals, mission and objectives of an organization, and fiscal responsibility. Budgets must be constantly monitored through their active period, to assure compliance with the budgetary guidelines. I have served on, and observed, far too many organizations Board of Trustees or Board of Directors, where budgets are passed, and then the Board just continues passing addendums to the budget throughout the year, that render the budget useless.
Budgets should always be created using "zero-based" budgeting." This concept means that merely because an organization spent monies previously in a certain manner, that this cost is not merely carried over from cycle to cycle. Each expenditure should be examined and considered based on cost/ value basis, and various methodologies and alternatives should be examined. In my three decades of working on organizational budgeting, one of the thought processes that has disturbed me the most, is when I hear someone say that cutting a "small amount in" a particular area "won't make any difference." That reasoning is what I refer to as partially correct reasoning. If a small cut was made in only one area, it might not "make a dent," but if a series of small savings are discovered in numerous areas, the overall result might be substantial.
Budgets must be considered far more than mere exercises. Used correctly, a budget can be one of the most important documents an organization ever creates. The extra time and effort of using zero-based methods, is well worth it!
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