Series 1: Insight 01 – How to set a budget
HB Training and Publications International is releasing a series of insights to assist with financial management in the public and non profit sectors. We are well placed to share our experience and expertise in the field. One of the directors is currently completing her PhD in public sector financial management this year.
These insights will take a topic, or part of a topic, and provide a sound bite for anyone interested in improving their skills and underpinning knowledge in the areas of budgeting, budget monitoring, and control. They are not meant to be comprehensive but should enable budget holders and managers consider the benefit of learning more about these topics.
How to set a budget
There are several budget setting techniques that can be applied to both expenditure and income budgets. They can be used independently or combined depending on the type of budget being set. The most popular techniques include:
- Incremental Budgeting
- Zero Based Budgeting
- Cash Limited Budgeting
- Resource Restricted Budgeting
- Activity Based Budgeting
- Contingency Budgeting
Each have their advantages and dis-advantages. It is worthwhile reviewing our article “6 Budget Setting Techniques – Explained”.
This insight promotes the most important aspect of budgeting is knowing the “assumptions” made in the production of each budget line. This may be as simple as the incremental approach of assuming last years budget plus inflation will be a reasonable budget for the future years. Or it may be more complex, using scenario planning and demand profiles. In any event many budget holders receive budgets without the assumptions upon which they are based, and are then expected to control them.
Whoever develops the budget (ideally the budget holder/owner) should have a record of their assumptions such that all budget users understand the underlying objectives for the use of that budget. We would recommend the more detailed the assumptions the better, as these will underpin budget monitoring and enhance the decision making process for budgetary control.
For further insights or for more information on budgeting for the public and non-profit sectors contact us at info@hbpublications.com.
