Operations, Org Design

The Art of Budget Planning

By: Functionly

Organizational planning often focuses on designing team structures, creating roles and responsibilities, and determining how communication will flow across the organization. These tasks are important, but they must also be paired with budget planning.

Why Is Budget Planning Important?

Budget planning helps to ensure that you have the funds available to reach your organizational goals.

4 Main Types of Budgets

There are four budget types: 

1. Zero Based

A zero-based budget assumes that every department begins with a budget of zero. Then, department leaders are expected to justify the funds they need to execute organizational plans and achieve goals. 

2. Activity Based

Begin with your company’s desired outcomes. Then, determine the activities required to achieve those. Finally, create a budget based on the costs of those activities.

3. Incremental

With incremental budgeting, take last year's budget figures as a baseline. Then, add or subtract a percentage to determine your budget for the current year. This may not work if you expect major changes like corporate restructuring.

4. Value Proposition

Value proposition budgeting involves looking at every budget item individually to assess its actual value and justify its cost.

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How to Create a Budget Plan

Follow these steps to create a budget to align with your organizational needs:

Have a Prioritized List of Needs and Goals

Your budget exists to ensure you have the funds to operate your business and achieve your goals. Set priorities that include the following:

  • Items needed to operate the business
  • Activities and resources needed to achieve high-priority goals
  • Activities and resources needed to achieve mid- to low-priority goals

If there are shortfalls, your list will let you know where it’s okay to make cuts.

Identify Fixed Costs

List the costs that will not change during the budget period. These are the most predictable items in your budget.

Identify Variable Costs

List your variable costs. Then, create a close estimate of what they will cost. Consider using the previous year's numbers.

Create an Income Forecast

Work with your team to predict your income for the upcoming budget cycle. Be conservative.

Choose a Budget Type and Make a Plan

Use a budget type that will work best with your organizational planning. Create a final budget based on the information gathered.

Use Tools to Integrate Your Budget into Your Company Planning

For the best results, take advantage of tools and technologies to efficiently create an accurate budget. Budgeting templates are one excellent resource that will help organize the planning process. Functionly can also be utilised for headcount planning budgets - try it for free.

 

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