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Special Report 48 - Budgeting

The role of budgets and budgeting is fundamental to planning business ventures. We all hope that our budgets, at least, are accurate, timely and pertinent in order to be able to provide high quality financial analysis and advice to decision-makers. Many decisions are based on budgets which fall short of the ideal; projects end up costing significantly more and breaching their time limits.

The adage that you need to double the time and triple the cost of any new project, especially one involving construction, is sadly too often realised. Accurate budgets are not always welcome to decision makers, depending on the angle they are taking on a new project. Project owners don’t always like to know that their ideas do not make commercial sense. Decision makers may find the figures unpalatable and with this prior knowledge, finance may well find itself under pressure to be less pessimistic with its scenario planning.

More worrying is that some budgets are produced without the involvement of finance at all. I have seen some lamentable budgets approved by senior management where fairly basic elements had been omitted – for example, VAT costs of supplies for a VAT-exempt organisation.

Budget training providers suggest that the top reasons for budget failure are a lack of understanding, a failure to include all costs associated with the process and the failure to administer the budget effectively.

Successful budgets are more likely than not to include realistic goals, period-specific components, standardised formats and formulae, and decentralised inclusive processes. They would also include regular reviews, good communication and frequent evaluation.

Businesses use well-designed budget programmes as effective mechanisms for forecasting realisable results over a specific period, planning the various operations, and controlling the implementation of the budget plans. We hope that this report will provide you with a practical and interesting guide to budgeting. We have tried to balance the various needs of our members within this report and hope that you enjoy reading it.

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