February 18, 2008

How To Create A Viable Budget?

How to get it right?
How to Make it Happen in 2008
What do you need when creating a budget? Previous years expenses, list of special projects, number of people in your organization are some of the components I have seen used to derive the budget. And I am always amazed that some basic components are missing or glossed over when planning an annual budget.

A budgeting exercise needs to start with what you intent to accomplish in that year. A clear and concise definition of the scope of the work you plan to deliver should be the basis of your budgeting effort. As a product or services organization - you will be expected to deliver some value to the organization - which should be the starting point. If you have a budget but limited clarity on your purpose - that could be a problem.

Articulation of the scope in terms of people, time and effort creates a viable framework for accomplishing that scope. This framwork is also called a workplan and is a required artifact if you want a solid basis for your budget. A workplan will create a justification for the resources, timelines and deliverables you intend to produce. This work definition will also allow you to project a "bottom-up" budget that can validate key assumptions about staffing and milestones.

A year is fraught with uncertainty and unknowns. You can plan and provide insight into only so much of the year. For the rest you use prior experience, relevant metrics and assumptions. Assumptions about what you expect, what you think will happen and what the unknowns are - form a big part of your planning effort. Listing you key assumptions goes a long way towards supporting your planning and therefore your budgeting exercise.

If you follow the appropriate sequence, budgeting need not be a shoot-in-the-dark endeavor. Good budgets are the output of carefully articulated scope and execution plans. Invest the time to plan your year and also produce a viable annual budget.

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