Question

I have to write an essay about a person involved in budgeting, and was hoping someone with experience budgeting would answer these questions for me:

Name of person and title:

Organization’s name, business location:

Brief description of organization and role in the organization:

Budget Specific Interview Questions: Please discuss the following related to the budget process:

I. People involved in the budget process

What is the budget cycle in the organization?

What organizational area coordinates the overall budget process?

What levels of employees, at your organization, are involved in the budget process?

What function(s) do you play and your area of responsibility play in the overall budget process?

II. The development of budget

How is the budget used to make plans for the upcoming year?

How is the budget used to communicate senior management goals and objectives?

What method(s) are used to estimate budget amounts?

What systems or software tools are used to aid in preparation of the budget?

How is the final approved budget communicated?

III. The use of budget

Does your organization report variances between the budgeted plans and the actual results? If so, how frequently and in what manner?

How are budget variances reported and resolved? What actions are taken to resolve variances?

Are budget results considered as part of employee annual reviews and compensation?

Do you think that the budget process at your organization serves as an effective tool in communication, planning, and control related to resource allocation? Why or why not?

IV. Other

What advice would you give, based on your experience, to a new organization who is developing a new budget process?

Answer 1

he budget process is the way an organization goes about building its budget. A good budgeting process engages those who are responsible for adhering to the budget and implementing the organization's objectives in creating the budget. Both finance committee and senior staff participation is built into the process and a timeline is established leaving adequate time for research, review, feedback, revisions, etc. before the budget is ready for presentation to the full board. The annual budgeting process should be documented, with tasks, responsibility assignments and deadlines clearly stated. A good budgeting process also incorporates strategic planning initiatives and stipulates that income is budgeted before expenses. Fixed costs are identified and related to reliable revenue. Budgeting decisions are driven both by mission priorities and fiscal accountability.

Steps for developing a good budgeting process:

1. Write it down.
   Many organizations "have" a budget process, but it is not written down. Putting your process into writing creates a measurement tool against which you can monitor your progress and creates a checklist to ensure thoroughness in the process. When written down, the process becomes a durable management tool possessed by the organization rather than an intangible thing in the head one or two individuals. Institutionalize the process by writing it down. See Annual Budget Process Example Template.

1. Decide who should be involved and when.
   The executive director and program director(s) naturally play a significant role in the budget process, but departmental staff members who have responsibility for adhering to budgets should also play a role in creating those budgets. It builds buy-in and the process is informed by those with direct experience "in the trenches". Unless you have a board functioning as quasi-staff, usually staff members know more about operating details than board members, even very involved ones. In general, it is probably more efficient for staff to create the early drafts of budgets and use the time of finance committee members to review and vet the proposed drafts.

1. Establish an annualized timeline.
   Start earlier. Many funders require budgets for the following year far earlier than small and midsize organizations customarily get serious about budgeting. Aim for having the budget approval by your board at least two months before the new fiscal year begins. Earlier is even better, if feasible. You know your peak business cycle - integrate the annual budget process into a time during the year when key participants, paid or volunteer staff, have the time to focus on it.

1. List specific tasks with specific responsibility assignments.
   Within the timeline, list tasks specifically, e.g., "Distribute departmental budget worksheets and prior period financial data for reference" or "Research costs of database software". Even though many people may contribute to a task, pick one person to take leadership responsibility for making sure it happens. If the responsible person knows he or she will be held personally accountable to have completed the assigned task by the deadline, it is more likely to get done.

1. Ensure that budget line items and accounting line items are in sync.
   Budget line items should align with accounting (financial statement) line items, and the structure of the full operating budget should match the chart of accounts (the structure of the accounting system), to ensure effective comparisons between budget and actuals. A mismatch between budget items and accounting items creates extra work for administrative staff or key volunteers who must translate between the two and risks inconsistencies that undermine the usefulness of financial reports. Especially for expenses, when accounting/financial statement line items exist without corresponding budget line items, it can result in budget overages or erroneously reported line item balances.
   
   When creating expense budget line items, be aware of how these internal line items translate to specified line items for outside reporting requirements such as the IRS 990, common funder application formats, industry surveys, and agency data gathering such as the Cultural Data Project. While these should not dictate precisely how you construct your budget, being able to easily cross-walk your items to the required items will facilitate meeting these reporting requirements more accurately and will use staff or volunteer time more efficiently.

1. Develop worksheets, templates, and tools that promote inclusion of all relevant budget components and facilitate "what if" scenarios.
   
   Work part-to-whole: The format of the budget to be presented to the board need not have the level of detail that staff or finance committee members see. Using detail worksheets (examples listed below) as tools to build a "Full Budget" and a "Summary Budget" allows staff and finance committee members to go deep into the trees while presenting the forest to the board.
   
   Use the detailed budget worksheets to prompt deeper thinking about budget components and to help ensure nothing is forgotten. Link these worksheets, or workbook tabs, to a Full Budget sheet in a single, multi-tab workbook. For instance, for the budget/accounting line item of "Insurance" a detail budget worksheet could prompt for the various types of insurance to be carried by the organization such as general liability, directors & officers, vehicle insurance, etc. The cost of each is entered in the detail worksheet and added together for the total insurance budget amount in the Summary Budget via a formula linking the detail to the summary.