Managers do not have unlimited resources to do their jobs. Most managers will have to deal with a budget, a numerical plan for allocating resources to specific activities. As planning tools, they indicate what activities are important and how many resources should be allocated to each activity. However, budgets aren’t used just in planning. They are also used in controlling. As control tools, budgets provide managers with quantitative standards against which to measure and compare resource consumption. By pointing out deviations between standard and actual consumption, managers can use the budget for control purposes.
You can develop your skills at budgeting if you use the following seven suggestions.
- Determine which work activities are going to be pursued during the coming time period
An organization’s work activities are a result of the goals that have been established. Your control over which work activities your unit will be pursuing during a specific time period will depend on how much control you normally exercise over the work that must be done in order to meet those goals. In addition, the amount of control you have often depends on your managerial level in the organization.
- Decide which resources will be necessary to accomplish the desired work activities
Although there are different types of budgets used for allocating resources, the most common ones involve monetary resources. However, you also may have to budget time, space, material resources, human resources, capacity utilization, or units of production.
- Gather cost information
You’ll need accurate cost estimates of those resources you need. Old budgets may be of some help, but you’ll also want to talk with your manager, colleagues, and key employees, and to use other contacts you have developed inside and outside your organization.
- Once you know which resources will be available to you, assign the resources as needed to accomplish the desired work activities
In many organizations, managers are given a monthly, quarterly, or annual budget to work with. The budget will detail which resources are available during the time period. As the manager, you have to assign the resources in an efficient and effective manner to ensure that your unit goals are met.
- It’s wise to review the budget periodically
Don’t wait until the end of the time period to monitor whether you’re over or under budget.
- Take action if you are not within your budget
Remember that a budget also serves as a control tool. If resources are being consumed more quickly than budgeted, you may need to determine why and take corrective action.
- Use past experience as a guide when developing your budget for the next time period
Although every budgeted time period will be different, it is possible to use past experiences to pinpoint trends and potential problems. This knowledge can help you prepare for any circumstances that may arise.