6.14 Budgeting

15 May 2009


Budgeting is the process of taking the organisational objectives and converting these objectives into short-term goals with a monetary value. Activities are converted into financial targets as most can be expressed in monetary terms. Overall budgeting can be seen as a central feature of the strategic planning process that links planning to control and ensures that objectives are operationalised. The three key aspects of this process are:

  • Planning
  • Budgeting
  • Control


Planning - The design of a desired future and of effective ways of bringing it about. As an organisation the NGB needs to plan for the resources under its control. The budget is a financial expression of that plan. It considers the desired position and how it can be achieved with the resources available. The long-term plan of the NGB is analysed and those elements that the NGB wishes to achieve in the next 12 months are extracted and become the budget. It is important to note that the function of the budget is to integrate the long-term plan into the day-to-day operations of the NGB. This will ultimately lead to the targets of the long-term plan being achieved.


Budgeting - The process of planning for the future which involves the quantification in monetary terms of proposed activity levels.


Control - The process of looking back over past performance to make sure that what was meant to happen did happen, and where it did not, make the necessary changes to make sure that it does in the future. To control the activity of a NGB a comparison must be made between the desired activity expressed in financial terms (the budget) on the one hand and the actual outcome on the other. This is usually called variance analysis. It is important that the system that provides control information, whether manual or computer based, provides quick and reliable information if full benefit is to be gained from such a system.

See Appendix 14 for a Sample Budget.

 

Budgeting Objectives

The objectives of the NGB's budgeting policies and procedures are to ensure that:

- Short and long term strategies for the organisation are determined on a realistic basis and Board approval is obtained

  • Budgets are central to the process of planning and control.
  • Management, with the advice of the Treasurer should determine and prepare the long term strategic plan for the organisation (detailing the cost to the NGB) which should reflect the broad strategies in attaining the goals of the organisation as outlined in the strategy statement.
  • The Treasurer should review the budget year on year to:
    - Ensure that any projects which ran over budget are brought to the Board's attention
    - Ensure that any under-spends are highlighted
    - Ascertain which expenses will be recurring in the coming year
    - Determine the following year's budget.

 

- Budget Committee functions are in adherence with best practice The Budget Committee is a sub-committee of the Board and the main functions and matters that it should consider are as follows:

  • Monitor and implement the systems for timely identification of warnings of future risks and uncertainties the NGB might face.
  • Review the budget and/or forecast information produced by the NGB, and ensure that the quality of the systems in place for producing this information is kept up to date.
  • Review any obligations, undertakings or guarantees arranged with other organisations (in particular, Sport Ireland, grant recipients and suppliers) for the giving or receiving of support.
  • In particular, the Budget Committee may need to consider whether the budgets are realistic and whether the NGB are likely to put the budgets into practice effectively.
  • Review the final strategic and master budget for the NGB prior to submission to the Board for approval.

 

- Budgets are effectively planned, monitored and authorised for each section of the NGB

  • The Treasurer is responsible for the following aspects of the budgetary process:
    - Review the strategic budget annually with management prior to approval with the Board.
    - Setting an annual plan for approval by management and the Board.
    - Align all expenditure with the relevant nominal ledger codes in accordance with the NGB's chart of accounts (see Appendix 8) to establish a defined link between the budget and actual expenditure.
    - Monitor and update all actual expenditure against the budget or forecast. Calculate, report and explain variances as part of the management accounts reporting process.
    - Budget assumptions and transactions are accurately recorded
  • Budgets for the NGB are prepared on a zero base and incremental basis. A zero based budget - the budget is compiled as if programmes were being launched for the first time (existing expenditure must be justified) and the budget is allocated on the basis of cost/benefit analysis. An incremental budget - the current level of operating activity and the current budgeted expenditure is taken as the starting point for the budget and then adjusted for changes which are expected to occur in the new budget e.g. inflation.
  • All assumptions must be clearly stated and documented. Aspects of the process should include:
    - Background to each item of expenditure
    - Measurable objectives (financial and non-financial)
    - Activity description (stating how objectives will be achieved)
    - Financial summary (detailing all costs)
    - Ensuring authorisation limits for commitments are in line with predetermined authorisation levels


- Capital expenditure should be planned, budgeted and monitored efficiently and effectively

  • It is for the Board to approve the strategic capital expenditure plan.
  • The capital budget is submitted to the Board where the expenditure is either approved or dismissed.
  • The Board must approve and authorise capital expenditure of a substantial amount.
  • It is the responsibility of the Treasurer to compile a strategic capital expenditure plan for the NGB including at a minimum:
    - Asset or project description
    - Reason for purchase
    - Estimated cost of annual expenditure
    - Proposed useful life of the asset
    - Detailed written discussions approved by the section manager outlining the objectives as part of the NGB's strategic plan
  • Prepare a capital expenditure proposal for all purchases or projects to include:
    - Description and justification of spend
    - Budgeted amount
    - Three alternatives / options for proposed expenditure
    - Justify reason for selection made
    - Whether capital expenditure was included in the strategic/financial plan
    - Method of financing
    - Timing of expenditure
    - Authorisation
  • Capital expenditure and the limits of authority should be in line with the NGB's procurement policies.


- Budgets should be prepared in an efficient and timely manner

  • It is the responsibility of groups within the NGB to prepare and sign off their respective budgets on time. Some NGBs might have committees in charge of certain programmes or projects. Each committee/project group should be responsible for preparing their own budget.
  • It is the responsibility of the Treasurer to complete the "final NGB budget" by an agreed date.


- Budgets should be monitored and reviewed periodically

  • It is the responsibility of the Treasurer to ensure that the master budget is reviewed by management, the CEO and the Board as appropriate.
  • A mid and final year review should formally take place in June/December respectively on the budget against actual performance. The Budget Committee, Treasurer, management and CEO should attend. Any changes or strategic realignments should be documented and the Board should formally be advised.