Creating a Budget for an Established Department
Building a Plan using Stable Volumes in a Support Department
Jun 29, 2009
Budgets are generally thought of as a matter for the finance department and the accountants. In a larger business, managers need to create and monitor budgets for reporting to the CEO and CFO.
Finance relies on the non-financial directors, since they have the most intimate knowledge of the operations of the department. Directors need to rely on finance to give them the tools to properly prepare the budget.
Established Department Budgets
If the manager is preparing a budget for a established department in a company in a stable industry, the process can be easier, but still can result in large errors and variances. An established department has the advantage of history. Using prior years as a basis for preparing the budget can help make the process simpler. The first step in preparing a budget is to look at volumes for the department. It is important to measure the volumes that are pertinent to the department.
For example, a company may sell thousands of units of an item. That statistic would be important for production, or sales. Housekeeping, on the other hand, would need to measure based on a statistic that is more germane to their work effort, such as square footage to be cleaned.
Similarly, the human resources budget would depend on the number of employees, not sales. These things may be related, but are not always perfected correlated. A new process might result in greater manufacturing of units, with fewer employees in less space.
Budgeting for a Stable Volume
If the statistic for the department is not anticipated to change much, it can become the starting point for calculating the budget. Using housekeeping as an example, if there is no change in cleaned area the housekeeping manager can start with no change to the number of employees needed or supplies used.
But it is only a start. There are other factors other than volume involved. The manager needs to know if there are major changes in operations or strategies that will impact decisions on the budget.
- Is a major change in the type of supplies being purchased, either a large increase or decrease in cost, or a new type of cleaner?
- Will there be new equipment that will make the job easier, or require fewer people?
- Are there budget cuts forecasted, required more productivity from each employee, or reductions in supervisory staff?
- Will there be a change in how the department is run, possibly with more services outsourced, or purchased from outside vendors.
Changes in operations such as these will impact the budget. The manager should focus on the most likely differences from current operations, and reflect only these in the budget, while noting more unlikely but still possible variances.
All assumptions that were used in putting the budget together should be maintained, so that explanations can be made for variances in the actual operations compared to budget.
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