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Budget

A budget is a financial plan. It is a projection (forecast) of what will happen financially if certain strategies and decisions are implemented. This is something we all do from time to time. For example, if you plan to buy a new car with a bank loan, you will want to know how much the loan repayment instalments will be. This helps you to construct a financial plan which includes determining the extent of the loan that you can afford. This type of planning is very much a budgeting activity. In another example, the committee of a sport club would need to know whether there is any likelihood of making a profit if the club hosts a particular event. This question can only be answered by working out possible revenues (income) and expenditures. The committee would need to investigate what the event needs, talk to people who have experience, obtain quotes from suppliers and estimate how many people might attend. All these activities such as investigating, consulting, obtaining quotes and estimating are all typical budgeting activities. Budgets are more than just a few calculations that we throw away when our questions are answered. In a business context, a budget, once constructed, becomes an essential tool for the financial management of the business. In fact operating a business without a budget is very bad management. By developing budgets, business managers set income and expenditure targets to be achieved. The business mananager can constantly compare actual fiancial outcomes with targets in the budget and take corrective action if the targets in the budget are not being met. Business managers need to continually review the budget and use it as a guide when making financial decisions. If a proposed course of action has been anticipated in the budget, then managers will feel confident in making a decision to go ahead. But if a proposed course of action has not been costed in the budget, then managers will appreciate that going ahead will entail financial risk.

The purpose of budgeting


In the context of business management, budgeting has three different purposes:

A forecast of income and expenditure (and thereby profitability) A tool for decision making A means to monitor business performance

Forecast of income and expenditure Budgeting is a critically important part of the business planning process. Business

owners and managers need to be able to predict whether a business will make a profit or not. A budget is basically a model of how the business might perform, financially speaking, if certain strategies, events, plans are carried out. In constructing a Business Plan, the manager attempts to forecast Income and Expenditure, and thereby profitability. Tool for decision making Once the budget has been set, the budget provides a financial framework for the decision making process i.e. is the proposed course action something we have planned for or not. In managing a business responsibly, expenditure must be tightly controlled. When the budget for advertising has been fully expended, the decision on "can we spend money on advertising" is likely to be "no". Monitoring business performance Once a budget is in place, it enables the actual financial operation of the business to be measured against the forecast i.e. is the business living up to our expectations. In the figure opposite, "variance" is the difference between budgeted expenditure and actual expenditure.

Budgeting Principles
1 Be conservative Don't budget on the basis that everything will turn out as expected. Build in a safety factor by tending to underestimate your income and overestimate your expenses. A common strategy in developing a budget is to insert an additional expense called "Contingencies" which allows for unforeseen expenses. 2 Consult other people in setting a budget

One person may be responsible for the compilation of the budget but one person should not be responsible for all the work involved. Budgeting requires teamwork. The task of budget should split and allocated among those individuals who have the best chance of knowing what expenditure is likely to be needed and what income is reasonable to expect. Involvement by many people in budgeting might slow the process down, but the answer is far more likely to be accurate and dependable. 3 Allow plenty of time Budgeting is not an activity that is completed in a few hours. A good budget may be worked on for several weeks if not months, adding and changing figures as new information comes to light. 4 Excellence in documentation It is very important that the author(s) of the budget strive to produce documents that can be read and understood by anyone. If figures are not clearly labelled even the author will, as time passes, have trouble understanding where the figures come from and how the calculations were made. It should be assumed that budgeting workings will be: Circulated to many different people who may have lower levels of financial literacy Useful again in a year's time when the budgeting process begins again. Unless workings are well labelled it may be difficult to remember. Example of labelling:

The Event Budget


The event budget is a projection (forecast) of the income and expenditure that the event will incur based on plans made and information gathered. The preparation of a budget is an essential part of event management. It is fundamentally important that Event Directors are able to predict with reasonable accuracy whether the event will result in a

profit, a loss or will break-even. This is achieved by identifying and costing all probable expenditures and by totalling all expected revenues (income). By comparing expenditures and revenues, it then becomes possible to forecast the financial outcome of the event. The construction of an event budget allows the Event Director to exercise financial control. Many organisations have run into severe financial difficulty and even bankruptcy as a result of staging events. The budget therefore enables the Event Director to make sound financial decisions about the choice of venue, and expenditure on promotion and equipment. The process of budgeting also enables the Event Director to calculate how much revenue is needed to stage the event in accordance with all plans. The preparation of an event budget is one of the earliest tasks to be undertaken in the event management process. However, it should be expected that there will be numerous adjustments and refinements to the budget throughout the whole project life-cycle. It is not possible to know every cost from the start, nor is it possible to know whether efforts to secure sponsorship and government funding will be successful. Event budgets by the event management team as better information comes to hand. Although the budget takes time to develop, there are some rules that should be observed throughout: Budget to avoid making a loss Be realistic about event incomes Have a financial contingency plan i.e what happens if the sponsorship is not forthcoming?

Once constructed, the budget assists the Event Team to determine whether a proposed course of action fits within planned financial strategies, or not. If the answer is in the affirmative, i.e. the item is said to be "within budget". If the answer is in the negative, then there is an understanding that continuing to pursue that strategy has a higher degree of risk, and the event profit will be reduced. This does not mean, however, that any departure from the set budget is inadvisable. It may be that the "unbudgeted" cost item has obvious financial benefits.

Typical event expenditure


Events costs will depend on the scale and type of event. Not all the categories stated in the table below will apply to every event. Travel and Costs associated with officials needed to run the event may have to responsible for their own travel and accommodation costs. In minor or local events travel and accommodation costs are unlikely. Trophies, Awards The cost of medals, trophies and other awards requires detailed knowledge about the number of competitors, the categories of

Accommodation be borne by the event organisers. Event participants are generally

divisions of the competition and the format of the competition. Salaries Postage telephone Stationery Applies only events are organised by professional staff. and Events usually require considerable communications with participants and the event management team. and Special event stationery may be printed but otherwise there is always a lot of photocopying and usage of organisation letterheads to write correspondence. Medical Fees Events require persons with at least First Aid training to be in attendance. Larger events may also warrant the employment of a doctor and physiotherapists. Venue Hire A critically important aspect of the budget. Information about the probable cost of the venue needs to be obtained as early as possible. Beware that there some hidden costs such as security and supervision costs, and heating and lighting costs. Insurance Additional insurance can be taken out to cover risks of injury and/or financial losses associated with events. Printing Event programmes, posters, fliers and other promotional documents may need to be printed - especially where quality and colour is required. Promotion Expenditure on promotion may be considerable where a significant proportion of the event revenue is likely to be earned through spectators. Promotion covers items such as advertising, give-aways, costs associated with promotional events and sponsors' signage. Equipment Hire Includes equipment directly used by participants in the event and also any equipment used by the event management staff including sound systems, computers, mobile phones, two way radios, etc. Transport Includes costs of transporting equipment and hire of buses.

Photocopying

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