Activity based budgeting for international development projects

1. S E S S I O N 7 : F I N A N C E 1 , B U D G E T I N G
E M A N U E L S O U V A I R A N
M A R C H 2 0 1 4
Practical Approaches to Managing
International Development Projects in
the Face of Complexity
T H I S P R E S E N T A T I O N W I L L B E M A D E A V A I L A B L E T O S T U D E N T S V I A S L I D E S H A R E

2. Budgeting

3. What is a Budget for?
Planning
 A budget is necessary for planning a new project, so that managers can build up an
accurate idea of the project’s cost. This allows them to work out if they have the money to
complete the project and if they are making the best use of the funds they have available.
Fundraising
 The budget is a critical part of any negotiation with donors. The budget sets out in detail
what the NGO will do with a grant, including what the money will be spent on, and what
results will be achieved.
Project implementation
 An accurate budget is needed to control the project, once it has been started. The most
important tool for on-going monitoring is comparing the actual costs against the
budgeted costs. Without an accurate budget, this is impossible. Because plans sometimes
change, it may be necessary to review the budget after a project has started.
Monitoring and evaluation
 The budget is used as a tool for evaluating the success of the project, when it is finished. It
helps to answer the question: ‘Did the project achieve what it set out to achieve?’

4. 1 . T H E I N C O M E A N D E X P E N D I T U R E B U D G E T
2 . T H E C A P I T A L B U D G E T
3 . T H E C A S H F L O W F O R E C A S T
Three main types of budget

5. T H I S I S A S P E C I A L F O R M O F Z E R O - B A S E B U D G E T I N G A N D I S
F R E Q U E N T L Y U S E D I N T H E N G O S E C T O R T O C R E A T E P R O J E C T
B U D G E T S A N D I S F A V O U R E D B Y M A N Y D O N O R S .
Z E R O - B A S E B U D G E T I N G ( O R Z B B ) I G N O R E S P R E V I O U S
E X P E R I E N C E A N D S T A R T S W I T H N E X T Y E A R ’ S T A R G E T S A N D
A C T I V I T I E S . Z B B R E Q U I R E S T H E W R I T E R O F T H E B U D G E T T O
J U S T I F Y A L L T H E R E S O U R C E R E Q U I R E M E N T S .
T H I S P R O C E S S M A Y S U I T O R G A N I S A T I O N S G O I N G T H R O U G H A
P E R I O D O F R A P I D C H A N G E A N D T H O S E , L I K E N G O S , W H O S E
I N C O M E I S A C T I V I T Y - B A S E D . Z E R O - B A S E D B U D G E T S A R E
S A I D T O B E M O R E A C C U R A T E S I N C E T H E Y A R E B A S E D O N T H E
D E T A I L O F P L A N N E D A C T I V I T I E S . H O W E V E R , T H E A P P R O A C H
D O E S I M P O S E A M U C H G R E A T E R W O R K L O A D O N M A N A G E R S
T H A N I N C R E M E N T A L B U D G E T I N G .
Activity based budgeting

6. W R I T I N G A B U D G E T I N V O L V E S A N S W E R I N G A N U M B E R O F Q U E S T I O N S ,
T H A T C A N O N L Y B E A N S W E R E D B Y P R O G R A M M E S T A F F A N D F I N A N C E
S T A F F W O R K I N G T O G E T H E R : T H E Y S T A R T W I T H P L A N S A N D G O A L S ,
N O T N U M B E R S :
1 . W H A T O B J E C T I V E S A R E W E T R Y I N G T O A C H I E V E ?
2 . W H A T A C T I V I T I E S W I L L B E I N V O L V E D I N A C H I E V I N G T H E S E
O B J E C T I V E S ?
3 . W H A T R E S O U R C E S W I L L W E N E E D T O C A R R Y O U T T H E S E A C T I V I T I E S ?
4 . W H A T W I L L T H E S E R E S O U R C E S C O S T ?
5 . W H E R E W I L L T H E F U N D S C O M E F R O M ? W H A T W I L L T H E S O U R C E B E ?
6 . I S T H E R E S U L T R E A L I S T I C ?
T H I S M I G H T L O O K L I K E H A R D W O R K , B U T W E A C T U A L L Y W O R K
T H R O U G H T H E S E Q U E S T I O N S E V E R Y D A Y , W H E N W E H A N D L E O U R O W N
P E R S O N A L M O N E Y . . .
Writing a budget

8. T H E E X T R A C T D E S C R I B E S T H E I N P U T S N E E D E D F O R A 4 - D A Y W O R K S H O P F O R
2 0 P A R T I C I P A N T S W I T H T W O T U T O R S . T H E T A B L E D E T A I L S I T E M S R E Q U I R E D
F O R T H E W O R K S H O P , T H E Q U A N T I T Y A N D T H E C O S T P E R U N I T . T H E F I N A L
C O L U M N P R O V I D E S T H E B U D G E T F O R E A C H I T E M .
Using a budget worksheet

9. Budget worksheet columns

10. Choosing unit types...

11. Take care with contingencies
T R Y T O A V O I D A D D I N G A ‘ B O T T O M L I N E ’ P E R C E N T A G E
F O R S O - C A L L E D ‘ C O N T I N G E N C I E S ’ O N T H E O V E R A L L
B U D G E T . G E N E R A L L Y , D O N O R S D O N O T L I K E T O S E E
T H I S A N D I T I S N O T A N A C C U R A T E W A Y O F
C A L C U L A T I N G A B U D G E T .
I T I S B E T T E R T O C A L C U L A T E A N D I N C L U D E A
C O N T I N G E N C Y A M O U N T F O R S E P A R A T E I T E M S I N T H E
B U D G E T – E . G . A S A L A R I E S C O N T I N G E N C Y O R F U E L
C O N T I N G E N C Y , I F N E E D E D .
R E M E M B E R T H A T E V E R Y I T E M I N Y O U R B U D G E T M U S T
B E J U S T I F I A B L E – A D D I N G A P E R C E N T A G E O N T H E
B O T T O M I S D I F F I C U L T T O J U S T I F Y – A N D A L S O
D I F F I C U L T T O M O N I T O R .

12. D O N ’ T F O R G E T T H E F O R G O T T E N C O S T S ! T H E R E I S A
T E N D E N C Y I N N G O S T O U N D E R - E S T I M A T E T H E T R U E C O S T S
F O R F E A R O F N O T G E T T I N G A P R O J E C T F U N D E D . H E R E A R E
S O M E O F T H E M O S T O F T E N O V E R L O O K E D C O S T S :
• S T A F F R E L A T E D C O S T S ( E . G . R E C R U I T M E N T C O S T S ,
T R A I N I N G , B E N E F I T S A N D S T A T U T O R Y P A Y M E N T S )
• S T A R T - U P C O S T S ( E . G . P U B L I C I T Y )
• O V E R H E A D O R C O R E C O S T S ( E . G . R E N T , I N S U R A N C E ,
U T I L I T I E S )
• T R A N S P O R T C O S T S ( E . G . M O V I N G G O O D S A R O U N D T H E
C O U N T R Y )
• V E H I C L E R U N N I N G C O S T S
• E Q U I P M E N T M A I N T E N A N C E ( E . G . F O R P H O T O C O P I E R S
A N D C O M P U T E R S )
• G O V E R N A N C E C O S T S ( E . G . B O A R D M E E T I N G S , A G M )
• A U D I T F E E S
I F Y O U D O N ’ T I N C L U D E T H E M I N T H E B U D G E T , T H E N Y O U
M A Y N O T H A V E E N O U G H F U N D S T O P A Y F O R T H E M !
Forgotten costs

13. F I N D Y O U R S E L F A ‘ B U D G E T B U D D Y ’ T O C H E C K
Y O U R D R A F T B U D G E T W I T H A C R I T I C A L E Y E .
T H I S C O U L D B E A W O R K C O L L E A G U E O R
S O M E O N E D O I N G A S I M I L A R R O L E I N A N O T H E R
N G O .
Ask for help!

14. • T H E P E R S O N W I T H T H E R E S P O N S I B I L I T Y F O R
I M P L E M E N T I N G A B U D G E T I S C A L L E D A ‘ B U D G E T
H O L D E R ’ , A N D I S U S U A L L Y A P R O G R A M M E O R P R O J E C T
M A N A G E R , N O T A F I N A N C E P E R S O N .
.
• T H E Y U S E T H E B U D G E T T O G U I D E T H E I M P L E M E N T A T I O N ,
C H E C K I N G B E F O R E S P E N D I N G T H A T I T E M S A R E
B U D G E T E D F O R , A N D A L L O C A T I N G E X P E N D I T U R E T O
A P P R O P R I A T E B U D G E T L I N E S .
• B U D G E T H O L D E R S S H O U L D F O C U S O N D E L I V E R I N G T H E
P R O J E C T O B J E C T I V E S W I T H I N T H E T O T A L B U D G E T
R A T H E R T H A N O N S P E N D I N G A L L T H E C A S H O U T L I N E D I N
T H E B U D G E T .
• O V E R O R U N D E R S P E N D I N G W I T H I N R E A S O N A B L E
L I M I T S I S N O T A P R O B L E M A S L O N G A S T H E R E A R E G O O D
E X P L A N A T I O N S ( B U T C H E C K Y O U R G R A N T C O N D I T I O N S ,
A S S O M E C A N B E M O R E R E S T R I C T I V E T H A N O T H E R S ) .
Implementing the budget