A budget is a financial plan for the future. It uses expected cash flows (both in and out) to manage a cost centre’s finances. It informs planning when deciding what goods and services can be purchased by indicating what funds will be available to pay for them. Budgets help control the use of the funds by drawing up the expected cash movements (in and out) during the period and then comparing the budget information against what actually happens over time. If necessary, the budget holder may have to revise planned procurements (from that element of the budget) or seek additional funds to meet any anticipated shortfall.
In general, cost centres will not be permitted to commit funds (ie place orders for goods or services) if there is insufficient funds to pay for the proposed purchases. Research grants, can be different, where it is common to have a nominal budget figure entered into the budget against which orders will be placed with the actual funds claimed retrospectively from the funding body after the goods or services have been received and paid for.
When managing a budget it is important to ensure that you have accurate information and know, not only, the initial budget and the balance remaining, but also, the value of any commitments made to date. See here for an example. Likewise, when preparing an application for funds, say to a research body, it is important to identify the full cost of owning and operating the goods or service. In too many instances, funds are obtained to purchase, for example, a new item of equipment only to find out that there are insufficient funds to operate it and/or maintain it. The Whole Life Costing model can help staff explore and identify the potential costs of ownership at the initial costing stage of the proposed requirement, helping to ensure that these are building into the project’s outline business case.
This need for accurate commitment information puts an onus on staff involved in procurement to ensure that commitments, especially those of a higher value, are recorded promptly within the procurement system that, hopefully, feeds into or is part of the institution’s financial system. Later it is important that as payments are made for goods and services, these are removed (de-committed) from the financial system. These two actions are most important if the budget holder is to be able to manage the cost centre’s funds in an efficient manner.
In major projects, a member of the project team will be responsible for the monitoring the financial element of project – this is often someone from the Finance Department.
If you have any queries regarding budgeting is it suggested that you speak to your institution’s Finance Department.
Further detailed information is available on the OGC web site on Financial control of projects