Back in the early 1980s I indulged in a course on budget planning for business, and the single most important message I took from that course was never to spend unless you have to. The principle may seem obvious but I've found it's seldom adhered to as much as it used to be.
What is essential to remember is how to prioritise. Depending on the type of business you are involved in priorities will vary and handling a budget is not the exclusive domain of company directors, CEOs or finance managers as departmental heads and project managers also have such responsibilities.
Thirty years ago the advice was (as an ideal) never to buy new equipment unless and until your current equipment is being used 24/7. The maxim was not so much "if it works, don't fix it", more "if it works, why replace it?" It is not necessary to have the newest gadget in order to deliver a good if not impressive service that will secure business. I personally think it particularly unwise to be swayed into such purchases just because a competitor may have invested in such a way. What competitors have by way of equipment, facilities or staff is no proof at all of a better service.
However with modern technologies it can be difficult to keep pace with demand if machinery and devices are ten years out of date. Perhaps the most prudent way of approaching purchasing of any kind is to think about how you could continue without that purchase i.e. can you still function/operate? If so the next question to ask is why is this purchase being considered at all? Not that I'm mean, but it is all too tempting to be seduced into thinking you can have everything you want that's on your wish list. A wish list is should always be of lower priority to a needs list. Wish list items should only be considered if you have managed to come in under budget with your needs list. Even then wish list items should be prioritised according to business development needs, not according to what you personally happen to fancy playing with!
Important questions to ask include:
Licenses, insurances, building costs, utilities, communications and staffing (to name but a few) have to be covered, but so too are the basics of any business e.g. stationery, refuse collection and something in the kitty for marketing one would hope. Start-up companies are keenly aware of these expenses, sadly once a business is established it is not uncommon for some things to get taken for granted and forgotten such as an increase in utility bills, or rent when it comes to projecting financial figures. Do not assume anything will reduce in price, instead always assume it will increase by between 10-20% every year as that way you should be covered for most contingencies. All this is before you begin to look at the figures for staff and training (usually the first casualty of lean times), materials for production and departmental budgets (if applicable).
It can get confusing if you are not careful about who is responsible for which bit of finance and can lead to both things being duplicated and/or vital costs being missed completely. This is why ensuring you have a contingency pot on the side is a wise precaution. Such an allocation of funds should not just be seen as for emergencies and lean times, but also for such errors as like it or not, they happen from time to time.
Finance departments have a responsibility to ensure that all figures are clear and accurate at all times. In their communications it is essential that those they are communicating with comprehensively understand what information is being imparted. I say this because I have come across finance departments that haven't been heeded by managing directors when they have been trying to warn them that finances are extremely precarious. The moral of the tale being that both parties need to agree on how finances are presented so that those who need to know can understand them. Sounds obvious, and that's precisely the point - it needs to be.
Even when 'sub' budgets to departments heads or project managers are concerned this applys. Budget holders at this level may not be privy to the whole of the company's finances but, they will need to know their limits and ideally not go over them. All too often the assumption is that if they push hard enough, funds will miraculously be found only to find themselves with a rude awakening, if not a dismissal!
The money that's in the kitty should always be changing, hopefully in your favour because of new and profitable business, but awareness of when funds are running low or are likely to (e.g. the pay day), all helps to manage the finances as a whole.
We assume we all know how to budget effectively and efficiently, until we hit the unforeseen. Perhaps the best people to manage finances (and negotiate with creditors) are those who have been unemployed and on benefits simply because with limited funds they somehow have to be able to juggle everything that many workers take for granted. On average they have £65 per week to pay bills, feed and clothe themselves and that's before you consider communication necessities such as postage, phone and internet connection, if not travel to interviews to secure work. It only takes a repair to their home to throw all their budgets out. Such an example I hope illustrates and drives home the importance of contingency funds where at all possible and those contingencies also apply when it comes to project management.
Another examples is a capital funded project that I was involved in. I was given a set figure to work to, did my research for best value and not only managed to fulfil the remit but saw the whole thing through under that budget and on time. Unfortunately though the contingency fund was required because another department had to also sign off the work and thereby had to charge our department for their involvement in the project. News to my boss at the time! Something obviously went awry in the communication chain for this not have been apparent at the outset. Check and re-check with everyone if you are working in a large organisation!
Many people first learn about budgeting in the workplace through managing a project and then move onto managing a department etc. The principles are the same, all that happens is the items on the list that need to be accounted for really. Do it well and you will earn praise, respect and admiration from those around you. Get it wrong and it hurts - or so I've heard!
I have always started with the brief and constantly remind myself of that brief so that I don't veer off track. The brief should immediately point you in the direction of your top priorities, from there all other elements slot into that. So here's three simple examples exercises of how that works - note pricing comes after research in all cases.
Exercise 1:
The brief is you have £100 to provide food for 50 VIPs for a launch event.
You might be lucky and already have bar or coffee facilities already provided at the venue, or you might not, so the first thing is to check. Never assume another essential requirement is already met, so also check back that you are definitely not expected to cover the costs of drinks too.
Exercise 3:
Your organisation wants to economise on postage costs so is looking to invest in in-house postal systems. The brief is to find the best value for your small operation as an alternative to buying stamps in the post office.
You don't always get a set figure budget to budget to sometimes finances are about exploring possibilities first prior to deciding on the amount of money to be allocated. The savings here are more to do with staff time and when and where mail sent in the post is essential.
What is essential to remember is how to prioritise. Depending on the type of business you are involved in priorities will vary and handling a budget is not the exclusive domain of company directors, CEOs or finance managers as departmental heads and project managers also have such responsibilities.
Thirty years ago the advice was (as an ideal) never to buy new equipment unless and until your current equipment is being used 24/7. The maxim was not so much "if it works, don't fix it", more "if it works, why replace it?" It is not necessary to have the newest gadget in order to deliver a good if not impressive service that will secure business. I personally think it particularly unwise to be swayed into such purchases just because a competitor may have invested in such a way. What competitors have by way of equipment, facilities or staff is no proof at all of a better service.
However with modern technologies it can be difficult to keep pace with demand if machinery and devices are ten years out of date. Perhaps the most prudent way of approaching purchasing of any kind is to think about how you could continue without that purchase i.e. can you still function/operate? If so the next question to ask is why is this purchase being considered at all? Not that I'm mean, but it is all too tempting to be seduced into thinking you can have everything you want that's on your wish list. A wish list is should always be of lower priority to a needs list. Wish list items should only be considered if you have managed to come in under budget with your needs list. Even then wish list items should be prioritised according to business development needs, not according to what you personally happen to fancy playing with!
Important questions to ask include:
- Is it really going to be useful?
- Is it going to increase efficiency?
- Is it going to help increase profits?
- Is it going to save time?
- If it's a replacement item, what's it's projected useful life span? (e.g. Spreadsheets are often more enduring for their ease of use and common understanding than many a more sophisticated programme which are constantly evolving).
Operational finances
Licenses, insurances, building costs, utilities, communications and staffing (to name but a few) have to be covered, but so too are the basics of any business e.g. stationery, refuse collection and something in the kitty for marketing one would hope. Start-up companies are keenly aware of these expenses, sadly once a business is established it is not uncommon for some things to get taken for granted and forgotten such as an increase in utility bills, or rent when it comes to projecting financial figures. Do not assume anything will reduce in price, instead always assume it will increase by between 10-20% every year as that way you should be covered for most contingencies. All this is before you begin to look at the figures for staff and training (usually the first casualty of lean times), materials for production and departmental budgets (if applicable).
It can get confusing if you are not careful about who is responsible for which bit of finance and can lead to both things being duplicated and/or vital costs being missed completely. This is why ensuring you have a contingency pot on the side is a wise precaution. Such an allocation of funds should not just be seen as for emergencies and lean times, but also for such errors as like it or not, they happen from time to time.
Finance departments have a responsibility to ensure that all figures are clear and accurate at all times. In their communications it is essential that those they are communicating with comprehensively understand what information is being imparted. I say this because I have come across finance departments that haven't been heeded by managing directors when they have been trying to warn them that finances are extremely precarious. The moral of the tale being that both parties need to agree on how finances are presented so that those who need to know can understand them. Sounds obvious, and that's precisely the point - it needs to be.
Even when 'sub' budgets to departments heads or project managers are concerned this applys. Budget holders at this level may not be privy to the whole of the company's finances but, they will need to know their limits and ideally not go over them. All too often the assumption is that if they push hard enough, funds will miraculously be found only to find themselves with a rude awakening, if not a dismissal!
The money that's in the kitty should always be changing, hopefully in your favour because of new and profitable business, but awareness of when funds are running low or are likely to (e.g. the pay day), all helps to manage the finances as a whole.
We assume we all know how to budget effectively and efficiently, until we hit the unforeseen. Perhaps the best people to manage finances (and negotiate with creditors) are those who have been unemployed and on benefits simply because with limited funds they somehow have to be able to juggle everything that many workers take for granted. On average they have £65 per week to pay bills, feed and clothe themselves and that's before you consider communication necessities such as postage, phone and internet connection, if not travel to interviews to secure work. It only takes a repair to their home to throw all their budgets out. Such an example I hope illustrates and drives home the importance of contingency funds where at all possible and those contingencies also apply when it comes to project management.
Another examples is a capital funded project that I was involved in. I was given a set figure to work to, did my research for best value and not only managed to fulfil the remit but saw the whole thing through under that budget and on time. Unfortunately though the contingency fund was required because another department had to also sign off the work and thereby had to charge our department for their involvement in the project. News to my boss at the time! Something obviously went awry in the communication chain for this not have been apparent at the outset. Check and re-check with everyone if you are working in a large organisation!
Project costs
I have always started with the brief and constantly remind myself of that brief so that I don't veer off track. The brief should immediately point you in the direction of your top priorities, from there all other elements slot into that. So here's three simple examples exercises of how that works - note pricing comes after research in all cases.
Exercise 1:
The brief is you have £100 to provide food for 50 VIPs for a launch event.
You might be lucky and already have bar or coffee facilities already provided at the venue, or you might not, so the first thing is to check. Never assume another essential requirement is already met, so also check back that you are definitely not expected to cover the costs of drinks too.
- Check who is on the VIP list, they might not be people you've heard of and you need to get a feel for the type of people that are invited.
- Check they are all attending and adjust accordingly nearer to the time - if only half will be attending it means more food possibilities!
- Check their dietary requirements, are there any allergies, vegetarians of religious requirements that need to be included or avoided. Remember that under Equality Law 2010 it is illegal to discriminate against anyone on grounds of health, religion etc
- Compare and research the possibilities of self catering or hiring a catering firm. Remember if you are thinking about catering 'in-house' you have to be already be geared up and have met the Food Safety Act and all associated legislation by law, e.g. Food Hygiene Regulations
- Consider what these VIPs might have been subjected to before and what time of day the launch is to be held
- Compare best value for price
Exercise 2:
The brief is to supply some literature for 50 VIPs at a launch event for £100.
Check what else is already being sent out and that will be there at the event. You need more detail if this is all you get as a brief. Literature to accompany a video presentation, to highlight key points from the launch about the product or service... what? Let's assume it is the latter.
- Get the list of VIPs and get information about how they like to be communicated with
- Consider options for making the take-away literature memorable and desirable to avoid the high change of it just being thrown away
- Make sure it does not say anything that isn't true, accurate and that relates to the product or service
- Ensure it includes the right contact details for orders!
- Ensure it is thoroughly proof-read before delivery!
- Research professional services for ideas as well as price
- Compare options for producing something in-house against getting it done by a professional service, there may be avenues to tag this onto another print job, but as we're talking VIPs scope of personalisation seems to be pretty important here. Check that though.
Exercise 3:
Your organisation wants to economise on postage costs so is looking to invest in in-house postal systems. The brief is to find the best value for your small operation as an alternative to buying stamps in the post office.
You don't always get a set figure budget to budget to sometimes finances are about exploring possibilities first prior to deciding on the amount of money to be allocated. The savings here are more to do with staff time and when and where mail sent in the post is essential.
- Enquire if there is going to be a change in marketing strategy to develop on-line resources as that could easily help reduce postage costs
- Check how much time staff use for all mail-out related activities including physically going to the post office.
- Check what is usually spent on postage every week, month and year. Are there times of the year when postage costs go up - if so, why and can they be reduced?
- Options could include one drop deliveries for promotional literature at suitable sites so long as you are convinced they won't just be dropped in the bin as soon as you leave the premises
- Check what the priorities for postage are
- Research on-line what other people do and whether or not it has helped reduce costs by talking to the service users direct NOT the companies offering products. Discussion groups in LinkedIn can help with this sort of thing or just talk to your suppliers and business clients if appropriate
- Compare options against actual known usage e.g. franking machines v Smart stamp - including printer and a set of extremely accurate scales
These exercises may seem too simple, but more complicated project and financial planning is merely a case of doing many such simple exercises for all the individual elements that are required to make up the whole plan and to keep to budget. Figures should be constantly adjusted in the light of new information throughout.
The most important point of all to remember is to never deviate from the priority aims and objectives originally set for your budgetary requirements. If they change, then abandon what you've done and forget it to start afresh with what should after all be a new brief and set of objectives.
The most important point of all to remember is to never deviate from the priority aims and objectives originally set for your budgetary requirements. If they change, then abandon what you've done and forget it to start afresh with what should after all be a new brief and set of objectives.
