How to Make an Organizational Budget
Organizational budgets provide guidance for and impose limits on expenses to be incurred throughout an entire company, nonprofit, government entity or other organization for a specified period of time. Organizational budgets are the most wide-reaching of all budgets, combining departmental and business-unit budgets into a grand budget for the entire organization. Since this is the case, making an organizational budget can be simplified by breaking the organization down into component parts, and analyzing each component individually before bringing everything together in a master budget.
Other People Are Reading
Instructions
-
-
1
Create a list or diagram separating all of the departments or major business units of your company. You may choose to separate the marketing, accounting and manufacturing components of your business, for example, or the product and service divisions.
-
2
Identify key leaders in each department who have an in-depth understanding of their department's cost structures. Ask them to begin compiling a list of expense categories for their departments. Managers who deal with front-line operations on a daily basis can often identify expenses that upper-level managers may miss, especially for costs that occur on an infrequent or rare basis. Consult this team of leaders throughout the remainder of the budgeting process.
-
-
3
Determine the fixed costs incurred by each department. Fixed costs include expenses that will not change in correlation with production output or sales, such as utilities overhead, mortgage payments and property taxes.
-
4
Identify variable costs in each department. Variable costs include any expenses that will vary in direct proportion to output or sales volume. Different departments are likely to incur different types of variable costs. A manufacturing department, for example, will most likely incur variable costs for raw materials that increase alongside output, while an accounting department may include no variable costs at all.
-
5
Calculate total compensation expenses across the company. Include both fixed and variable compensation in your calculation. Fixed compensation costs consist of payment to salaried employees; examples of variable compensation costs include hourly wages and contractors' invoices.
-
6
Identify costs that apply to the organization as a whole. Consult your top accounting managers to determine if there are any overhead expenses or other costs that cannot be pegged directly to different departments or business units.
-
7
Calculate your expected income for the budget period, including sales revenue and any investment income. Work with marketing and sales leaders in this step to set achievable goals and expectations for sales growth throughout the period. Also consult your investment advisor or top financial manager to estimate investment-related gains.
-
8
Group all income and costs according to their department or type of expense to create an organizational budget. The process you used to determine the various budget line items can allow you to set up your budget so that you can review both the organizational budget as a whole and the various smaller budgets that make up the whole.
-
1
References
- Photo Credit Comstock/Comstock/Getty Images
