What Is Budget Allocation and How to Allocate Budget Correctly

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George Fullerton

Strategy & Operations

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Your budgeting process  requires strong collaboration from department heads and executive leadership. Yet if you’re only going to each department once, asking them what they need, and simply saying, “Here you go” once you get executive approval, then you haven’t done enough testing around your top-line goal metrics.

If you want to pave a path toward sustainable growth, you need to embrace agility and proactivity — and one way to do that is through budget allocation. Running a budget variance analysis  and rolling forecast  helps you set baselines and growth goals, but these processes can still take weeks to gather and manipulate data from multiple departments and source systems.

Here, we explore how quarterly budget allocation creates a path for more agile, strategic planning and spend.

Table of Contents

What Are Budget Allocations?

Budget allocations refer to the amount of money each department receives from the general fund to execute their strategic plans. Budget allocation breaks department spend down into an approved maximum amount each department can spend per resource, whether it’s on software, contractor or freelance assistance, or ad spend for a marketing campaign.

The Importance of Allocating Budgets

Budgeting, at its core, is an optimization and constraint problem. You need to optimize operational efficiency yet understand your constraints to ensure ample runway and team support as you track the company’s growth trajectory.

You dictate the company roadmap based on expected return on investment (ROI), which has to tie out at the department level. The R&D department is integral for Seed and Series A companies, yet once the product is ready to launch, you want to allocate budget to your sales and marketing teams. Once the budget goes toward sales and marketing, and you begin acquiring customers, you now have new constraints that impact your budget: your customer acquisition cost  (CAC), CAC payback period , and your annual recurring revenue  (ARR).

Budget allocation fuels overall efficiency, in that department leaders don’t need to ask for approval to expense individual tools, assign projects to freelancers, or add seats for software. By allocating budget to general categories, each department can cherry-pick when and how to apply the budget. Of course, departments need to ensure they use their budget. While saving money is generally seen as positive, departments may not receive the same budget allotment in the next cycle — which may be detrimental to department-level goals and planning.

If departments experience strain, such as requiring more seats on a specific tool or running into production issues, you run into employee retention issues that stem from operational efficiency and satisfaction. To hire more employees costs more, which digs into your runway. By keeping an eye on your goals and constraints, you can then proactively figure out where you’ll get the highest ROI.

How to Optimize Budget Allocations in 6 Steps

Knowing your startup costs (for each employee and desk space), fixed costs, and variable costs and how they impact your total budget is one thing — but to optimize budget management and allocation requires ample cross-collaboration to keep goals top of mind and realistic.

Your budget allocation strategy will depend on your industry, your growth stage, and overall macroeconomic environment. But here’s how you can optimize your budget allocation with more strategic and agile decision-making from everyone involved regardless of stage.

1. Set Company Goals and Priorities

While knowing your total budget is technically the first step, the real strategic insights begin with a simple question: What are your North Star metrics?

Naming your company goals and priorities is the key to driving how you think about and create departmental budgets across the company.

In ideal market conditions, many executive leaders say that their top priority is to grow at all costs. Yet during a market downturn, priorities shift toward keeping a closer eye on burn and preserving runway. Depending on how those priorities shake out, there’s two ways to approach budgeting:

  • Growth goals: A focus on growth goals requires high confidence in achieving them. Your growth goal is the starting point, then you work backwards to allocate your budget to achieve that goal. A focus on top-line revenue growth leads to creating a sales and marketing budget around cost per lead and win rates/conversions. The question becomes “How much do I have to spend in order to get this growth goal?” which then spits out your sales and marketing budget.
  • Capital efficiency :  A more conservative approach begins by asking, “How much can I spend in order to only burn X number of dollars a month, or to make sure I have runway for 24 months into the future?” You can also focus on a certain set of unit economics, meaning you’d build your budget to hit a particular CAC number or set a payback period within a particular period of time.

Regardless of your approach, tying your budget back to goals (i.e. strategic budgeting ) and target metrics is critical. If you believe growth goals are most important, for example, then your ROI on spending additional sales and marketing dollars could be higher than hiring a different engineer where you may have a longer-term payoff.

2. Set Your Constraints

Your goals establish whether you’re approaching budget allocations from a bottom-line or top-line growth  perspective. Utilizing both allows you to gain a sense of customer retention (with your top line) alongside expenses (bottom line), which helps you strike the right balance or priorities. Applying constraints to your goals allows you to set realistic expectations.

Company-wide, you want to keep an eye on runway and burn multiple. Yet when diving deeper into department budgets, you’ll need to focus on different metrics. For example, CAC payback period impacts your sales and marketing budget.

Your CAC payback period sets a precedent for how long potential customers stay in the sales funnel. Incorporating sales funnel metrics into this equation provides invaluable insights — and setting constraints around your payback period requires sales and marketing to scrutinize and optimize these metrics within the funnel.

3. Check Your Goals Around Budget Allocation Benchmarks

Your company’s growth stage impacts where your goals and constraints stay relevant and applicable to ensure strategic growth. OpenView runs a SaaS Benchmarks Survey that explores budgetary benchmarks in correlation with your growth stage. Here’s their chart from 2021:

openview financial and operating benchmarks by ARR chart

OpenView SaaS Benchmarks Survey 2021 Results, courtesy of Curtis Townshend , Senior Director of Growth at OpenView.

The top row indicates the stage of the business per million dollar revenue. The numbers in bold represent a median, with percentages assigned for how much each company would allocate per category. For example, a company with $1-2.5 million in revenue would allocate 30% of their budget to sales and marketing and 40% in R&D, while aiming for 75% in gross margins.

While the above table does not mention a ratio for general and administrative costs , the standard spend for SaaS companies is about 10-12% of your total budget.

After you establish your goals and constraints to ensure financial efficiency , you can approach your budget and measure against these benchmarks.

4. Establish Your Headcount Plans

Headcount accounts for 70% of overall company spend in SaaS, and each department has different ROI.

Sales and marketing headcount should directly produce returns — but to drive the sales and marketing machine, you need to continuously spend. You need to ensure you have a strong control and understanding of your product-market fit to keep the engine running. If the company is not at the point of understanding the output of each dollar spent across the sales funnel, the budget should focus on product or internal system process data.

Work closely with human resources partners to decide how much to set aside for workforce growth in every department. Decide how many full-time hires you’ll need in the next budget year, where it might be appropriate to hire out to contractors, and where your stakeholders need the most help.

5. Conduct Scenario Planning with Mosaic

Optimizing budget allocation helps you optimize ROI of operational initiatives by forcing you to constantly check where you think you’ll get the most out of your dollars and how that spend relates to company-level goals.

Mosaic’s financial modeling and scenario planning tool integrates with your source systems to offer scenario analysis that elevates the strategy behind your budget allocation. Scenario analysis examples  include looking at how cutting a fixed cost (like office space) impacts your runway, or how your product release plan may hinge on engineer headcount or come down to asking, “ How much should you spend on ads  to promote the product — and when?”

Being able to quickly see how adjustments to specific budgets affects your downstream metrics is extremely helpful. Mosaic syncs in real time so you can easily integrate your historical and actual data into your scenarios. If you want to see how increasing spend by $500,000 impacts your sales and marketing budget, you can simply apply the change in one model to see how it affects your CAC, CAC payback, burn multiple, and other key metrics.

You don’t need to build entirely new models or scenarios — instead, you can tweak your budget assumptions in different scenarios and see the immediate downstream effects on the metrics that you want to employ as your constraints.

Keep in mind that your strongest models align on two or three metrics: Too many inputs leads to an overlap in ideology, which causes clutter and slows you down.

6. Make Cross-Department Collaboration a One-Stop Shop

The budgeting process is notorious for multiple Excel sheets and communication across multiple emails or Zoom meetings. Mosaic allows you to create department-level dashboards that align leaders and give them one place to stay updated on budget allocation and spend.

department level budgeting dashboard in Mosaic

Department leaders can look at a graph or table in Mosaic’s variance analysis software to see where their budget currently is and where it was spent. Mosaic can immediately generate a budget analysis that allows them to make strategic decisions on what they want to do with their remaining budget or where they need to cut back to hit their budget for the month or quarter.

Mosaic also allows reports to be easily accessible for department leaders. Since Mosaic offers real-time updates, finance teams can help establish one report that automatically updates so department leaders can make plans with actual numbers. This leads to not just saving time between going back and forth to establish numbers, but more proactive decision-making that keeps leader engagement high into understanding the “why” behind their budgeting line items.

Focus more on telling the story behind your numbers with this Financial Waterfall Template Bundle.

When to review budget allocations — and why you’re not doing it enough.

A “one and done” annual budget process doesn’t work for high-growth companies. A more adaptable or flexible budget approach is essential, especially for those experiencing rapid changes. Keeping it to even twice a year causes everyone to miss out on key drivers for overall success. Proactive budget development should happen at least on a quarterly schedule, where you can change resource allocation based on historical data from the previous year to last quarter.

While establishing a quarterly financial plan review is good in practice, you also need to allow for some flexibility. Here are some other reasons to perform financial audits on budget allocation:

  • Macroeconomic events. Anything from a market downturn or industry collapse signals immediate action. Budget allocation should transition into a monthly schedule to stay as ahead as possible.
  • Not hitting topline goals. You may need to redistribute your budget to ensure you get as high of an ROI as possible. You may need to allocate more budget toward supporting sales and marketing than hiring another engineer, for example.
  • Runway cost. If you predict that you’ll burn $5 million, but realize that headcount needs to increase in the second half of the year, you need to factor that cost in. You also need to keep track of your burn and when it occurs: If it increases from $2 to $3 million in one month due to headcount, you carry this cost throughout the rest of the year. You can then take budget away to make up the costs — it’s much harder to try and get the budget back once people start spending it.
  • Capital efficiency metrics are off. Analyzing capital efficiency  metrics like burn multiple  on a regular basis can help you proactively address inefficiencies in the business. Drill down into your expenses and see how you can reevaluate spend.

Embrace a Smarter Way to Allocate Budgets with Mosaic

Mosaic offers preloaded, out-of-the-box metrics, templates, and dashboards that allow you to cut the budget allocation and planning process from two weeks to two days. Mosaic offers a SaaS acquisition metrics dashboard that considers CAC and CAC payback alongside other important metrics, like your SaaS magic number , to gain granular insights that craft your company’s growth narrative. You can also customize financial reports to include other key metrics, such as your burn multiple and runway, to help establish and keep your benchmarks in mind.

With Mosaic, budget planning can be a quicker, more collaborative, strategic process that keeps your company moving along toward its goals. Request a personalized demo today .

Give Department Leaders Deep Financial Insights for Better Budgeting

budget allocation process

Budget allocation FAQs

Why is budget allocation important.

Understanding your budget allocations and appropriations can help your company maximize ROI. Knowing where your money goes ahead of time reduces discretionary spending and leaves a strategic roadmap for spending and expenditures . And, since this is done ahead of time, departments can run more efficiently on their allocated budget.

What is an example of a budget allocation?

An example of budget allocation is a predetermined percentage of company funding that goes to research and development, or sales and marketing. This can be done monthly, per quarter, or per fiscal year . The percentage of the allocated budget is based on importance, productivity, company profits, and other considerations. If the department needs more funding, they can submit a budget request , but ultimately, the budget allocation should be taken care of beforehand.

What is the best way to allocate your budget?

There’s no one-size-fits-all answer here. To optimize your budget allocation you need to proactively and periodically review how you’re allocating resources and reassess your priorities. What are your goals? What are your budget constraints? What ROI are you getting on your current allocations? These are all questions you need to ask in collaboration with different teams and departments to ensure your budgets are allocated properly at all times.

Related Content

  • The 12 Most Important Operational Metrics & KPIs to Track in SaaS
  • How To Choose the Best Pricing Model for Your SaaS Business
  • What Is Spend Forecasting and How Can It Benefit Your Business?

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Creating a Budgeting Process: Step-by-Step

The budgeting process is an essential business function that’s bound to make even the most organized managers stress. What could be more important to the daily operations of the company than its cash flow? Messing up in this field could result in disrupted projects or, at worst, insolvency. 

And yet, studies have shown that  about half of organizations  don’t even have a formally documented budgeting process.

If your organization is taking on some new projects and you need to make sure that the funding stays sufficient, then studying up on the budgeting process is the best next step to take. Find out how to not only keep track of expenses and revenue but also gain more value out of your purchases and procurement process.

What Is a Budgeting Process?

The process of reviewing past budgets and planning budgets to forecast revenue is known as the budgeting process. It includes aligning with upper management in order to analyze budget data and establish goals for the future to better  control spending .

When deciding on a budget, a business allocates resources to certain company projects and objectives. Controls are put in place to enforce budgeting policies and prevent overspending. We can generally look at three different types of budgets:

  • Operating  budgets involve both the revenue generated and the expenditures made during daily operations. Employee salaries and benefits are included in this category.
  • Capital  expenditure involves major purchases like physical properties and equipment. Budget managers consider this category by setting priorities and making decisions to control risks.
  • Cash flow  is another form of budgeting that looks at the relationship between income and expenses. Specifically, it makes sure that you have enough cash on hand at any time to cover immediate expenditures.

The budgeting process covers all the steps involved in determining and setting a budget, which can include:

  • Reviewing past financial quarters and using the data to forecast future expenses and revenues.
  • Developing a plan to manage the budget and implementing it. Allocate resources to cover the company’s projects and departments.
  • Regularly checking up on progress by monitoring budget levels throughout the quarter.
  • Evaluating the performance of the budgeting process in the end and seeing what can be learned.

But we need to go beyond just definitions and look at the role of budgeting in corporate and project management.

The Primary Goals of Budgeting

In addition to the obvious benefit of controlling spending and keeping tabs on financial activities, budgeting is taken seriously because it also:

  • Helps with project planning:  What happens if market conditions change and the business needs to address problems later down the line? Budgeting is the perfect way to prepare financially.
  • Coordinates collaboration:  Since the budget impacts everyone, the budgeting process must involve all departments and teams working together for the wellbeing of the overall company as a whole.
  • Motivates management:  Upper management teams who are aware of budgeting efforts are more likely to understand the goals and initiatives of the business. They are motivated to hold everybody accountable for a stable budget.
  • Measures performance:  Budgeting forces you to look at the financial figures and determine whether or not you’re meeting your targets. If any cash flow issues arise, you will be able to know early on.

A detailed budget sets realistic goals for your projects and ensures proper resource allocation to prevent costly spending overflows.

Why the Budgeting Process Is Vital

Companies balance their budgets for the same reason individuals do. By keeping track of the timing and amounts of income and expenditures, it’s possible to set realistic goals, track deviations in planning, and enforce corrective action.

Without enough cash, a business cannot sustain itself, but the advantages of the budgeting process are a little more complex than that.

  • Setting expectations:  Once a budget sets a spending target for a particular project, then the teams can work with those expectations in mind. They can set their own deadlines and allocate resources according to the company’s master budget.
  • Aligning resource allocation to the goals of the business:  Think about what part of the company deserves more money this quarter. For instance, if product sales are down this month, it may be wise to allocate more of the budget to sales and marketing.
  • Facilitating collaboration:  Departments should not be siloed. Budgeting is the perfect opportunity to connect the finance teams with the rest of the business. Everyone gets a chance to talk about priorities, expectations, funding, and goals, and the finance department gets to share guidance.

A company with a strong budgeting process in place is also seen as more trustworthy when it comes to third-party partnerships. For instance, if you ever need to borrow a business loan, your lender will likely want to know how well you’ve followed budgets in the past.

How Does One Approach Budget Management?

Budget management cannot be perfected overnight, and neither is it possible to achieve for one person. It requires collaboration among upper management, the finance department, and the various budget and project managers across the company.

A budget can be developed in a  top-down  approach, where upper management begins the process by looking at business objectives and current resources to prepare a budget plan. It then passes down the responsibility of enforcing this plan to the department managers, who themselves can set their own guidelines based on the overall budget allocation.

Top-down works out in most cases because lower management can save time and effectively hit the ground running since most of the work has been done externally.

Alternatively, budgeting can occur from the  bottom-up , essentially an inverse of top-down. Planning begins at the departmental level and goes up; that is, each department prepares its own budget plans and cost estimations, and upper management combines them all into one big, inclusive budget process.

Bottom-up is more time-consuming, but it also results in a more suitable budget since the people who will conduct daily operations and actually spend the money have a larger voice in how resources will be allocated. Each department is also likely to be more motivated to achieve financial goals this way since it was the one who made the budget to begin with.

In a non-business example, New York City famously implemented its own bottom-up strategy known as  Participatory Budgeting  in the early 2010s. The plan gave control of the public budgeting process to community members.

What Steps Does the Budgeting Process Involve?

Regardless of the approach you take, the next step is to convert the budgeting process into tangible business strategy. Start by determining your budgetary goals (i.e. what you’re trying to achieve with limited resources). Then determine how you will achieve those objectives and track your progress along the way.

  • Identify goals:  Depending on factors like market dynamics,sales trends, and current resources, a company has different needs regarding its budget and must plan accordingly.
  • Look at past data:  Take advantage of the existing information you have from last quarter. What did you learn about your last budget that can be used this time around? Were there unanticipated shortfalls in funding? Were the assumptions you made back then still accurate? And how has the market or industry changed since then? Encourage your individual departments to ask themselves these questions.
  • Get some tangible numbers out:  Getting into the actual figures, identify your income streams, investments, and expenditures. Whether we’re talking about exact numbers or estimates, look for fixed costs (overhead, static costs like rent, mortgage, utilities, salaries, and insurance), variable costs (discretionary fees like software subscriptions, travel costs, and advertising services), and irregular costs (surprise expenses that are difficult to forecast, such as special events and mergers/acquisitions).
  • Always have cash flow in mind:  Don’t just look at the amounts; look at the timing as well. Is your consistent revenue enough to take care of seasonal, momentary expenditures? Look at cash flow in terms of the money going in at a certain point compared to the money going out.

And don’t forget to revisit your budgeting process regularly. It’s not a one-time consideration, as you will need to check back and update your efforts. Schedule budgetary reviews every quarter so that potential issues are caught in time.

Budgeting Process Techniques and Best Practices

Corporate budgeting is a high-risk activity that even experienced management teams need time to get right. Thankfully, it isn’t too difficult with a bit of practice and an understanding of how the process generally works.

In addition to the above steps, know that budgets will often change with time. Many businesses operate in fluctuating markets where demand goes up and down depending on the month, which are conditions that call for seasonal budgeting. Also, be honest in your estimations. Don’t over-exaggerate sales or expenditures, and be sure to include even small charges like federal and state taxes.

Know the “Why” Behind the Numbers

A budget manager clearly works with a lot of numbers, but have you ever stopped to think about the “why” beyond those numbers? What assumptions is your budget based on, and how would you interpret those numbers?

To illustrate, try to think about the key causes for high expenses the next time you calculate them out. Are you in need of additional staff, hence the increased investment into salaries? Or are your sales teams short on tools, and you need to spend more on marketing initiatives?

On the revenue side of things, remember what products and services you sold to customers that quarter. Did the sales reach your intended goals, or did they fall short and cause cash flow problems early on? Are you able to adjust product pricing accordingly to address the problem, or is there an underlying need for more robust marketing strategies?

A budget is more than just a spreadsheet. It’s a guide to how your operations should be laid out.

Grasp at Key Performance Indicators

The budgeting process is also heavily KPI-based. Think about how resource allocation should reflect the overall goals of your organization. Key performance indicators tie your efforts to those business objectives and keep you going in the right direction as the budgeting process continues.

Some examples of KPIs often used by budgeting teams are:

  • Cash flow and expenses
  • Employee payroll
  • Accounts payable and receivable fees
  • Turnover rates

Regardless of which ones you end up using, make them clear and easily measurable to get the most out of them.

Get It Written Down

Planning out the budget needs to be a formal business process, so don’t just leave it a mental roadmap. Have a budget plan written down somewhere so that you may be thorough in your enforcement controls. In fact, successful companies always publish their annual budget documents to be shared throughout the organization for this reason.

While paper or even spreadsheet programs are an option, the most efficient and organized way to go about a budget report is through accounting and  procurement software  platforms. As requirements change and budgets shift in focus, a flexible and versatile way to manage your funds is essential to staying competitive in today’s market.

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Budgeting Process: Steps and Best Practices for Planning a Budget

  • Written by Keith Murphy
  • 18 min read

Budgeting Process: Steps and Best Practices For Planning a Budget 

KEY TAKEAWAYS

  • Budgeting is crucial to ensure your business has enough money to remain operational and earn profit.
  • Using financial tools can help save time and resources while improving accuracy in the budgeting process.
  • Whether you have a small business or a large corporation, the basic steps and best practices for managing budgets are the same.

Budgeting is a vital aspect of financial management that helps businesses allocate resources effectively, control costs, and achieve their financial goals.

In this article, we will discuss the typical steps involved in the budgeting process, the challenges of forecasting, best practices for effective business budgeting.

We will also look at how spend management software , like Planergy, can help keep track of expenses and control spending within budget limits.

Why is Business Budgeting Important?

Business budgeting plays a crucial role in the financial success of a company. Regardless of size, all companies must have an annual budget for every fiscal year.

Larger companies may have a budget committee in charge of creating multiple types of budgets , including operating budgets and departmental budgets .

The end goal should be a detailed budget that covers everything you expect to spend, plus some excess for discretionary spending.

Budgeting should be part of regular financial planning. As you make budget decisions, consider:

  • Available funds
  • Capital expenditures and operating expenses, including variable and fixed costs
  • Plans for the next fiscal year

Use documents such as your:

  • Income statement
  • Cash flow statement
  • Utility bills
  • Payroll documents

These documents will help you develop your master budget. Use your business plan as a guide if it’s your first year in business. If you’ve been in business for a while, you can use information from the prior year to help you set up the budget.

This is the case unless you are using a zero based budgeting approach.

Sets Financial Goals and Objectives

A well-prepared budget serves as a roadmap for your business’s financial growth. By setting clear financial targets, you can align your business strategies with your desired outcomes, such as increased revenue, reduced expenses, or higher profitability.

Budgeting also helps you prioritize investments and allocate resources to achieve these objectives effectively.

Allocates Resources Efficiently

Business budgeting lets you analyze your company’s financial needs and distribute resources accordingly.

This ensures that each department or project receives adequate funding, vital for smooth operations and achieving your business goals.

Efficient resource allocation also helps you avoid overspending and maintain a healthy cash flow .

Identifies Potential Financial Problems Before They Arise

Regular budgeting lets you spot financial issues early on, such as declining sales, rising costs, or cash flow shortages.

By identifying these problems in advance, you can take proactive measures to address them, such as cutting unnecessary expenses, renegotiating contracts, or seeking additional funding.

This ensures that your business remains financially healthy and avoids costly issues down the line.

Modern Software Reduces Budgeting Time & Effort

Many businesses still rely on outdated, manual budgeting methods, such as spreadsheets or pen and paper.

This can be time-consuming and error-prone, leading to inaccuracies in financial forecasting. By using modern budgeting software, businesses can dramatically reduce the time and effort required to generate accurate budgets.

Accurate real-time tracking and reporting on budget vs actual expenditure can avoid overspends and gives visibility of underspends so budgets can be adjusted or reallocated as needed.

Business budgeting software automates many of the manual processes, allowing you to quickly develop comprehensive financial plans without sacrificing accuracy or detail.

This can provide peace of mind that your business’ finances are well-managed and help enable more informed decision making, and easier financial reporting.

Measures Business Performance Against Established Benchmarks

A budget is a benchmark against which you can compare your financial performance. This enables you to evaluate your company’s progress toward its financial goals and identify areas that need improvement.

Regularly reviewing your budget and adjusting it based on your business’s performance helps you stay on track and make informed decisions.

Helps Decision-Making and Long-Term Planning

Budgeting provides valuable insights into your business’s financial health and future prospects. These insights are essential for making strategic decisions, such as expanding into new markets, launching new products, or acquiring other businesses.

Additionally, a well-structured budget can help you plan for long-term growth by identifying opportunities for cost reduction, revenue generation, and investment.

Why is business budgeting important

No matter what your budget looks like, set aside some funds to account for unexpected expenses or overages.

Steps in the Budgeting Process

Budgeting is a crucial aspect of financial management that helps businesses plan and allocate resources effectively. It typically involves the following steps:

Setting Financial Objectives

Start by determining your short-term and long-term financial goals, such as increasing revenue, reducing costs, or improving profitability.

These objectives should be specific, measurable, achievable, relevant, and time-bound (SMART) to ensure they are realistic and attainable .

Gathering Historical Data

Review past financial statements, records, and reports to gain insights into your business’s financial performance and trends. This can include a budget analysis report and budget variance analysis .

This information will help you identify areas of strength and weakness and opportunities for improvement and growth.

Using spend management software, like Planergy, will allow you to gain real-time spend visibility and make better decisions.

Forecasting Revenues and Expenses

Based on historical data, market research, and industry trends, estimate future sales, costs, and other financial variables. Variable expenses can be difficult to budget for, so they need to be considered carefully .

Consider factors such as seasonality, economic conditions, and changes in your business operations when making these projections.

Preparing a Preliminary Budget

Create a draft budget that outlines your projected revenues, expenses, and cash flow.

This should include line items for each category of income and expenditure, as well as a summary of your overall financial position.

Reviewing and Adjusting

Analyze the preliminary budget to ensure it aligns with your financial objectives and accurately reflects your business’s anticipated financial performance.

Make any necessary adjustments, such as reallocating resources or revising revenue projections, to create a more accurate and realistic budget.

Implementation

Once your budget is finalized, communicate it to relevant stakeholders, such as department heads, employees, and investors.

Ensure that everyone understands the budget’s objectives and their role in achieving them. Integrate the budget into your business operations, using it as a guide for decision-making and resource allocation.

Monitor and Review

Regularly track your actual financial performance against the budget to identify any discrepancies or areas that require attention.

Review your budget periodically and adjust as needed to account for changes in your business environment or financial performance.

This ongoing monitoring and review process will help you stay on track and ensure that your budget remains an effective tool for managing your business’s finances.

Steps in the budgeting process

Budget Forecasting Challenges

Economic uncertainty.

Unpredictable market conditions, such as consumer demand fluctuations, interest rate changes, or shifts in global economic trends, can impact your revenue projections and expense estimates.

Economic uncertainty makes it difficult to accurately predict your business’s financial performance, which can lead to over- or underestimating your budgetary needs.

To address this challenge, consider using multiple scenarios (optimistic, realistic, and pessimistic) in your budget forecasting process to account for potential variations in market conditions.

Inaccurate Historical Data

Your budget forecasts rely heavily on historical reporting data to project future revenues and expenses. Incomplete or incorrect historical data can lead to flawed forecasts, resulting in unrealistic budget expectations and poor decision-making.

To overcome this challenge, maintain accurate and up-to-date financial records, and review them regularly for errors or inconsistencies.

Use industry benchmarks and market research to supplement your historical data and provide a more comprehensive view of your business’s financial outlook.

Changes in Business Operations

Significant changes in your business operations, such as new product launches, acquisitions, or changes in your supply chain, can impact your budget projections.

These changes may introduce new revenue streams or alter your cost structure, making it challenging to forecast your business’s financial performance accurately. For example, a significant increase in operations can result in a decrease in cash flow .

To address this challenge, closely monitor any changes in your business operations and incorporate them into your budget forecasts.

This may involve updating your revenue projections, adjusting your expense estimates, or reallocating resources to accommodate the changes.

Budget forecasting challenges

Benefits of Business Budgeting

Improved financial control.

Budgeting helps you monitor and manage your business’s finances more effectively. By setting financial targets and allocating resources accordingly, you can track your company’s performance and ensure it stays on track to achieve its goals.

A well-prepared budget also enables you to identify areas where cost savings can be made, or resources can be reallocated to maximize efficiency.

Enhanced Decision-Making

A well-prepared budget provides valuable insights for strategic planning and decision-making.

By analyzing your projected revenues and expenses, you can identify growth opportunities, prioritize investments, and make informed decisions about your business’s operations.

Budgets also serve as a reference point for evaluating the financial impact of various alternatives, helping you choose the most cost-effective and beneficial options for your company.

Better Risk Management

By identifying potential financial issues early on, budgeting allows you to mitigate business risks and implement contingency plans.

Regularly monitoring your budget helps you spot potential problems, such as cash flow shortages or declining revenues, before they become critical.

This proactive approach to risk management allows you to address issues in a timely manner and minimize their impact on your business’s financial health.

Increased Profitability

Effective budgeting helps optimize resource allocation and control costs , increasing profits.

By carefully planning your expenses and analyzing your procurement spend you can identify areas where cost savings can be achieved, you can reduce unnecessary spending and improve your company’s bottom line.

A well-structured budget can help you identify new revenue opportunities and invest in initiatives to drive growth and profitability.

Benefits of business budgeting

Best Practices for Business Budgeting

To ensure effective business budgeting you should consider following these best practices:

Involve Relevant Stakeholders

Include employees from different departments to gather diverse perspectives and insights.

Involving key stakeholders in the budgeting process ensures a more comprehensive understanding of the company’s financial needs and promotes buy-in and commitment to achieving budget goals.

Use Current, Accurate Data

Base your revenue and expense projections on accurate, up-to-date information. If the information is not accurate or not up to date you can be sure your budget will have the same problem.

Be Realistic with Expectations

Avoid overly optimistic or pessimistic assumptions that could lead to unrealistic expectations and poor decision-making. Use historical data and industry benchmarks to create a more reliable and achievable budget.

Adjust for Seasonality

Consider seasonal fluctuations in sales and expenses when creating your budget. Many businesses experience variations in demand and costs throughout the year due to factors like holidays, weather, and consumer behavior.

Incorporating these fluctuations into your budget can help you better plan for and manage resources during peak and off-peak periods.

Use a Rolling Forecast

Update your budget regularly to account for market conditions and business operations changes. A rolling forecast is an approach where you continually update your projections for a set period (e.g., 12 months) as new data becomes available.

This enables you to maintain a more accurate and up-to-date financial outlook, allowing for quicker strategy and resource allocation adjustments as needed.

Best practices for business budgeting

How Can Software Help You Manage Your Budget?

Spend management software like Planergy can help you manage your budget by:

Streamlining Data Collection

Spend management software like Planergy can help you manage your budget by automatically importing financial data from various sources.

This saves time and reduces errors by eliminating manual data entry and ensuring your budget is based on accurate, up-to-date information.

Facilitating Better Collaboration

Enable team members to work together on business budget planning and review processes using spend management software.

This fosters better communication and collaboration among stakeholders, allowing for a more comprehensive understanding of the company’s financial needs and promoting commitment to achieving budget goals.

Providing Real-Time Insights

Generate reports and dashboards with spend management software that allows you to monitor your financial performance in real-time.

This enables you to quickly identify trends, discrepancies, and areas of concern, allowing for more informed decision-making and timely adjustments to your budget and strategy.

Improving Expense Tracking

Track expenses against your budget with ease using spend management software, and identify areas where spending can be controlled.

This helps ensure your business stays within budget, allowing for more effective resource allocation and improved financial performance.

How software can help you manage your budget

Simplify Business Budgeting with Planergy

Effective business budgeting is crucial for managing your company’s finances, making informed decisions, and achieving financial goals.

By following best practices and leveraging spend management software like Planergy, you can create an accurate and comprehensive budget that supports your business’s long-term success.

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7.3: Introduction to Budgeting and Budgeting Processes

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The budget—For planning and control

Time and money are scarce resources to all individuals and organizations; the efficient and effective use of these resources requires planning. Planning alone, however, is insufficient. Control is also necessary to ensure that plans actually are carried out. A budget is a tool that managers use to plan and control the use of scarce resources. A budget is a plan showing the company’s objectives and how management intends to acquire and use resources to attain those objectives.

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A YouTube element has been excluded from this version of the text. You can view it online here: pb.libretexts.org/llmanagerialaccounting/?p=152

Companies, nonprofit organizations, and governmental units use many different types of budgets. Responsibility budgets are designed to judge the performance of an individual segment or manager. Capital budgets evaluate long-term capital projects such as the addition of equipment or the relocation of a plant. This chapter examines the master budget , which consists of a planned operating budget and a financial budget. The planned operating budget helps to plan future earnings and results in a projected income statement. The financial budget helps management plan the financing of assets and results in a projected balance sheet.

The budgeting process involves planning for future profitability because earning a reasonable return on resources used is a primary company objective. A company must devise some method to deal with the uncertainty of the future. A company that does no planning whatsoever chooses to deal with the future by default and can react to events only as they occur. Most businesses, however, devise a blueprint for the actions they will take given the foreseeable events that may occur.

A budget: (1) shows management’s operating plans for the coming periods; (2) formalizes management’s plans in quantitative terms; (3) forces all levels of management to think ahead, anticipate results, and take action to remedy possible poor results; and (4) may motivate individuals to strive to achieve stated goals.

Companies can use budget-to-actual comparisons to evaluate individual performance. For instance, the standard variable cost of producing a personal computer at IBM is a budget figure. This figure can be compared with the actual cost of producing personal computers to help evaluate the performance of the personal computer production managers and employees who produce personal computers. We will do this type of comparison in a later chapter.

Many other benefits result from the preparation and use of budgets. For example: (1) businesses can better coordinate their activities; (2) managers become aware of other managers’ plans; (3) employees become more cost conscious and try to conserve resources; (4) the company reviews its organization plan and changes it when necessary; and (5) managers foster a vision that otherwise might not be developed.

The planning process that results in a formal budget provides an opportunity for various levels of management to think through and commit future plans to writing. In addition, a properly prepared budget allows management to follow the management-by-exception principle by devoting attention to results that deviate significantly from planned levels. For all these reasons, a budget must clearly reflect the expected results.

Failing to budget because of the uncertainty of the future is a poor excuse for not budgeting. In fact, the less stable the conditions, the more necessary and desirable is budgeting, although the process becomes more difficult. Obviously, stable operating conditions permit greater reliance on past experience as a basis for budgeting. Remember, however, that budgets involve more than a company’s past results. Budgets also consider a company’s future plans and express expected activities. As a result, budgeted performance is more useful than past performance as a basis for judging actual results.

A budget should describe management’s assumptions relating to: (1) the state of the economy over the planning horizon; (2) plans for adding, deleting, or changing product lines; (3) the nature of the industry’s competition; and (4) the effects of existing or possible government regulations. If these assumptions change during the budget period, management should analyze the effects of the changes and include this in an evaluation of performance based on actual results.

Budgets are quantitative plans for the future. However, they are based mainly on past experience adjusted for future expectations. Thus, accounting data related to the past play an important part in budget preparation. The accounting system and the budget are closely related. The details of the budget must agree with the company’s ledger accounts. In turn, the accounts must be designed to provide the appropriate information for preparing the budget, financial statements, and interim financial reports to facilitate operational control.

Management should frequently compare accounting data with budgeted projections during the budget period and investigate any differences. Budgeting, however, is not a substitute for good management. Instead, the budget is an important tool of managerial control. Managers make decisions in budget preparation that serve as a plan of action.

The period covered by a budget varies according to the nature of the specific activity involved. Cash budgets may cover a week or a month; sales and production budgets may cover a month, a quarter, or a year; and the general operating budget may cover a quarter or a year.

Budgeting involves the coordination of financial and nonfinancial planning to satisfy organizational goals and objectives. No foolproof method exists for preparing an effective budget. However, budget makers should carefully consider the conditions that follow:

  • Top management support All management levels must be aware of the budget’s importance to the company and must know that the budget has top management’s support. Top management, then, must clearly state long-range goals and broad objectives. These goals and objectives must be communicated throughout the organization. Long-range goals include the expected quality of products or services, growth rates in sales and earnings, and percentage-of-market targets. Overemphasis on the mechanics of the budgeting process should be avoided.
  • Participation in goal setting Management uses budgets to show how it intends to acquire and use resources to achieve the company’s long-range goals. Employees are more likely to strive toward organizational goals if they participate in setting them and in preparing budgets. Often, employees have significant information that could help in preparing a meaningful budget. Also, employees may be motivated to perform their own functions within budget constraints if they are committed to achieving organizational goals.
  • Communicating results People should be promptly and clearly informed of their progress. Effective communication implies (1) timeliness, (2) reasonable accuracy, and (3) improved understanding. Managers should effectively communicate results so employees can make any necessary adjustments in their performance.
  • Flexibility If significant basic assumptions underlying the budget change during the year, the planned operating budget should be restated. For control purposes, after the actual level of operations is known, the actual revenues and expenses can be compared to expected performance at that level of operations.
  • Follow-up Budget follow-up and data feedback are part of the control aspect of budgetary control. Since the budgets are dealing with projections and estimates for future operating results and financial positions, managers must continuously check their budgets and correct them if necessary. Often management uses performance reports as a follow-up tool to compare actual results with budgeted results.

The term budget has negative connotations for many employees. Often in the past, management has imposed a budget from the top without considering the opinions and feelings of the personnel affected. Such a dictatorial process may result in resistance to the budget. A number of reasons may underlie such resistance, including lack of understanding of the process, concern for status, and an expectation of increased pressure to perform. Employees may believe that the performance evaluation method is unfair or that the goals are unrealistic and unattainable. They may lack confidence in the way accounting figures are generated or may prefer a less formal communication and evaluation system. Often these fears are completely unfounded, but if employees believe these problems exist, it is difficult to accomplish the objectives of budgeting.

Problems encountered with such imposed budgets have led accountants and management to adopt participatory budgeting. Participatory budgeting means that all levels of management responsible for actual performance actively participate in setting operating goals for the coming period. Managers and other employees are more likely to understand, accept, and pursue goals when they are involved in formulating them.

Within a participatory budgeting process, accountants should be compilers or coordinators of the budget, not preparers. They should be on hand during the preparation process to present and explain significant financial data. Accountants must identify the relevant cost data that enables management’s objectives to be quantified in dollars. Accountants are responsible for designing meaningful budget reports. Also, accountants must continually strive to make the accounting system more responsive to managerial needs. That responsiveness, in turn, increases confidence in the accounting system.

Although many companies have used participatory budgeting successfully, it does not always work. Studies have shown that in many organizations, participation in the budget formulation failed to make employees more motivated to achieve budgeted goals. Whether or not participation works depends on management’s leadership style, the attitudes of employees, and the organization’s size and structure. Participation is not the answer to all the problems of budget preparation. However, it is one way to achieve better results in organizations that are receptive to the philosophy of participation.

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How Budgeting Works for Companies

What is a budget.

A budget is a forecast of revenue and expenses over a specified future period. Budgets are utilized by corporations, governments, and households and are an integral part of running a business (or household) efficiently. Budgeting for companies serves as a plan of action for managers as well as a point of comparison at a period's end.

The budgeting process for companies can be challenging, particularly if customers don't pay on time or revenue and sales are intermittent. There are several types of budgets that companies use, including operating budgets and master budgets as well as static and flexible budgets. In this article, we explore how companies approach budgeting as well as how companies deal with missing their budgets.

Key Takeaways

  • A budget is a forecast of revenue and expenses over a specified period and is an integral part of running a business efficiently.
  • A static budget is a budget with numbers based on planned outputs and inputs for each of the firm's divisions.
  • A cash-flow budget helps managers determine the amount of cash being generated by a company during a period.
  • Flexible budgets contain the actual results and are compared to the company's static budget to identify any variances.

How Budgets Work

Although the budgeting process for companies can become complex, at its most basic, a budget compares a company's revenue with its expenses in a given period. When they spend more than what was budgeted they can create a revenue deficit .

Of course, determining how much to spend on various expenses and projecting sales is only one part of the process. Company executives also have to contend with a myriad of other factors, including projecting capital expenditures , which are large purchases of fixed assets such as machinery or a new factory. They must also plan for their ongoing cash needs, revenue shortfalls, and the economic backdrop. Regardless of the type of business, the ability to gauge performance using budgets is critical to a company's overall financial health.

Types of Budgets

Below are a few of the most common types of budgets that corporations use to accurately forecast their numbers.

Master Budget

Most companies will start with a master budget, which is a projection for the overall company. Master budgets typically forecast the entire fiscal year. The master budget will include projections for items on the income statement , the balance sheet, and the cash flow statement . These projections can include revenue, expenses, operating costs, sales, and capital expenditures.

Static Budget

A static budget is a budget with numbers based on planned outputs and inputs for each of the firm's divisions. A static budget is usually the first step of budgeting, which determines how much a company has and how much it will spend. The static budget looks at fixed expenses, which are not variable or dependent on production volumes and sales. For example, rent would be a fixed cost regardless of the sales volume for a company.

Some industries such as non-profits receive donations and grants resulting in a static budget from which they can't exceed. Other industries use static budgets as a starting point or a baseline number, similar to the master budget, and make adjustments at the end of the fiscal year if more or less is needed in the budget. When creating a static budget, managers use economic forecasting methods to determine realistic numbers.

Operating Budget

The operating budget includes the expenses and revenue generated from the day-to-day business operations of the company. The operating budget focuses on the operating expenses, including cost of goods sold (COGS) and the revenue or income. COGS is the cost of direct labor and direct materials that are tied to production.

The operating budget also represents the overhead and administrative costs directly tied to producing the goods and services. However, the operating budget doesn't include items such as capital expenditures and long-term debt.

Cash-Flow Budget

A cash-flow budget helps managers determine the amount of cash being generated by a company during a specific period. The inflows and outflows of cash for a company are important because expenses need to be paid on time from the cash generated. For example, monitoring the collection of accounts receivables , which is money owed by customers, can help companies forecast the cash due in a particular period.

This process can be challenging if too many customers are past-due. To compensate for this, many businesses create something called an " allowance for doubtful accounts ," which estimates the amount of accounts receivable that are expected to not be collectible.

Cash flow budgets help to examine past practices to examine what's working and what's not and make adjustments. For example, a company could apply for a short-term working capital line of credit from a bank to ensure they cash in the event a client pays late. Also, companies can ask for more flexible options for their accounts payables , which is money owed to suppliers to help with any short-term cash-flow needs.

Using a Budget to Evaluate Performance

Once a period has ended, management must compare the forecasts from the static or master budget to the company's performance. It's at this stage that companies calculate whether the budget came in line with planned expenditures and income.

Flexible Budget

A flexible budget is a budget containing figures based on actual output. The flexible budget is compared to the company's static budget to identify any variances (or differences) between the forecasted spending and the actual spending.

With a flexible budget, budgeted dollar values (i.e., costs or selling prices) are multiplied by actual units to determine what particular number will be given to a level of output or sales. The calculation yields the total variable costs involved in production. The second component of the flexible budget is the fixed costs. Typically, fixed costs do not differ between static and flexible budgets.

Since flexible budgets use the current period's numbers—sales, revenue, and expenses—they can help create forecasts based on multiple scenarios. Companies can calculate various outcomes based on different outputs, such as sales or units produced. Flexible or variable budgets help managers plan for both low output and high output to help ready themselves regardless of the outcome.

Budget Variances

As stated earlier, variances can arise between the static budget and the actual results. The two common variances are called the flexible budget variance and sales-volume variance.

The flexible budget variance compares the flexible budget to actual results to determine the effects that prices or costs have had on operations. By comparison, the sales-volume variance compares the flexible budget to the static budget to determine the effect that a company's level of sales activity had on its operations.

From these two budgets, a company can develop individual flexible and static budgets for any element of its operations. The variances are classified as either favorable or unfavorable.

If the sales-volume variance is unfavorable (flexible budget is less than static budget), the company's sales (or production with a production volume variance) will turn out to be less than anticipated.

If, however, the flexible budget variance was unfavorable, it would be the result of prices or costs. By knowing where the company is falling short or exceeding the mark, managers can evaluate the company's performance more efficiently and use the findings to make any necessary changes.

A flexible budget can help companies account for both variable and fixed expenses, creating a more dynamic process and leading to more accurate forecasts.

Implementing Budgets

For most companies, expenses pop up from time to time. Static budgets typically act as a guideline, meaning they can be changed or adjusted once the variances have been identified via a flexible budget. Understanding the different types of budgeting , managers can gain a wealth of information through the analysis of budget variances leading to better-informed business decisions.

budget allocation process

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The federal budget process

Learn about the federal government’s budget process, from the president’s budget plan to Congress’s work creating funding bills for the president to sign.

Every year, the U.S. Congress begins work on a federal budget for the next fiscal year. The federal government’s fiscal year runs from October 1 of one calendar year through September 30 of the next.

Annual funding areas

The annual budget covers three spending areas:

  • Mandatory spending - funding for Social Security, Medicare, veterans benefits, and other spending required by law. This typically uses over half of all funding.
  • Discretionary spending - federal agency funding. Congress sets funding levels for these each year. This usually accounts for around a third of all funding.
  • Interest on the debt - this usually uses less than 10 percent of all funding.

Creating the U.S. federal budget

The budget planning begins a year before the budget is to go into effect.

Federal agencies create budget requests and submit them to the White House Office of Management and Budget (OMB).

OMB refers to the agencies’ requests as it develops the budget proposal for the president.

The president submits the budget proposal to Congress early the next year.

Proposed funding is divided among 12 subcommittees, which hold hearings. Each is responsible for funding for different government functions such as defense spending or energy and water.

The House and Senate create their own budget resolutions, which must be negotiated and merged. Both houses must pass a single version of each funding bill.

Congress sends the approved funding bills to the president to sign or veto.

  • Get a more in-depth look at the federal budget process.
  • To track how government agencies and programs use this budgeted money, visit USAspending.gov .

LAST UPDATED: December 6, 2023

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4 Steps of the Business Budget Allocation Process

Hanh Truong

Hanh Truong

To properly plan and manage finances , organizations need to monitor their budget allocations. This practice will help management identify their current level of resources and how much they can spend on a department, project, or inventory. With full visibility into allocation limits, businesses can ensure that expenditures do not exceed revenue and profitability is maintained.

What is Budget Allocation?

what is budget allocation 1611166387 5433

Budget allocation is when an organization allocates the maximum amount of funding they are willing to spend on an activity or program. Essentially, it is a limit that employees cannot exceed when charging expenses. Organizations will create a budget with consideration of the expenditures from the previous year. Managers will also estimate how much revenue they expect to have in the upcoming year so they can identify the level of resources they will have available. This helps them to take into account all the needs of the organization and how they can best allocate their money. The goal of budget allocation is to ensure that a company's resources are efficiently and effectively used. It also helps management make informed decisions to protect the business's bottom line.

4 Steps of Business Budget Allocation

Successfully budgeting can help organizations guarantee that they have the funds necessary to meet obligations, as well as enough resources to deal with emergency situations. Businesses can improve their budget allocation by following 4 key steps.

1. Identify Spending Requirements

Management teams should outline all of the expenditures and financial obligations they plan to cover with their budget. These areas of spending usually include staff salary, inventory, and supplies.

2. Determine Methods of Funding

2 determine methods of funding 1611166387 1748

To ensure that expenditures are paid, businesses must determine how they generate or locate revenue. For existing companies, this can be through sales, while new brands will typically depend on investments. The revenue is then split and assigned to various budget items. In the case that the organization does not have enough resources available, executives will have to return to the first step and make cuts in the amount of money they want to spend on a budget item or remove the item in its entirety. If a budget item is necessary and vital to an organization's business plan, management should find new ways to produce more revenue.

3. Execute the Budget

At this stage, the budget has been thoroughly planned and businesses can start spending the funds they allocated for the different items in the budget. Oftentimes, circumstances may arise that require managers to make changes to their budgets. Businesses that experience this should conduct a thorough review of their resources to make sure they have enough funds to meet all needs.

4. Monitor and Maintain Budget Allocations

4 monitor and maintain budget allocations 1611166387 6667

Finance teams should regularly monitor budget allocations to make sure that the business is following established spending plans . It is helpful to create a spending record to allow managers to assess all purchase orders and bills, and compare them to budget allocations. Recording spending will also promote accountability by enabling executives to check whether procurement activities were done correctly. Additionally, it can help the organization with future budget planning and can highlight any saving opportunities.

Direct and Indirect Costs in Budget Development

When developing a budget, management needs to classify their different expenditures into standard budget categories. These two classifications are-

Direct Costs

  • Personnel - These are costs related to employee salary, holiday pay, and health insurance.
  • Allowance for Travel and Subsistence - This refers to round-trip airfare, lodging, meals, and transportation expenses.
  • Vehicle - Typically, vehicle costs, such as renting and maintenance, will be included in the travel and subsistence item. If employees or managers drive their cars for business purposes, they can claim a certain amount per mile.
  • Consumables and Supplies - This includes money reserved for supplies and activities to complete a project. Some of the most common consumables are software, stationary, and batteries.

Indirect Costs

indirect costs 1611166387 2755

  • Utilities - Expenses for electricity, gas, and water are the main costs of operating and maintaining buildings and warehouses.
  • Premises Rent - Businesses will typically have to pay their monthly or yearly rent to continue working in their office or to operate their brick and mortar locations.
  • Depreciation of Equipment - When equipment and machinery wear out and become obsolete, they lose value.
  • Security Expenses - Some offices and warehouses will employ security guard personnel or systems to ensure the safety of inventory and employees.

By thoroughly understanding the various expenses an organization must cover, management teams can develop effective budget allocation and ensure smart spending decisions.

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13 effective tips to allocate budget across departments

Sabrinthia Donnelly

Sabrinthia Donnelly

To build a sustainable and profitable business, you need to know how to allocate budget across multiple departments.

As you can imagine, this can be a tricky process to get right. Everyone wants a bigger piece of the pie, and you can’t always please everyone. Instead, you must find a way to balance competing priorities with overarching business objectives – all while forecasting future needs.

So, how can you do that effectively?

This article highlights 13 tips for successful budget allocation across departments and covers: 

  • What we mean by ‘budget allocations'
  • Why companies need to budget
  • How to allocate budgets
  • Roles responsible for budget management

13 tips to allocate budget across multiple departments

  • How to allocate marketing budgets
  • What types of budget allocation can be changed

How to create a budget allocation model

What are ‘budget allocations’.

Budget allocation is the process of designating specific amounts of money to each department within a company.

How much money each group receives depends on:

  • Company priorities
  • Revenue projections
  • Departmental needs

These allocated budgets set spending limits for each department's operational costs, including:

  • 🖥️ Software
  • 💬 Marketing campaigns
  • 🛠️ Equipment
  • 📈 Projects tied to their goals

Done right, budget allocation provides clarity on available funds and is used to monitor spending.

Why do we need budget allocation?

The purpose of budget allocation is to guide spending and distribute financial resources.

It won’t come as a surprise to learn that most businesses have limited budgets. As much as you’d like to give every department the freedom to spend as much as they want, that's just not realistic. Budgets force departments to prioritize their needs and allocate resources efficiently. Without budgets, costs would likely spiral out of control and lead to overspending.

Some more reasons why budget allocation is so important include:

  • Financial control
  • Optimal resource use
  • Risk mitigation
  • Strategic alignment
  • Operational efficiency

But what does ‘successful budget allocation’ look like?

How do companies allocate budgets?

Many companies start with an analysis of historical spending and revenue patterns . They’ll collect financial and operational data from all departments and use key performance indicators to help guide decisions.

Company-wide objectives and initiatives are confirmed by leadership to help construct budgets that align with those goals.

Collaboration is very important and you may find that you’ll work closely with department heads and other stakeholders to better understand their monetary requirements, operational challenges, and strategic importance.

From there, you may employ a certain budgeting methodology such as:

Different types of budget allocation

Each offers a unique approach to budgeting. The next step is to draft a preliminary budget , which will be reviewed by senior management. You may need to revise the budget plan before it's implemented.

Larger, more complex companies often take a bottoms-up approach – gathering proposed budgets from departments first. Small companies may use a top-down allocated amount to each group.

It’s worth noting that budget distribution can occur as a single annual allocation or be staged across the year.

Who is responsible for budget management?

Typically, budget management involves multiple roles and stakeholders within an organization, such as:

  • CFO - The Chief Financial Officer is ultimately responsible for high-level budget strategy, financial planning, and oversight of the overall budget. This holds true across multiple industries with McKinsey reporting that 72% of CFOs say they're the most involved executives in allocating financial resources.
  • Finance Department - The finance team manages day-to-day budget tracking, reporting, analysis, and controls. They also develop budget allocation models and processes.
  • Department Heads - Leaders of business units are involved in budget requests, planning, and managing budgets for their departments.
  • Controller - The controller plays a key role in budget control and variance analysis and often enforces compliance with budgets.
  • Budget Analysts - Analysts assist with budget forecasts, data analysis, and preparation of budgets.
  • Project Managers - Project leads maintain budgets for specific projects and initiatives.
  • Executives - The CEO, COO, and other executives weigh in on high-level budget direction aligned to business strategy.

While the CFO may be the ultimate budget owner, effective budget management requires collaboration across these different roles to develop, track, control, and optimize budget performance.

Here are 13 tips for effectively allocating budget across multiple departments.

1. Involve department heads in the budgeting process

Have them provide input on their resource needs and strategic priorities. This buy-in helps to create shared ownership.

2. Employ a standardized approach

Implement a standardized budgeting process throughout the company to maintain consistency and fair allocation while considering each department’s unique needs.

3. Analyze historical spending

Search spending history to help identify trends and seasonal fluctuations. Use this data to forecast future budget needs.

4. Set organization-wide goals and communicate strategic priorities

Departmental budgets should align with these overarching objectives. This alignment not only ensures financial coherence but also enhances operational synergy.

5. Tie budgets to realistic forecasts

Allocate the budget in the context of revenue projections, not last year's numbers. By aligning budgets with realistic forecasts, you’ll ensure a more adaptive and forward-looking financial strategy positioned to navigate through evolving market conditions and emerging challenges.

6. Reserve a percentage of the total budget for discretionary spending

This buffers against unforeseen expenses arising mid-year. Reserving some of the budget for a rainy day could prove to be vital for mitigating risks and safeguarding against financial strain.

7. Prioritize ROI-driven activities

Allocate more significant budget portions to departments or projects that exhibit higher Return on Investment (ROI), ensuring funds are applied in areas that create value.

8. Require departments to justify requests exceeding historical allocations

Scrutinize large variances before approving. This helps ensure that any significant deviations from past spending are thoroughly vetted and aligned with strategic objectives.

9. Stage budget distributions

Granting each department funds quarterly or monthly versus upfront. This improves oversight. Plus, allocating budgets in installments rather than lump sums allows closer monitoring of spending patterns and burn rates.

10. Establish policies on budget transfers between departments

Policies that allow flexibility while maintaining control enable resources to be shifted to higher-priority needs when necessary.

11. Compare the allocated budget to actual spending and hold department heads accountable

Regular check-ins on budget versus actuals reveal if departments are lagging or outpacing their plan. It’s also important to hear from department heads so that actuals vary from the budget by higher than expected, they can explain, and you can analyze root causes together.

12. Leverage technology

Implement budget management software and analytical tools to streamline the allocation process. If done right, technology can help ensure accurate tracking, and provide actionable insights that inform future allocations.

13. Review budgets regularly

Continually track budget usage against set benchmarks and revisit allocations if company priorities shift mid-year. Revising budgets is one of the biggest priorities of modern-day CFOs according to PwC , who say CFOs prefer to work closely with colleagues across the C-suite to adjust budgets and revisit pricing models.

How to allocate marketing budgets across channels

When it comes to allocating marketing budgets across channels, you might find the marketing team asking for your input and advice. Since it’s a common occurrence for many of our finance community members, we thought we’d address it here.

The most effective approach is to start by auditing historical performance data for each marketing channel and assessing engagement, conversions, and attributable revenue or pipeline. Look at both returns on ad spend and overall contribution to goals.

Based on the audit findings, prioritize the budget for the initiatives delivering the strongest results and ROI. Avoid spreading the budget too thin across marginal channels. Consolidate dollars into high-traction initiatives. 

Balance short-term lead generation priorities with longer-term brand-building channels. Seek overall alignment to revenue goals while maintaining ROI accountability. Continuously evaluate new channel opportunities by funding initial tests out of existing budgets.

The key is taking a data-driven approach to fund the right mix of channels optimized for customer acquisition and financial return. And don’t forget to adjust allocations based on results.

Digital marketing budget allocation

For digital marketing budget allocation specifically, focus spending on platforms with the lowest CPA and highest conversion rates per your analytics. 

Then, continue optimizing digital budget allocation based on campaign performance and emerging trends.

B2B marketing budget allocation

When it comes to B2B marketing budget allocation, prioritize high-touch channels like events and sales enablement . 

Ensure a sufficient budget for product marketing and research. Invest in thought leadership content and account-based tactics.

What budget allocation can be changed?

While certain fixed costs like rent and payroll are less flexible, most discretionary spending budgets can be adjusted as business conditions and priorities evolve. 

Areas, where budget allocation is typically more fluid, include:

  • Marketing - Budget can shift across channels and campaigns based on performance.
  • Technology - Upgrades can be accelerated or deferred; new tools funded.
  • Travel - Conferences and other travel can be relatively easy to adapt to needs.
  • Training/Development - Programs can expand or contract as capabilities shift.
  • Contractors/Services - External spending can be reduced or surged as needed.
  • Inventory - Purchases and production can align with demand forecasts.
  • Capital Expenditures - Major equipment purchases can be postponed or funded faster.

A budget allocation model provides a structured framework for distributing financial resources across an organization's departments, divisions, projects, and other entities.

Key components of a budget allocation model include:

  • Revenue forecasts: Projected sales and income provide the spending boundary.
  • Historical data: Prior budgets and actuals inform future allocations.
  • Performance metrics: KPIs help determine departmental budget sizes.
  • Management input: Leaders provide top-down strategy and bottom-up requests.
  • Allocation method: A proportional, incremental, zero-based, or activity-based approach.
  • Policies: Guidelines for transfers, overages, contingencies, and processes.

Revisit and adjust the model regularly based on results and changing internal and external factors. Evolve the model of each cycle.

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11 Resource allocation and budgeting

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The resource allocation and budgeting process is one of the most powerful stages of planning. Resource allocation refers to the distribution of resources, and in particular finance, from the centre to peripheral levels. Budgeting implies the more detailed determination of precisely how these funds are to be used. This chapter first outlines the major types of budget. It then looks at the main approaches to budgeting and resource allocation, and lastly discusses financial management issues relevant to the planner.

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Why Is Budgeting Important in Business? 5 Reasons

Business professional budgeting at desk

  • 06 Jul 2022

There are few skills as critical to running a business as budgeting. Yet, over half of the executives surveyed in a 2019 McKinsey study report feeling dissatisfied with the transparency surrounding their organizations’ budgets.

Any employee—especially managers—should understand budgeting and how it can profoundly impact an organization.

Here’s a primer on the importance of budgeting in business.

Access your free e-book today.

What Is Business Budgeting?

Budgeting is the process of preparing and overseeing a financial document that estimates income and expenses for a period. For business owners, executives, and managers, budgeting is a key skill for ensuring organizations and teams have the resources to execute initiatives and reach goals.

A basic budget consists of projected income and expenses for a given period (for instance, the upcoming quarter or year). After expenses are subtracted from projected income, the leftover money can be allocated to projects and initiatives, ensuring you’re not planning to overspend.

Budgets from previous periods can be compared to the company’s actual financial allocation and performance, giving an idea of how close predictions were to actual spend.

For example, imagine you allocated $10 million for your company’s annual corporate social responsibility (CSR) project. Unforeseen circumstances caused it to run $1 million over budget, and that money had to come out of other projects’ budgets.

During the project’s postmortem, you ask questions like, “Why did we run over budget? Was this an issue of inefficiency or misallocation?” When creating the budget for next year, you use those insights to tighten the process and keep the project’s spend at $10 million or more accurately allocate funds to other projects.

Types of Budgeting

There are several budgeting types that each prioritize different factors when approaching a financial plan. These include:

  • Zero-based budgeting , which sets each item at zero dollars at the start of periods before reallocating
  • Static budgeting or incremental-based budgeting , which uses historical data to add or subtract a percentage from the previous period to create the upcoming period’s budget
  • Performance-based budgeting , which emphasizes the cash flow per unit of product or service
  • Activity-based budgeting , which starts with the company’s goals and works backward to determine the cost of attaining them
  • Value proposition budgeting , which assumes no line item should be included in the budget unless it directly provides value to the organization

The right budgeting type varies by company and situation. If your organization is in financial distress, the zero-based method may be the best fit, as it starts from scratch each period. Trying out several methods is a good way to determine which is ideal; when doing so, ensure your entire organization is aligned.

Related: 6 Budgeting Tips for Managers

Why Is Budgeting Important?

Budgeting involves number-crunching, attention to detail, and making informed decisions about fund allocation—but it’s well worth the effort. Here are five reasons budgeting is important in business.

1. It Ensures Resource Availability

At its core, budgeting’s primary function is to ensure an organization has enough resources to meet its goals. By planning financials in advance, you can determine which teams and initiatives require more resources and areas where you can cut back.

If, for instance, your team needs to hire an additional employee to scale efforts, budgeting for that in advance can allow you to plan other spending.

2. It Can Help Set and Report on Internal Goals

Budgeting for an upcoming period isn’t just about allocating spend; it’s also about determining how much revenue is needed to reach company goals.

You can use budgeting to set company-wide and team financial goals that align with them. This is especially prominent when using activity-based budgeting, but it’s beneficial no matter which type you use.

Financial goals should be attainable enough that you count on them to inform the rest of your budget allocations. Your goals inform the expenses needed to reach them and vice versa.

You can also use budgeting to update employees on progress and revisit the next period’s goals. For instance, if your company aimed to gain 10,000 new users this past year but fell short by 4,000, what could you have done differently? Does the initiative require fund redistribution? What resources could have propelled progress?

Tracking progress, or lack thereof, allows you to align your team and plan for growth in the next period.

Financial Accounting| Understand the numbers that drive business success | Learn More

3. It Helps Prioritize Projects

A byproduct of the budgeting process is that it requires prioritizing projects and initiatives. When prioritizing, consider the potential return on investment for each project, how each aligns with your company’s values, and the extent they could impact broader financial goals.

The value proposition budgeting method forces you to determine and explain each line item's value to your organization, which can be useful for prioritizing tasks and larger initiatives.

4. It Can Lead to Financing Opportunities

If you work at a startup or are considering seeking outside investors , it’s important to have documented budgetary information. When deciding whether to fund a company, investors highly value its current, past, and predicted financial performance.

Providing documents for previous periods with budgeted and actual spend can show your ability to handle a company’s finances, allocate funds, and pivot when appropriate. Some investors may ask for your current budget to see your predicted performance and priorities based on it.

5. It Provides a Pivotable Plan

A budget is a financial roadmap for the upcoming period; if all goes according to plan, it shows how much should be earned and spent on specific items.

Yet, the business world is anything but predictable. Circumstances outside your control can impact your revenue or cause priorities to change at a moment’s notice.

Consider the onset of the coronavirus (COVID-19) pandemic in 2020. The economic impact of travel bans, lockdowns, and other safety precautions was far-reaching and unexpected. Executives were forced to quickly—yet thoughtfully—rework budgets to account for major losses and newfound safety concerns.

More than two years later, executives are rethinking their budgeting procedures to make it easier to pivot if needed. One shift noted by McKinsey is the turn toward zero-based budgeting to determine the minimum resources necessary to survive as a business—should the circumstances call for it.

A budget gives you a plan; maintaining an agile mindset enables you to pivot that plan and help lead your organization through turbulent times.

A Manager's Guide to Finance and Accounting | Access Your Free E-Book | Download Now

Learn to Budget Effectively

Anyone can learn to budget effectively and reap the benefits. To build a foundation of financial literacy , gain a deeper understanding of the levers that impact an organization’s finances, and discover how budgeting can enable you to become a better leader and manager, consider taking an online financial accounting course .

Do you want to take your career to the next level? Explore Financial Accounting —one of three online courses comprising our Credential of Readiness (CORe) program —which teaches the key financial topics needed to understand business performance and potential. Not sure which course is right for you? Download our free flowchart .

budget allocation process

About the Author

The value of a budget allocation plan for businesses

Budgeting is one of the most crucial aspects of any business. However, many companies don't budget "smartly" since they don't have a budget allocation plan. It could be the difference between success and failure in your business. 

What is a Budget Allocation Plan?

A budget allocation plan is a blueprint of how much you can spend on a program, event, person, or product within an organization. Essentially, it is the amount allocated to expenditures, telling staff how much funding is available, and having them to stick to the allocations.

Usually, businesses create a budget by taking into account expenditures, resources, and expenses from each department from the previous year. Identifying the needs, program expenses, and available resources of the company in the coming months can help to allocate monetary resources better. This can boost employees' confidence and productivity.

Overall, the goal of the plan is to account for the monetary resources of a company, thus ensuring money is spent as planned. In other words, the plan keeps the company in check by allowing management members to understand when they are spending too much. 

However,  with only 54% of small businesses having a budget many companies are vulnerable to overspending. So how can a business make a plan that works? 

How to make a plan for budget allocations

A good question to ask yourself is, what is a good budget allocation plan? A good plan entails the allocation of resources. It is a realistic, transparent, and professional approach to an organization's finances. 

The first thing that management and sales teams should do is understand and outline all the expenditures, allocation limits, revenue, and standard budget categories of the last few months or years. By looking at the amount spent on direct costs and indirect costs, the company can account for, limit, or adjust its expenses, thus conserving its resources. 

Some companies keep subscriptions on for many years without using them. Looking back at these costs can help determine overall expenses, determine direct costs, and the assigned expenditure for these services. 

Furthermore, analyzing past spending can help companies form a performance trend to predict expenses and expenditures in the future. After all, if we write an unrealistic budget, no department, employee, or staff member will truly follow it since it just isn't realistic. 

Allocating Budgets across Departments 

You already understand the importance of a budget. But it is crucial that your employees know that the maximum amount of money they can obtain for a fiscal year stays within the allocation plan. Therefore, consider allocating across departments by; 

Determine spending requirements

No allocation plan is as good as facts and figures, so you want to make spending estimates based on historical data. Have each team discuss and provide details. Furthermore, you may find it helpful to consider all business costs, especially fixed costs and variable costs. 

Of course, you may be past the startup stage, but if your allocation plan will be effective, it is essential to include this cost. Fixed costs, on the other hand, are consistent expenses that occur weekly, monthly, or yearly.

For example, salaries, health insurance, travel and subsistence item, etc. The variable costs fluctuate and may be dependent on sales and revenue. For example, your sales team may have to attend a conference, so paying for round trip airfare, and accommodation will increase your personnel expenses for that period.

Since it may be challenging to set a fixed price for variable costs, it is best if you considered buffering this part of your allocation plan (to the nearest hundred or thousand) - to accommodate increments and unforeseen expenses. 

Generating a reliable revenue

It is imperative for companies to have reliable revenue so that they can have a reliable budget. It is also reasonable to have an expenditure line with the maximum amount payable. If a company has an inconsistent revenue source, it is tough to devise a competent way of calculating its budget or predicting overall performance. 

A better way to secure a reliable revenue plan is through long-term contracts and partnerships that yield monthly revenue.

If an organization has yet to have a reliable revenue, it is crucial that the company knows where to make cuts in case of an economic downturn to ensure that the company will not be in the negative. However, if that is not feasible, it is crucial to find new ways to generate reliable funding sources so that they can still continue to survive in the long term. 

Executing your allocation plan 

The first few months after developing an allocation plan should focus on execution. Note that it may be slightly challenging to get used to the changes that come with cutting costs. 

Ultimately, the first few months of execution determine the success of your plan. However, if the company can not follow up with the plan or there has been no change, it may mean that the plan needs changes. An unsuccessful plan may not be a negative. Instead, it should be an opportunity to improve your company.

Monitor the allocation plan

Monitoring the allocation plan is great for accountability, especially with economic inflation. It is essential for the company to look back at the budget allocations every few months. 

Furthermore, recording your spending, expenses, budget allocations, and purchase orders will further promote accountability in the company. This will help employees determine allocated funds per department, what they have spent, and how expensive it is.

It will create a sense of responsibility and accountability and promote an ideal management culture in several organizations. 

Adjusting your allocation plan 

Your plan may not be perfect. Chances are, it won't be. It is not unusual to make some corrections that include fund transfers from one category of the plan to another. This is especially ideal for a category with surplus funds. Adjusting the budget keeps your results in view and prevents the adverse effects of an economic downturn. 

Allocation costs

There are usually two classifications of allocation costs: direct and indirect costs. 

Direct costs

Direct expenses that are directly related to a product or service. These typically include raw materials, personnel, allowance, vehicle costs, holiday pay, services rendered, and more.

These costs are usually very easily traced since they fluctuate with production levels, such as inventory. If a company is doing well, the direct costs are usually higher than before. 

Indirect costs

Indirect costs are not so easily traced. They're "overhead expenses" which cannot be easily traced back to a project or product. A few examples of indirect costs are utilities, premise rent, equipment, security, operation and maintenance, and more.

Indirect costs usually fluctuate quite a lot monthly since they don't tie into how the company is doing. 

Business Budgeting Methods 

Organizations use different methods in determining the best budget for their resources. However, four are common: incremental budgets, zero-based budgets, value proposition budgets, and activity-based budgets. 

Incremental budget

An increment budget reviews last year's budget to determine the current year's performance. It is last year's figure plus or minus the allocated percentage. This method is ideal for any business. A factor to consider in this program is funding and the change in primary cost.     

Zero-based budget

This method assumes that all departments have zero budgets. Each department in the organization must justify its expenses. Money management is good because it avoids non-essential costs and spending. It is an excellent example of when you want to shake things up in your business. 

Value proposition: this falls between incremental and zero-based budget to produce a sweet balance and profitability. It analyzes different expenditures and seeks to; 

  • Understand why a department spends a certain amount of money. 
  • Justify expenses 
  • Determine the value expenditures provided to various departments within the organization.  

Activity-based:

The activity-based budget is prepared based on targets, especially for a newer organization interested in budget allocation and funds maintenance. The activity-based approach promotes performance and is a better way for the organization to allocate its funds. If you don't spend more time analyzing the program, it could prove detrimental to your developing enterprise.  

Overall, a budget allocation plan is crucial for any business. It is a good habit to track and control the costs related to your business and improve the financial health of a company while eliminating wasteful or toxic spending habits.

Your business will enjoy growth when you have a good picture of your finances. Remember that all spending information is relevant in the process. If you need to keep your records safe and accessible, you may consider opting for software.

budget allocation process

How to reallocate marketing budgets to drive growth

With budgets under increasing pressure, marketers must allocate every dollar with precision and purpose.

Often, however, budget managers feel tied down by expectations from marketing managers, commitments to sponsorships, and upfront media buys. With little latitude for significant changes to their budgets, they carve up spending by business-unit size or simply tweak last year’s plan.

When allocating budget dollars, most marketers use three factors: spend criteria (e.g., sales, profit, market share, competitive intensity); weights and guardrails (e.g. minimum/maximum thresholds, weighting of criteria); and allocation unit (e.g. market, product, brand, etc.).

The problem is that budgeting criteria are often retrospective and are not aligned within the organization. The CEO may be focused on recent sales growth or how to increase EBITDA, for example, while the CMO is looking to boost brand-health scores and market share. A lack of alignment on allocation metrics usually leads to a mindset of “Let’s stick to what we’ve done before.”

Meanwhile, guardrails for spending and the weight given to any one criterion (sales, market share, etc.) are often determined by instinct rather than by a detailed understanding of business drivers. Added to this, allocation units are often broad, and budget managers don’t drill down to uncover pockets of prospective growth at, for example, the sub-brand or micro-geography level. What companies need is an analytical, forward-looking approach that allocates marketing dollars to customer segments as well as products or geographies that have the highest growth potential rather than to those that have traditionally performed well.

Here are three ways to improve allocation logic:

Blend corporate finance and marketing thinking. Instead of looking at inputs like market share or competitive pressure (share of voice) to inform budget allocations, look down the road to ROI drivers.

One auto OEM (original equipment manufacturer) that we worked with used corporate-finance principles— market growth, competition, and internal economics—to project future profit pools for brands and geographies and made a base allocation for each of its regional markets. It then tweaked the budget according to its business goals in a given region and its related marketing needs, such as the launch of a new product or the need to increase brand share. Allocations were further refined to reflect the profit feedback loop or factors specific to a given region, such as the ratio of share of voice to share of market.

The result? About a quarter of the overall marketing budget was allocated to a few key regions in order to meet business goals. The marketing team got better support from management for future budget allocations, and the marketing budget as a whole was much better aligned with the organization’s strategic direction.

Similarly, a global consumer-electronics company used discounted cash-flow techniques to estimate the value of each of its businesses and make initial allocations of marketing spend. The company then adjusted these allocations for business objectives, such as revenue or margin goals for a particular region. As a result, it reallocated about 20 percent of its marketing funds, compared with an average of 12–15 percent it would have reallocated using traditional models.

Engage the organization around facts, not feelings. When it comes to judging how to weight a given criterion or set guardrails for spending, sophisticated regression models beat gut feeling every time.

Here’s one example: A telecom company looking for a fact-based method for allocating  discretionary spending to particular regions recently tested 60 drivers of business performance, including brand-specific characteristics, external drivers, and competitive intensity. It then applied linear regressions to test model accuracy and the relative influence and statistical significance of each driver. It found that it could fine-tune its marketing allocations by using a combination of internal and external drivers, and as a result, ended up shifting about 30 percent of its marketing dollars from large, saturated markets to small markets with greater opportunities for growth. Moreover, by using the regression-based model, it was able to increase customer acquisitions by 3 percent.

In another instance, a European retailer that frequently had to increase local media advertising in order to maintain sales decided to adopt a granular approach. It enlarged its focus from 200 cells to about 2.4 million, each including household data (socio-demographics, income, and amount and frequency of customer purchases by retail category). The organization then matched these cells to a broad media database to identify the best marketing vehicles for each.

As a result, the organization reallocated the entire advertising budget from roughly defined regions to a micro-cell level and put sales growth back on track. In addition, the match with target-group criteria rose 150 percent, and spending on leaflet distribution dropped 30 percent.

Stage the implementation. Don’t go cold turkey. A drastic budget shift in one year could complicate vendor relationships and marketing activities. Your organization may have product-launches or campaigns it cannot alter. Budgeting shifts can and should be phased in through pilot programs that offer early evidence of success and learnings along the way.

One option is to set caps on budget reallocation. One consumer-electronics company, for example, made sure that no business unit's budget was reallocated by more than 30 percent in the first year. You can also earmark a percentage of funds for marketers to use in response to marketplace developments. Select a handful of brands or markets for a pilot, set clear ROI goals—for example, a lift in sales or margins for Brand A—and establish a feedback loop from markets to the management, where budgeting decisions are made. Measure performance against those goals. And if the pilot works, scale up.

Traditional budgeting approaches have been stretched to their limits. Organizations must migrate toward more granular, analytical, and forward-looking approaches if they want to make their dollars work for them.

  • Project planning |
  • What is resource allocation? Learn how ...

What is resource allocation? Learn how to allocate resources

Julia Martins contributor headshot

Project managers and teams can struggle to make balanced resource allocation decisions, often opting for too much or too little. But the key to navigating this delicate balance is continuous adjustment and real-time responsiveness to project needs. This approach ensures that resources are optimally utilized, preventing both surplus and shortfall and steering towards project success with precision and efficiency.

When you think of the most important elements of project planning, what comes to mind? You probably think of the project’s main objectives, the timeline for achieving those objectives, and the scope of what you can accomplish within the project. 

But achieving any of these elements hinges on one thing: the resources available for your project. 

If you’ve never created a resource allocation plan before, this article is for you. We’ll walk you through five steps to allocate resources effectively. Then, get a preview of common resource allocation challenges and what you can do to get ahead of them.

What is resource allocation? 

Resource allocation is the process of identifying and assigning available resources to an initiative. Effective allocation of resources helps maximize the impact of project resources while still supporting your team’s goals. To create a resource allocation plan, identify the right resources—including team members, tools, budget, and more—you need to accomplish your project deliverables .

What is a resource? 

A resource is anything that helps you complete a project. This can include:

Team members

Project timelines

Ideas, intellectual property, or specific skill sets

Tools or software

Automated processes that reduce work about work

Who is responsible for allocating resources? 

The person responsible for resource allocation varies based on the size of your organization, but it’s usually the individual in charge of the project’s decision-making. For smaller companies, the project manager or team leader typically manages the budget, resource scheduling, and project work. 

Alternatively, at larger companies, the project manager and project budget owner are often different people. As a result, you may need approval from important project stakeholders or your project sponsor before allocating resources. 

If you aren’t sure who should be allocating resources, ask yourself these two questions and identify who is best equipped to answer them:

What is the budget, and who is approving it? You’ll need a budget for tools, technology, freelancers, and equipment. 

What are the team’s priorities, and who has time to work on this initiative? Before you allocate human resources, think through each team member’s capacity and priorities. How can you help team members do their best work and have the highest impact?

If you aren’t sure what’s on everyone’s plate, use a workload management tool to view team member capacity, get ahead of upcoming projects, and spot burnout before it happens. 

Benefits of resource allocation

Effective resource allocation is more than just a task; it's a strategic approach that can improve project management by ensuring resources are used efficiently and judiciously. This leads to better alignment of tasks with available resources, smoother workflows, and more effective handling of project constraints. 

As a result, projects are more likely to be completed on time, within budget, and to the desired quality standards, directly contributing to the overall success of the project.

Streamlined workflow: Proper allocation of resources leads to a more streamlined workflow . It ensures that each phase of the project aligns with the necessary project requirements, reducing delays and increasing efficiency.

Mitigation of bottlenecks: By anticipating and planning resource usage, bottlenecks can be identified and mitigated before they impact the project timeline. This proactive approach keeps projects on track, enhancing client satisfaction.

Simplified project management: Merging the use of dashboards with automation transcends traditional methods like spreadsheets. Dashboards provide a visual and intuitive overview of resource distribution and utilization, while automation streamlines the tracking and allocation process. This combination enhances overall project management efficiency, allowing for real-time adjustments and more informed decision-making.

Resource optimization: A well-crafted resource allocation strategy is key for project success. It ensures the best resources are utilized where they are most needed, aligning with the project's goals and timelines. By optimally using both physical and human resources, projects are more likely to meet their objectives and satisfy client expectations.

How to allocate resources effectively

An effective allocation strategy identifies the project’s goals and priorities and collects resources to fit your needs throughout the project's lifecycle. Resource allocation should be an early project consideration—ideally, aim to allocate resources during the project planning phase.  

1. Start with the end in mind

In order to understand your project’s priorities, how important it is, and how it should be resourced, you first need to outline the project’s objectives. This is the first step to any project. Project objectives are attainable, time-bound, specific goals you plan to achieve by the end of your project.

If you haven’t already, align on:

The project’s main goals and objectives

The project’s key deliverables

Relevant milestones

A high-level timeline or project roadmap

2. Identify available resources

In resource allocation, a resource is anything that helps you achieve your project objectives. Depending on your project’s needs, this includes the project team and any tools, budget, equipment, or skills you need to hit your project deliverables. 

Before you actually allocate resources, understand what’s available. There are a few dependencies to look out for, including:

What is the project’s priority level? This influences how it should be resourced. Is this an all-hands-on-deck project that’s contributing to a company OKR , or is it a lower priority initiative? Come up with an internal tier system for project priority to guide how you’ll staff each project. 

Who is available to work on this project? Take a look at your team’s capacity to understand what they’re working on. If this project is more important than their current work, try resource leveling . See if there’s anything you can deprioritize or reschedule to accommodate this new work. 

What budget or tools are available? Does this project have a budget? Are there additional tools you need to invest in or develop in order to complete this work? 

What additional resources do we need? Do you need any cross-functional team members to work on this project? Alternatively, are there unconventional resources—like very unique skill sets or new equipment—you need for this project to succeed?

Who needs to approve the resource allocation plan? If someone other than you is in charge of budget, tooling, or team workload, check in with them to make sure this resource allocation plan looks good. Are there any additional project stakeholders who need to be looped in during the resource allocation process? 

3. Align on project scope

To scope a new project, you first need to understand the project’s goals, deadlines, and project deliverables. This helps you get a sense of your project needs so you can hit your goals on time and on budget. 

A clear project scope also helps you avoid scope creep , which is what happens when the asks and deliverables exceed the pre-set project scope.

4. Create and share a project plan

Now that you have a sense of your available resources, surface that information to the larger team. Invite your project team to a project kickoff meeting , and share:

Your project plan

Relevant project milestones

The project schedule

Any task dependencies to keep an eye on

Track all of this work with work management software . It’s important for your project team to know which resources are available for this project—and also to have a central source of truth for this information in case it changes. With a centralized work management system, you can clarify project priorities so everyone understands the context of the work. That way, if something does change, you can reprioritize based on the highest-impact work. 

5. Monitor project progress

Once your project is underway, monitor project progress in case of any unexpected resource allocation developments. No matter how well planned your project is, things can change. Team members go on vacation, a client might be delayed in getting back to you, or your business goals might change. Track project progress in real time so you can adjust if necessary.

Common challenges of resource allocation

When done correctly, resource allocation can help you hit your goals, increase your impact, and maximize your resource utilization. You’ll get better at allocating resources as you go, but if you’re just getting started, here are some common challenges—and how to avoid them. 

Problem: Burnout and over-allocation

The biggest issue to avoid during resource allocation is overwork and burnout. Team members get overworked when they work too hard, too much, or too long. Prolonged overwork can lead to burnout, which the World Health Organization defines as an occupational phenomenon resulting from chronic workplace stress.

Without visibility into what everyone is working on—especially if you’re managing work across multiple projects —it’s easy to assume team members have the time and bandwidth to work on your specific project. This lack of clarity can lead to accidental over-allocation and, eventually, burnout.

To prevent overwork and burnout, proactively evaluate team members workload. With capacity planning , you can get ahead of burnout and make sure team members aren’t overwhelmed or underworked. This is critical because, according to the Anatomy of Work , 71% of knowledge workers reported experiencing burnout at least once in 2020. With proactive resource management software , you can promote balance—instead of burnout.

Problem: Resource dependencies

Sometimes, things change after you identify and allocate available resources. You might be waiting on a team member to finish a project before getting started on your initiative—but what happens if that project gets extended? 

Even the most effective resource allocation can’t predict every business contingency . To avoid unpleasant surprises, use resource management tools, such as project management software , to automate resource tracking in real-time. That way, you can immediately see resource shortages and project delays and pivot your own work accordingly. 

Problem: Low resource utilization

The average knowledge worker spends 60% of their time on “work about work”—things like searching for documents, chasing approvals, switching between apps, and following up on the status of work. That leaves only 40% of each day for skilled work and strategic planning . More often than not, we take this time-consuming “stuff” for granted as part of work, but it doesn’t have to be. That’s where resource utilization comes in. Resource utilization describes the percentage of a team member’s time that is spent on billable work or tasks that contribute to overall profitability.

High resource utilization isn’t about squeezing out the maximum amount of productivity from any given team member. Rather, the key to maximizing utilization is impact. When team members understand the relative priority between different tasks, they can spend their time where it’s most effective —and have the highest impact as a result.

Tips for effective resource allocation

Many teams that are new to making resource allocation decisions often struggle to identify and deploy the best resources in a manner that streamlines operations and keeps the project on its critical path . This can lead to bottlenecks and setbacks, potentially jeopardizing the success of the project. 

The following tips offer strategies to transform these initial stumbling blocks into stepping stones for a successful project.

Align location decisions with availability of resources

Deciding where to locate your project requires careful consideration of both its geographic requirements and the availability of resources . 

Consider a construction project where materials are sourced from the closest suppliers to reduce transit time and costs. To optimize their resource allocation strategy, the team could continually assess supply chain dynamics and foster relationships with local suppliers that can lead to quicker turnaround times and better material quality.

Such strategic location decisions not only ensure that resources are used where they are most needed but also aid in developing a more efficient project structure.

Leverage automation and project management tools

Incorporating automation into your resource allocation strategy can improve the management of project tasks and ensure smoother project progression and timely completion. 

For example, a software development team might use a tool like Asana to automate task assignments based on team members' current workload and expertise. Automation tools can help with scheduling, resource leveling , and identifying potential issues before they become problematic. 

By automating routine tasks, project managers can focus more on critical aspects of project management, such as client satisfaction and ensuring project success.

Use real-time data in decision-making

The foundation of effective resource allocation lies in harnessing real-time data . For instance, a marketing agency might use dashboards to monitor ongoing campaigns, adjusting team assignments and resources based on real-time performance metrics. 

Employing tools that provide insights into the work breakdown structure and relevant metrics , project managers can make adjustments that keep their resource allocation strategies on track.

Effective resource allocation leads to better projects

Resource allocation can help you set your project up for success from day one. Manage resource availability early during the resource planning process to know exactly what you can support and how you’ll hit your project goals.  

Resource allocation is crucial to reducing miscommunications and getting more work done, faster—especially when you can automate it. In Asana, you can identify resources, track and update them, and assign related tasks—all from one central platform.

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How to Make a Project Budget: Project Budgeting Basics (Templates Included)

ProjectManager

Make a project budget and stick to it with ProjectManager. Plan projects, manage resources and track costs with powerful features the whole team can use.

If you don’t have the funds, you’re not going to complete the project successfully. That’s why a project budget is so important: it’s the lifeblood of the project. Follow these steps to secure the funds necessary to support the project through every phase. But first, we need to define what a project budget is.

What Is a Project Budget?

A project budget is the total projected costs needed to complete a project over a defined period of time. It’s used to estimate what the costs of the project will be for every phase of the project. Creating a project budget is a critical part of the project planning process.

The project budget will include such things as labor costs, material procurement costs and operating costs. But it’s not a static document. Your project budget will be reviewed and revived throughout the project, hopefully with the help of project budgeting software .

Why You Need a Project Budget

The obvious answer is that projects cost money, but it’s more nuanced than that. The project budget is the engine that drives your project’s funding. It communicates to stakeholders how much money is needed and when it’s needed. Project budgets are important for any industry such as construction , marketing or manufacturing, for example.

But a project budget is not only a means to get things that your project requires. Yes, you need to pay teams, buy or rent equipment and materials, but that’s only half the story.

The other part of the importance of a project budget is that it’s an instrument to control project costs. The budget, which is part of your project plan , acts as a baseline to measure your performance as you collect the actual costs once the project has been started.

budget allocation process

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  • Project Budget Template

Use this free Project Budget Template for Excel to manage your projects better.

Project Budget Example

To further illustrate how a project budget is created, let’s pretend we’re making an app. The first thing you’ll need to figure out is the costs of labor and materials. You’ll need programmers, designers, content developers, a dev team, etc. It helps list all the tasks and assign the team to them—a hallmark of good task management . This way every penny is accounted for.

With the tasks broken down for the project and your team in place, you’ll next need to look into whatever materials will be needed. Will they need laptops, other devices and equipment? This must be accounted for.

Now note other line items. There might be travel expenses and renting space to house the team. Then there are fixed items that are true for any project. These are things where the cost is set and won’t change over the course of the project. You’ll also want a column for any miscellaneous costs that don’t fit elsewhere in the budget.

Your budget must have a planned versus actual column. When you’re making that app you’ve likely to pivot and that is going to impact the budget. These columns are a way to track the expenditure to ensure you’re staying on budget.

If you want help getting your budget together, ProjectManager has a template that lays out most of the basics for you. For additional support, try our free project budget template.

project budget template

What Is Project Budgeting?

Project budgeting is the process of estimating the full cost of the project from the very beginning until the end. The project budgeting process involves the following:

  • Budget planning: Estimating costs and making a budget based on a project estimate
  • Budget tracking: Keeping track of project expenses during the project execution phase
  • Project budget management: Setting guidelines and control procedures to guarantee that costs don’t exceed the project budget

Project Budgeting Approaches

There are four project budgeting approaches: analogous, parametric, top-down and bottom-up . Analogous is an estimating technique that uses historical data to help determine the cost of the current project. It looks at past projects that are similar to figure out the cost and duration of the new project. This is a popular choice when there’s little data available for the project, making accurate estimates difficult.

Parametric estimating is a statistical approach to estimating the time, cost and resources for a project . It uses historical data, but also statistical data, to make a more accurate estimate. Top-down estimating is when the organization sets the cost and/or the duration of the project. With that figure in mind, the project manager seeks expert opinions to help determine the budget. Finally, bottom-up estimating is working from the lowest possible level of detail. It builds up the estimate from the work package .

What Is Project Budget Management?

Project budget management is a process by which the finances related to the project are administered and overseen. It goes beyond estimating the cost of completing the project and includes tracking those costs and much more. Some of the aspects of project budget management include how you’ll estimate the cost of the project and how those costs will be spread across the life cycle of the project . You’ll need to determine the metrics and the method by which you’ll track those costs to keep to the budget.

Reporting on the budget is also part of project budget management, including how you’ll do it and the frequency with which you’ll do it. If you find you’re going over budget, you’ll need to come up with a plan to rein the budget back in. You’ll even need to define a process of learning from historical data.

Project management software simplifies project budgeting and project budget management. Take ProjectManager;  all you have to do is open up the settings on your Gantt and set a budget baseline. Now you have the planned effort saved and you can use budget tracking features such as real-time dashboards to compare it to your actual effort as you execute the project. You can reset the baseline as many times as you need during the project to always be able to measure your project variance instantly. Get started today for free.

ProjectManager has a dynamic Gantt chart that sets baselines and much more.

How to Make a Project Budget

As noted, there are many components necessary to build a budget, including direct and indirect costs, fixed and variable costs, labor and materials, travel, equipment and space, licenses and whatever else may impact your project expenses.

To meet the financial needs of your project, a project budget must be created thoroughly, not missing any aspect that requires funding. We’ve outlined seven essential steps toward creating and managing your project budget:

1. Use Historical Data

Your project is likely not the first to try and accomplish a specific objective or goal. Looking back at similar projects and their budgets is a great way to get a headstart on building your budget.

2. Reference Lessons Learned

To further elaborate on historical data, you can learn from their successes and mistakes. It provides a clear path that leads to more accurate estimates. You can even learn about how they responded to changes and kept their budget under control. Here’s a lessons learned template if you need to start tracking those findings in your organization.

3. Leverage Your Experts

Another resource to build a project budget is to tap those who have experience and knowledge—be they mentors, other project managers or experts in the field. Reaching out to those who have created rough order of magnitude estimates and budgets can help you stay on track and avoid unnecessary pitfalls.

4. Confirm Accuracy

Once you have your budget, you’re not done. You want to look at it and ensure your figures are accurate. You can use our project budget proposal template for this process. You can also seek those experts and other project team members to check the budget and make sure it’s right.

5. Baseline and Re-Baseline the Budget

Your project budget is the baseline by which you’ll measure your project’s progress once it has started. It’s a tool to gauge the variance of the project. But, as stated, you’ll want to re-baseline as changes occur in your project. Once the change control board approves any change you need to re-baseline.

6. Update in Real Time

Speaking of changes, the sooner you know about them, the better. If your project planning software isn’t cloud-based and updating as soon as your team changes its status, then you’re wasting valuable and expensive time.

7. Get on Track

The importance of having a project management software that tracks in real time , like ProjectManager , is that it gives you the information you need to get back on track sooner rather than later. Things change and projects go off track all the time. It’s the projects that get back on track faster that are successful.

If you manage your project expenses using these building blocks you’re going to have a sound foundation for your project’s success.

Project Budget vs. Project Estimate

We’ve spent a lot of time talking about project estimates, but how do they differ from the project budget? A project estimate is what you think the project will cost. It’s the first step when making a project budget, so you want that project estimate to be as accurate as possible. Once you’ve done the research, looked at historical data and all the activities and resources needed to execute them, you’ll submit that estimate to be approved as your budget. But it’s only a guideline, while the project budget is a firm figure.

budget allocation process

Project Budget vs. Budget Proposal

Again, when you’re talking about a project budget you’re talking about all the expenditures that are needed to deliver the project. It defines how the money for the project will be allocated. A budget proposal , on the other hand, is the best estimate of the costs required to complete the project. It’s similar to the aforementioned project estimate in that it’s the final project estimate, the one that’ll be presented to stakeholders. They’ll then determine if the figure matches what they think is viable and either approve it or reject it.

budget allocation process

More Project Budgeting Templates

Project budgeting is one of the most important aspects of project management, no matter what industry you’re in. However, your project budget might look slightly different depending on the type of project you’re managing. Here are some free project budgeting templates for marketing, event planning and construction.

Marketing Budget Template

This marketing budget template is a great tool to start creating accurate baselines for your marketing campaigns. You can customize it to fit the needs of your team.

Event Budget Template

Like a project, an event requires resources that cost money. This free event budget template helps you list down the costs related to your event such as equipment rental, materials and labor.

Construction Estimate Template

Estimating the costs of a construction project is one of the most important construction planning activities there are, as an accurate cost estimation allows construction firms to make sure their project is not only feasible, but profitable. This free construction estimate template is a great tool to start estimating the costs of your construction project.

Project Budgeting Tips

A project budget is extremely important; without the funds to execute a project, it’s dead in the water. We’ve explained what a project budget is, and how to make one and we’ve provided examples. But when you’re in the thick of it, you need tips. These will help you with project budgeting.

  • Document your process when putting together a budget. Documents are essential for tracking the project and reviewing the outcomes.
  • Create contingencies. Have a plan B in place. There will always be unexpected costs, delays and other issues that’ll impact your budget.
  • Project budgeting is a team effort. Seek advice from your team, as they’re the ones with experience executing projects. Meet with experts who can provide you with guidance. Any person or organization that has insight should be tapped for their expertise.
  • Know your resources and their associated costs. This includes any maintenance required for equipment, and don’t forget your team is also a resource. Know their availability, overtime potential and other overhead costs.
  • When estimating costs don’t forget about task duration. These are also estimates and can greatly impact the budget.
  • The budget is a great tool for tracking performance. It can even be used as a communication tool for teams across departments.

ProjectManager Helps Projects Stay on Budget

ProjectManager is online project management software. That means we deliver data instantly to our real-time dashboard, so you can monitor your project across six metrics. When actual costs vary from your planned budget, you know faster and can respond quicker.

ProjectManager's Dashboard with cost metric popup

You can also plan your budget on our software, adding expenses and then use our resource management feature to assign resources, workforce and hourly rates, which are automatically added to your project. Add expenses at the task level with our Gantt chart , and report on expenses at the task level, too.

ProjectManager's Gantt with costs on bottom

Video: Project Budgeting Tips

It’s clear that building an accurate budget is key to setting up your project to succeed. Why not take a moment to listen to our resident project management expert Jennifer Bridges, PMP, who explains how to build a project budget in this tutorial video.

Thanks for watching!

Pro tip: Be sure to track the budgeted vs. actual costs when you’re in the project to see if you’re adhering to that budget. Because after you make a budget, you have to know how to manage it .

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Project Management

How to manage a project budget in 7 easy steps.

Senior Content Marketing Manager

June 22, 2023

Budget management has a bad rap: People associate it with boring spreadsheets and lengthy expense reports . But managing project budgets is actually an art form—and, for those who work at agencies, essential to your company’s business model.

A good project budget is more than just dollars and cents–it’s context. It’s a tool to help tell the story of what your team is doing and how well they’re doing it.

This approach to project budget management helps you see, in real-time, what’s working and what’s not. It also gives you the hard numbers to evaluate your process and level up your budgeting skills over time. Here are the steps you should take to set and track every project budget you’re in charge of.

What is a Project Budget?

1. make a step-by-step project outline, 2. list every required resource, 3. assign a cost to each resource, 4. add a contingency, 5. document your budget, 6. get your project budget approved, 7. monitor (and adjust) your budget, 5 templates for managing project budgets.

A project budget is a financial plan that outlines the estimated costs of all the activities required to complete a specific project. It includes all the resources required to complete a project, such as materials, equipment, labor, and other expenses.

A project budget isn’t “$20,000.” It’s a clear breakdown of how you’ll spend that $20,000 and why you’ll spend it that way.

Theoretically, a new hire should be able to walk into your agency and execute on the budget you’ve created without further guidance. Unfortunately, it’s not exactly easy without the right approach and tools.

ClickUp Milestones Dashboard View CTA

What should be included in a project budget?

ClickUp Dashboards for budget reports

As a starting point, your budget should include three things:

  • Total project costs : Labor, materials, and equipment
  • How resources will be allocated : Project budget allocations are typically split up by deliverables 
  • A project timeline : This breaks down when you expect to spend the money associated with each project deliverable

We’ll go into more detail on how to build each of these components into your budget shortly.

Why is managing a project budget important?

Because your budget includes context about your project, it can be used to guide and track your team. Good budget management can help you with: 

  • Project scope control: All agency project managers have dealt with that one client who keeps changing their expectations. Active budget management allows you to see whether these modifications fit within the original project scope or whether you need to have a discussion to reset expectations.
  • Project Cost control : Keeping track of your spending as you go will flag overages early before hitting a point where you don’t have enough money to finish the project. Cost changes are often out of your (or your team’s) control, but how you address them is in your control — if you catch them in time. 
  • Progress tracking: When project budget line items are tied to deliverables, it’s easy to see where you are on each task. If you haven’t spent the money for, say, the fonts you need for the webpage, you’ll know the design stage isn’t complete.
  • Planning future projects: Watching your project budget progress will help you make a stronger estimate for your next project. You can see where your projections don’t match reality and improve your forecasting skills.

How to Manage a Project Budget in 7 Steps

Now that you know how complex project budget management is, you might feel a little intimidated. Don’t worry! With a bit of planning, anyone can build and manage project budgets. Let’s go over how to build and manage a budget step by step.

You’ll want to start with a full project plan that’s made in collaboration with your project team and any stakeholders. You won’t even have numbers to work with at this point — and that’s okay! A good project budget requires you to know the entire project scope and every deliverable your team will be accountable for. 

Check out these expense report templates !

timeline view 3.0

Just because we’re calling this an “outline” doesn’t mean it’s skeletal. You’ll need to break every deliverable down into a step-by-step progression so you can see every resource that will be necessary. 

Say your project is a  social media advertising package. You’ll need team members to: 

  • Concept the campaign
  • Write and edit the copy
  • Curate and purchase stock images
  • Execute the campaign
  • Track and report performance

Bring in your team members to check over each deliverable’s subtasks.  They’re the ones who routinely create such deliverables, so they know everything that goes into making the final product. 

Bonus: Bookkeeping templates !

Time is money, and so are resources like freelancers, training, and research. Every step your team takes will require at least one of these things. 

Under each subtask, make a list of every resource required. Here are some common project resources:

  • Team members: How many internal employees will be working on the project and for how much time? Will you need to hire freelancers as well?
  • Equipment and licenses: Will you need access to any physical equipment or online tools? Will you be purchasing them outright, or paying a licensing fee — and if it’s the latter, for how long?
  • Training: What skills will your employees need to learn that they don’t already have? What resources will they use to learn those skills, and how much time will it take?
  • Research: Will you need to purchase industry research or pilot studies to learn what your target audience will respond to?
  • Travel and hospitality: Is anyone planning to fly out to a client’s location, host business lunches, or hail a rideshare to handle project-related duties?
  • Professional services: Will you bring in consultants or other experts to guide your project?

Risk Log in ClickUp

You may have other expenses, like procurement and IT, tied to your project budget, but the list above covers the most common resources required for teams like yours.

Related: Price list templates !

Once you’ve broken down your project into every resource you’ll need, it’s time to figure out what all these resources will cost. 

There are four ways to make an estimate for a project budget. Read the method descriptions below, and choose one based on your agency structure and the available tools. 

Process 1: The top-down approach

If you already have the dollar amount that’s allocated for the project, your job is to determine what you can achieve with the money you have. Assign a certain amount to each deliverable based on how resource-heavy each step is. Then, project managers should allocate all subtasks.

Budgeting with a top-down approach may require you to pare down the project’s scope and think of more cost-effective ways to meet your objectives.

Process 2: The bottom-up approach

Assign a dollar amount to each resource you listed in the last step, then sum everything up to get the final project budget. You’ll need to estimate work hours, freelancer rates, and tool costs to get an accurate number. Ask your team (or project managers) for help if you’re not sure what’s reasonable for any given item.

Process 3: Analogous

Find a previous project that’s similar to the one you’re budgeting for now, and use the actual costs from that project as estimates of what you’ll need for this project. This method only works if 1) your past project costs included comparisons between estimated and actual costs and notes of any unexpected expenses and 2) the two projects are virtually identical in scope.

Process 4: The three-point approach

This method asks you to make three different budgets, then average them. You’ll need to calculate:

  • A best-case scenario budget: Every step is completed in the shortest amount of time possible, and all necessary resources can be found at the lowest fair rate. 
  • A worst-case scenario budget: You fall behind and have to pay overtime or rush fees, you have to buy more expensive equipment, and so on. 
  • A most-likely scenario budget: People stay mainly on schedule, though a few steps take a bit longer than planned, and you don’t get the lowest prices, but you’re not paying excessive fees either. 

Take these three numbers and average them to calculate your total budget. Consider weighting one higher than the others, depending on which scenario you think is most likely.

If you’re torn between project budget estimate methods, don’t sweat it! You can always combine them. For example, you may use bottom-up estimates to build your project budget for the three-point method. 

Bonus: Budget proposal templates !

Contingencies are the “oh no” fund in case you really do hit that worst-case scenario budget. It’s an essential part of your cost risk management plan .

Typically, your contingency fund will be 5-10% of your total project budget. You may not need to dip into your contingency funds often, which is great!

But every project budget should have them, just in case.

Bonus: Business model canvas template

Once you have all your deliverables and the numbers attached to them, it’s time to make an official budget document. We love using ClickUp for project budgeting (and we’ve shared some useful templates below!). 

If you’re not using ClickUp (yet), we recommend you use a free project management software rather than a spreadsheet. A good app makes it easier to organize and update all the information you need to include.

And speaking of, your project budget document should include: 

  • Each deliverable (and all subtasks for each), along with final due dates plus internal deadlines. 
  • Line items below each subtask with every resource required and its expected cost. 
  • When you expect to spend the money for each resource based on your project schedule.
  • A space to list actual costs and expenditure dates, so you can update your budget as the project unfolds. 
  • Whoever is responsible for each line item: Who will be gathering travel receipts? Who will be overseeing freelancer invoices?

After you have all that information, add up the total costs for each deliverable or milestone to calculate your projected project budget. 

And as one last step, ask your team members working on the project to review the budget (again) to make sure you didn’t miss anything. It’s much better to catch a mistake at this stage than mid-way through the project budgeting process.

You may pitch your budget to a client or simply submit it to your boss or other stakeholders. Tailor your ask to the audience.

But make sure you include details that show how your budget will lead to the desired project results — and how any decrease in the funding will necessitate scope changes. The work you’ve done in the previous steps will make it easy for you to justify your project budget request. 

Your budget can only help you track your progress and control costs and scope if you keep it current. You don’t need to update your budget right after every purchase, but you should set aside time to add expenses and gauge whether you’re straying too much from the estimated costs.

The optimal update frequency will vary based on the length of each stage and/or time between each deliverable. A budget that includes a lot of social media ad spend may need to be updated every few days; a project budget for a 200-page website may be fine with a weekly or biweekly check-in.

If you do catch serious mismatches between your budgeted and actual spend, move into mitigation mode. First, figure out what went wrong. Did you miss a subtask that took your freelancer an entire day to complete? Did the client rip up their project plan midway through the deliverable, so you had to backtrack? 

Whenever you identify an error, look to see if it’s been replicated in other stages and deliverables. Finally, check whether your contingency will cover the unexpected overage. If not, can you reallocate resources or find a way to use fewer resources for any other subtasks your team hasn’t started on yet? 

Or do you need to discuss other options? 

These discussions may involve your bosses or the client, and they’re not fun to have. But the sooner you have them, the more likely you are to find a solution that will at least work for everyone, even if it’s not ideal.

Make sure any changes are recorded in your project budget along with notes so you can remember what went wrong and plan to spend accurately in the future. 

Check out these general ledger templates !

By this point, you know budgets are complex — so why not make your life easier with a template? You’ll save time with all your setup and have access to ClickUp’s excellent Dashboards to help visualize your project budgeting and progress. 

Here are five of our favorite free ClickUp templates that will make you a budget management pro in no time:

1. ClickUp Project Outline Template

ClickUp Project Outline Template

Since the budget process starts with a full project outline, why not start your process with ClickUp’s Project Outline Template ? It has space for you to add everything you need for pre-budget planning:

  • Project Background
  • Project Introduction
  • Constraints and Assumptions
  • Key Deliverables
  • Budget and Investments

This won’t be the only template you need to rock for a project budget, but it will be the first template you should use during your budgeting process.

2. ClickUp Project Resource Matrix Template

ClickUp Project Resource Matrix Template

Cost estimates require math…a lot of math. ClickUp’s Project Resource Matrix Template guides you through those calculations by telling you where to put numbers and calculating the final amounts with formula fields . 

Use it to estimate costs for all types of resources (labor, equipment, overhead, SaaS tools, and raw materials), so don’t be afraid to use it for even the most unlikely projects. The views on this template include:

  • Getting Started Guide
  • Kanban Board
  • Resource Input Form
  • Resource List
  • Costs Table

These features make it easy to input cost estimates, project plan your resource management , and see where you should be budget-wise at any point in the budget timeline.

3. ClickUp Project Deliverables Template

ClickUp Project Deliverables Template

By this point, you know how important it is to break down your project budget by deliverable (and then by subtask). ClickUp’s Project Deliverables Template includes custom fields for budget, remaining budget, and expenditures so far.

It offers six views—including a Gantt view and a project budgeting List— and an automation that will post a comment when any custom field changes from a team lead or project manager.

In other words, this template is an agency-ready live budget tracker. Managing budgets will be a breeze with this template on your side.

4. ClickUp Project Request and Approval Template

ClickUp Project Request and Approval Template

If you want a more advanced and in-depth tracker than the Project Deliverables template, turn to ClickUp’s Project Request and Approval Template . 

  • It comes with pre-built List, Kanban, and Gantt views so you can organize your to-do list and see your timeline at a glance.
  • The pre-saved List only requires you to add details, so you’re not building your project from scratch.
  • There are six Custom Fields in ClickUp , including budget, spent, and budget remaining.

You can set due dates and priorities — which can help guide budget adjustments if they become necessary. 

5. ClickUp Project Cost Management Template

ClickUp Project Cost Management Template

If you have a lot of project budgets to manage, use ClickUp’s Project Cost Management Template for a high-level view of everything. This template comes with six statuses (to cover everything from new projects to evolving budgets to completed projects) and six views:

  • Projects List
  • Project Costs Table
  • Approval Process Board
  • Project Cost Request Form

It’s the one project budget management template to rule them all—and it will keep you ridiculously organized.

Managing Project Budgets: Best Practices for Success

Once everything is delivered and all your bills have been paid, it’s time for you to revisit the budget and make notes on any changes you made during the project. You can expect the lessons you learn to apply to similar projects in the future. 

We talked about how each budget tells the story of your team’s work. A clear and detailed helps you remember the details of a project even if you don’t get around to the review right away.

See line items you added after the fact, project tasks that took more resources than expected, and adjustments you made mid-stream to keep everyone on budget. Create a document (or use ClickUp’s Project Post Mortem template ) to keep track of your insights.

Review this information before you start each budget so you don’t make the same mistake twice. Budget management success means project success…so take the time to build a project budgeting process that’s thorough and thoughtful. 

Combine your knowledge with our great tools to build budgets that will lead to successful projects. Get started with ClickUp today!

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Organization Budget Allocation Process

The purpose of the Organization Budget Allocation process is to support the activities and initiatives of Recognized Student Organizations which contribute to community development, diversified experiences, and enhanced student life at William & Mary.  This funding is allocated by the Student Assembly Organization Budget Allocation Committee throughout the year; organizations may submit budget requests on a quarterly basis, so long as the requests are made no later than the deadline preceding the anticipated event/activity.  This new process was implemented for organization budget allocations starting with the 2022-2023 academic year .

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Learn more about the organization budget allocation process.

It is important that organization leaders take time to learn about the process and guidelines to ensure they are submitting their requests correctly and complying with all guidelines and expectations. To assist and support organization leaders, the Undersecretaries for Finance are available through information sessions and one-on-one coaching upon request or during office hours. 

Student Assembly and Student Leadership Development are hosting several information sessions throughout the semester.  Both the 101 and 201 information sessions are REQUIRED.  Check TribeLink Events for details.  NOTE:  There are two different information sessions, make sure you are attending the correct session. 

Organization Budget Allocation Process 101: Learn How to Request a Budget

These information sessions will go over the process of requesting a budget, the funding guidelines (i.e. approved/restricted expenses, expectations, etc.), and tips and hints for filling out the budget request submission.  This is the first step in requesting a budget allocation and must be completed prior to submitting a budget request.  In order to be eligible to submit a budget request, and organization must attend this session.  Attendance is required once per funding year cycle (Q1-Q4)  

Organization Budget Allocation Process 201: Learn How to Spend your Budget

These information sessions will go over the process of spending the organization's budget allocation.  Topics covered in this session will include how to submit purchase requests and order items, contracting, and additional organization requirements. This should only be completed by organizations that have received a budget allocation.  Organization financial managers/primary contacts may attend as many times as they would like; it is required at minimum once per academic year. 

Office Hours

Office Hours will be scheduled at the beginning of each month and will be held in Sadler Center Room 283.  Check TribeLink Events for specific dates and times of office hours.  During office hours members of the Student Assembly Department of Finance will be available to answer questions and provide assistance/coaching to organizations to maximize the effectiveness of your budget requests. 

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  • Abolfazl Arzanlou   ORCID: orcid.org/0000-0003-4394-3458 1 &
  • J. Majrouhi Sardroud   ORCID: orcid.org/0000-0003-4037-5782 1  

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This study aims to help project-oriented organizations manage their portfolios and arrive at an optimum budget allocation. In this study, the budget allocation process in a portfolio of projects is mathematically formulated. The interactions between the projects as well as the operational and budget constraints are considered. Then, the optimal budget allocation is determined using the particle swarm optimization algorithm. To evaluate the performance of the proposed approach, it is implemented on a portfolio of maintenance projects. In this article, we will explore the application of PSO in portfolio management and how it can help investors make better investment decisions. According to the results, the operational constraints and budget restrictions will significantly affect the optimum budget allocation solution and consequently the revenue of a portfolio. Lack of access to detailed information about the maintenance schedule of dam projects might be a limitation for future application of the proposed approach. It is believed that the proposed approach provides a powerful and efficient tool of optimal budget allocation in portfolio of projects. This research addresses several shortcomings of previous studies for optimal budget allocation.

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Abbreviations

Current costs

Fixed costs

Set of projects

Binary indicator for project i at time t

Output power of project i at time t

Power not supplied

Output water of project i at time t

Input volume of project i at time t

Output volume of project i at time t

The maximum quantity of inlet water

The maximum quantity of outlet water

Binary indicator for maintenance

Allocated budget

Volume not supplied

Selected percentage of revenue

Value of lost electrical load γ e electricity price

Value of lost water

Water price

The maintenance period of project i

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Dept. of Civil Engineering, Faculty of Civil and Earth Resources Engineering, Central Tehran Branch, Islamic Azad University, Tehran, 1469669191, Iran

Abolfazl Arzanlou & J. Majrouhi Sardroud

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Arzanlou, A., Sardroud, J.M. Enhancing Project Performance: Particle Swarm Optimization for Optimal Budget Allocation and Maintenance Scheduling. KSCE J Civ Eng (2024). https://doi.org/10.1007/s12205-024-1348-1

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Received : 16 July 2023

Accepted : 11 December 2023

Published : 19 February 2024

DOI : https://doi.org/10.1007/s12205-024-1348-1

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SA makes sweeping changes to club funding, Senate participation and budget rules

New policies make it easier to remove senators, increase funding tiers from four to six.

<p>SA President Becky Paul-Odionhin proposed the slate of changes to the SA Senate at Wednesday's meeting.&nbsp;</p>

SA President Becky Paul-Odionhin proposed the slate of changes to the SA Senate at Wednesday's meeting. 

The Student Association (SA) Senate adopted a bevy of new policies Wednesday evening that aim to improve club funding allocation, ensure club participation and maintain Senate attendance, while eliminating a budget review process.

The three resolutions, all passed unanimously by the Senate, made extensive changes to the SA’s by-laws, Club Budget Policy, Annual Registration and Requirements for Recognition Policy, and Club Constitution Policy.

New clubs will receive $250; narrower funding tiers will slow club growth

A new six-tier club budget system will slow the pace at which growing clubs can increase their SA funding. 

Previously, club budgets were sorted into four tiers based on a club’s size, activities and level of participation. The addition of more tiers lowers the barriers for clubs to rise to higher funding levels, allowing clubs with slightly fewer active members to obtain larger budgets.

Existing clubs will be assigned new, narrower tiers based on their current budgets. The new tier limits will take effect in the fall.

As before, clubs may only move up one tier per year. A new club would take at least six years to reach the highest tier, Tier 6, which provides between $20,000 and $50,000 in funding. Additionally, clubs in the highest two tiers — 5 and 6 — may not increase their budgets by more than 5% per year.

Clubs now must meet their annual tier requirements — which include reaching minimum amounts of members, meetings and events — by the Monday of the third week in April each academic year.

The new tiers more accurately reflect the rate at which clubs typically grow, SA President Becky Paul-Odionhin told senators.

“The [previous] tiers were very wide-ranging,” Paul-Odionhin said. “Tier 4, for example: they could go from $10,000 to $50,000. Most of the time, that kind of jump is just not possible.”

The new policy also provides $250 budgets to all clubs in Tier 1, the tier assigned to new clubs. Tier 1 clubs were previously provided no money.

Paul-Odionhin said that funding will allow new clubs’ leaders to learn SA’s budget processes, making them more likely to stay in compliance.

Community service and participation in SA events will no longer factor into clubs’ budgets. SA Vice President Gracie McDowell said the previous participation system was hard to track and provided no value to clubs.

“We picked random events and said, ‘If you come, you’ll get participation credit,’” she told senators. “It became really confusing and just wasn’t worth it.”

New caps on club budgets; guidelines for budget reductions

The new policy also caps club budgets at $50,000 and limits expenses for club events to the equivalent of the Student Activity Fee — currently $109 — for each undergraduate student expected to be in attendance. SA uses the same formula as a benchmark when planning expenses for its Fall Fest and Spring Fest concerts.

It also sets guidelines for reducing club budgets. When the Senate doesn’t provide enough funding to fulfill clubs’ budgets, a percentage reduction will be applied to the budgets of clubs in tiers 4, 5 and 6. Lower-tier clubs — those with budgets under $5,000 — will not see a reduction.

Cutting those smaller clubs’ budgets hurts the clubs but doesn’t do much to close larger gaps in the SA budget, Paul-Odionhin said.

“It’s chicken change, and you want to hit on the ones where an actual reduction matters,” she said.

Clubs that accrue three SA policy violations will see their budgets reduced by 10% for each additional violation. That means clubs that break SA rules will face consequences without punishing their entire membership, Paul-Odionhin said.

“Right now, I don’t really think there’s any consequence,” she said. “Two years ago, what we came in with was that after your third violation, your club is derecognized. That doesn’t seem fair, so we took that out, but this way there’s still some sort of repercussion, and hopefully you don’t continue to violate. That way, for one person’s action, the club doesn’t die.”

Changes to Senate rules, easier removal of absentee senators

Beginning in May, the SA Senate will be able to remove senators who miss more than two Senate or committee meetings.

The new rule is intended to combat low attendance that has hampered the Senate’s ability to function. Of eight scheduled Senate meetings so far this academic year, three have been canceled because less than half of the Senate was present.

Another new by-law sets Senate meetings at 5 p.m. on Wednesdays. Previously, meetings were scheduled by the chairperson. Special Senate meetings must now be scheduled three days in advance, down from five, and the Senate chair no longer has the option to provide the required notice in The Spectrum or another campus periodical.

Students and senators can no longer force a Senate meeting. Previously, the Senate was required to meet if 2% of undergraduate students or one third of senators signed a petition. Now, special meetings may only be called by the Senate chair or the SA president.

SA will now be able to hold Senate elections as late as the fifth week of the fall semester, one week later than before.

Committee review eliminated from budget process

Fewer steps will be required to pass an SA budget under the new by-laws.

Previously, budgets proposed by the SA treasurer underwent “Budgetary Review Meetings” with the Senate Finance Committee, and faced a Finance Committee vote before reaching the Senate. Those steps have been removed.

Paul-Odionhin says the Finance Committee hasn’t provided input in recent years.

“[The budget] was supposed to be created by the Finance Committee and the treasurer, but the way things work out is that the treasurer just ends up doing it anyway,” she said. “It’s just taking away that redundant middle committee, because that’s what it’s been for the past couple years. It’s just an extra step that’s unnecessary.”

Sol Hauser is the senior news editor and can be reached at [email protected]

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