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Budget Development 19 November 2003 The pro forma (projected) budget is a detailed cash plan that defines the acquisition, allocation, and disbursement of the financial resources for an event according to the priorities and necessities of the event operations. Preparing a budget involves visualizing the entire event in financial terms, identifying all potential sources of income and expenditures and organizing them into functional groups, typically according to the categories specified in the Chart of Accounts. Previous event budgets, income statements, and cash flow statements are typically used to prepare a draft budget, but if no historical records exist, a zero-based budget (starting from “zero”) should be drafted using cost estimates and comparable budgets from other events. When estimating the revenues and expenses for a budget, revenue projections should be conservative and expense projections should be liberal. The draft budget should be prepared in great detail and include the calculations used to arrive at the line item estimates, as illustrated below, so the budget-to-actual performance can be compared efficiently and the budget adjusted as needed based on any variances. This is best accomplished in a spreadsheet software program, which allows quick "what if" calculations and modifications.
Building a budget according to priorities may be illustrated* using rocks, pebbles, and sand. If you fill a container with the sand first, then the pebbles, and then try to put in the rocks, they won’t all fit. But if you place the rocks in first, then the pebbles, and finally pour in the sand, they all fit in the container. This illustrates that you must put the big “rock” items (the needs and must-haves) in the budget first, followed by the pebbles (the wants), followed by the sand (the nice-to-haves). When budget cuts must be made the nice-to-haves will be eliminated first, followed by the wants.
*Based on a demonstration first devised by Stephen R. Covey. |
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