How to compile a budget

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Budgets are based on objectives, action plans, and resources.

A budget has several different functions and is important at various stages of a project (Figure 4‑1 and Table 4‑1), including:

  • Planning: project managers e.g. the VDC can use it to establish an accurate idea of the VLAP cost. This allows them to work out if they have enough money to complete the project and if they are making the best use of the money they have available. The budget indicates when certain amounts of money will be needed to carry out specific activities.
  • Fundraising: the budget is an important tool for convincing donors the VLAP and its constituent sub-projects are viable. It sets out in detail what the money will be spent on, and what results will be achieved. Donors use the budget as a basis for deciding whether the funds being requested are reasonable and well-planned.
  • Project implementation: an accurate budget is needed to control the VLAP, once it has been started. It is an important tool to compare the actual costs against the budgeted costs for on-going monitoring. It will be necessary to review the budget after a project has started because plans sometimes change.
  • Monitoring and evaluation: the budget is used to monitor the income and expenditure as the projects progress to identify any problems and determine if adjustments need to be made to any specific activities or goals.  It is also used as a tool for evaluating the success of the VLAP when it is finished. It helps to determine if the VLAP succeeded in achieved what it set out to achieve. The budget promotes financial accountability and transparency which results in good project governance.

Budgets are based on objectives, action plans, and resources.

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Figure 4 1: Elements to considerer when compiling a budget

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While the VDC is responsible for preparing the preliminary budget, the PIC may later review and suggest refinements. This input gives the PIC an opportunity to modify the budget and helps identify if any budget items or expenses have been omitted, based on experience gained from other similar projects – and during implementation. This collaboration helps to develop a budget that reflects realities.

When preparing a budget consideration is given to what the VLAP expects to cost (i.e. expenses) against the funds available (i.e. income) during a specific time period. Usually, there are two major types of costs to consider: direct costs and indirect costs Figure 4‑2

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The administrative costs should not exceed more than half the budget. In addition, funders always require reporting on monies spent on overheads and directly on the project (Figure 4‑3). 

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Figure 4 3: Components of costs to be considered in budget