This article was originally published on Humentum by Terry Lewis.
Successful project outcomes require careful management of resources, including the significant sums of money donated to NGOs. That is why everyone involved in project planning and implementation should sharpen up their budgeting skills. In this blog I’ll share six important reasons why we should all have budgeting skills in our toolkits.
KEEPING YOUR EYES ON THE PRIZE
As the saying goes: If you don’t know where you are going, you are sure to end up somewhere else. A budget is a monetary translation of an activity plan. It helps us to achieve project objectives. A budget is a critical part of the project planning and accountability process: it enables us to put a cost on every planned activity, and to keep track of progress to make sure we are achieving goals.
WINNING MORE FUNDS FROM DONORS
Well prepared, accurate, and complete budgets increase our chances of winning donor funding. Funding proposals are not just about project design, they also include budgets to explain, clarify and justify the cost of implementing projects.
Donors are much more likely to approve your funding proposals if they are reassured by your financial plans – budgets that look as if they are based on guesswork do not inspire confidence, and may not get past the first filter.
ONLY SPENDING MONEY THAT YOU HAVE
If we create and stick to a budget, we are more likely to spend our precious funds carefully – and to maximum effect. It is how much money we have for each activity, and when we need the money to support project implementation.
Spending wisely and within an agreed budget enhances our credibility with our funding partners too!
PREPARING FOR THE UNEXPECTED
Projects inevitably experience changes to plans and unexpected events during their lifetime. Natural disasters strike, prices change, activities are re-defined, and staff get sick. Such events can have financial implications and cause serious disruption to goals without a financial ‘safety net’. This can take the form of built-in contingencies in project budgets, and building up a savings pot (‘reserves’) over time to manage emergencies.
The financial safety net means we can keep going even when the unexpected happens.
HIGHLIGHTING UNEXPECTED SPENDING
Having budgets allows us to look closely at spending patterns. By reviewing budget monitoring reports – which compare the budget with what actually happened – you can pick up unusual or unexpected activity, which could be an indicator of fraud, incompetence, or recording errors. Whatever the cause, we can investigate unusual spending as soon as it is found, and take action to resolve it.
LOOKING INTO THE FUTURE
Using the project work plans and budget together, you can map out (or ‘forecast’) your spending and income schedules for the next six to 12 months. This will help you to spot any months where money may be tight, and then look for ways to ensure the cash is available when needed.
Later on, when you have a few months of actual spending data to work with, you can forecast spending for the next phases of the project, so that here are no surprises for you or your donors further down the line.