Project Budget Preparation Guidelines

Budget preparation guidelines given below can go a long way to make a budget effective:

• The budget should be prepared after the project plan is crystallized. A financial budget document compiled at the time of quoting a tender, however detailed, can at best be termed a ‘preliminary budget’.

• The budget should be prepared by a team and not by an individual, however efficient he may be. Specially, the preparation must not be left only to the accountants. Effective participation by the executives and heads of functional departments should be encouraged/ensured. This will safeguard the budget from becoming a mere paper exercise.

• The budget should be prepared, proceeding systematically using scientific techniques as applied in a given situation, and it should not be viewed merely as a mathematical, statistical or accounting exercise.

• The budget should be prepared in the format used for making the corporate budget, as far as possible, so that it can fit into the corporate financial accounting system.

• Budget should be prepared as a comprehensive total document. Piecemeal budgeting should be avoided as this can result in imbalances if not carefully integrated into the overall budget.

• The budget should be prepared keeping in mind that it has to be used for budgetary control. It is therefore necessary that a budget should specify the tools for measuring performances, and preferably incorporate the outline of the reporting system.

Numerous problems are encountered while preparing a budget. In the fast changing environment, it is difficult to forecast sales. The production resources costs change frequently with the market trends. Future resource prices get affected with inflation but the sale value which is based on the agreed bill of quantities remains the same. There is a behavioural aspect to budgeting. It includes the tendency to inflate expenditure, and resistance to budgeting itself as the budget provides a tool to measure their performance.

It may be noted that the project budget can crash if it has unrealistic targets specially when it is thrust by the top hierarchy. A project budget is a financial plan based on certain assumptions and like the project plan, it needs to be reviewed regularly as it cannot take care of all eventualities and unforeseen circumstances. Further, a project budget provides a tool for effective management but it has to be handled carefully with the changing situations.