The budget planning process is often considered as the most important part of the whole project management. Therefore, the process must be defined and agreed upon beforehand. The budget planning process serves as the link between the budget planning team and the project management. Users should only activate a budget planning process after using it for a reasonable time period. The budget planning process normally covers the following elements: budget cycle (annual budget), organizational hierarchy, account structure, budget rule, workflow relationship with other workflows and users’ requirements.
There are several ways to use the budget planning process, depending on the budget cycle used and the organizational hierarchy used. It can either be used to pre-decide or to post-decide the budget for the upcoming year. The budget planning process starts by defining the budget scope, i.e. what is included in the budget; this includes everything that the budget does not include, such as some special projects or assumptions.
After defining the budget scope, the next step involves the establishment of a budget plan. This is done by establishing and maintaining an account set-up in which all the information for the year is placed. Most often, an accounting system is used for budget planning process since there is no need to convert data from any other source. Once the account is setup, the budget planning process begins. Users can either generate the budget plans by themselves or they can rely on the budget planning process to generate the final documents.
When the user generates the budget plans, he has to indicate all the financial transactions that he will commit to during the upcoming year, along with the date when each transaction will be executed. All these financial transactions are then converted into a set of data that will be used in the calculation of the budgeted amount. The next step in the budget planning process involves the creation of the preliminary budget proposals. These are also known as the proposals and they are designed to provide the budget planners with a basic idea on how much money needs to be budgeted and how much has been budgeted so far.
The proposed budget planning process provides the budget planners with the estimated financial results for the upcoming fiscal year budget. Once these results have been obtained, users have to adjust their budget plans accordingly. They may do this by adjusting one value or by changing the assumption(s) used in the initial budget planning process. Once the budgeting process is done, users have to submit the budget planning proposal to the concerned agency or department and wait for their approval.
The operating budget planning process usually begins with the determination of what priority groups should be targeted for budgeting. This prioritization is usually based on the analysis of how much budget has been already spent. Other important groups include the following: special needs, emergency expenses, research and development, administrative costs and specific and recurring expenses such as supplies, materials and salaries. The operating budget planning process is done once each quarter or at least once every six months. The budget planning process, thus, has a dual benefit-to calculate the budgetary responsibilities effectively and to ensure that operating budget planning processes are conducted smoothly.