Forecasting expenditure

Most voluntary organisations can predict their expenditure with some certainty, as they have more control over expenditure than income: for example, the cost of salaries and the lease/mortgage on premises will be relatively stable. Historical expenses are therefore the basis for the expenditure budget, subject to adjustments for inflation: for example, last year's figures plus 3%. One major challenge in forecasting costs is to identify those that are unpredictable: for example, a disaster relief agency may know how much it costs to clothe and house flood victims, but it cannot know when the storms will occur. Again, historical records may be useful.

Demand for an organisation's services is often difficult to predict, so it is essential to acknowledge this uncertainty and submit a flexible budget. The prudent budget planner uses the best possible information to hand, but submits forecasts that are subject to change. Another option is to distinguish clearly between costs that are controllable and those that are uncontrollable.

If expected costs are too high, the financial planner must consider cheaper alternatives. For example, a voluntary organisation may need skilled people to supervise a specialised project, but the salary such people would expect might skew the organisation's overall pay scale. In such a situation, the organisation has several options:

• Outsource the job to another organisation - for help with this see our successful outsourcing checklist.
• Hire skilled people on a part-time or hourly basis to run the project and train in-house staff
• Eliminate the project, reduce its size or run it jointly with another voluntary organisation - find out more about the different models of collaborative working.

Where next?

Controls on expenditure - goods and services purchased.

Back to what is a budget?