The budgetary process is a vital method of communication and coordination and should be comprehensive enough to include all costs necessary for the delivery of the project. This is important because budgets should reflect the activities to be performed, hence, the starting point for all NGO budgeting should therefore be to consider the planned project clear and unambiguous objectives and activities.
The budget should be based on a realistic assessment of expected costs and should neither be inflated nor underestimated; should be based on real cost data to the extent possible. NGO budgets must be executed in a way that it is transparent, simple to understand with clear links between the activities to be performed. The associated costs should be built from first principles with unit costs and quantities clearly shown.
Though budgeting is the backbone of any NGO’s financial stability, it does not go without its own difficulties. Proper Budgeting is a key success factor for most businesses, but it is a painful process that takes too much time and effort. Two key factors that influence budgeting process for NGOs are; the level of revenues collected and the availability of external resources to bridge the gap.
When revenues fall short of the projected level then budget implementation is affected to the extent that the expenditure has to be reduced either in capital or operating cost of the project. Hence, affecting project end results. External resources in the form of loans and grants factored into the budget following commitment by donors also bring shortfall if not honoured.
Another major challenge with NGO budgeting could come when the government or a donor agency fails to release funds or release funds late in the financial year, thus, affecting take off of projects. In addition, the budgeted amount may be affected by economic factors; lack of budget accuracy, lack of resources, lack of monitoring and evaluation thus affecting service delivery in NGOs. Costs may increase due to inflation, unexpected changes in the economy, political instability, and insufficient initial study of capital.
Another important factor to be observed here is that when budget formats become more and more difficult, the expenditure on administration has to be tightened. This given that, donor agencies are less interested in supporting overhead costs of an organisation. Besides, the less you propose for your office infrastructural needs the better chances you have for getting the requested grants from the donor agency.
Lastly, developing budgets is always a complicated task for NGOs especially when they need to develop a proposal and satisfy every entry criterion given by the donor agency in the budget format. Sometimes it is easier to write a proposal than developing a budget to request funding. However, if NGOs keep its financial system clear and its objectives S.M.A.R.T, the task of developing the budget also becomes simple.
By Tenjem Ajua Vivian
Director of Budget and Finance at ERuDeF
