assignment on budget analysis

How To Conduct a Budget Analysis

Updated: March 11, 2024

Published: April 26, 2023

As a business owner, you’re in charge of steering your company toward long-term growth and profitability. To achieve your goals, you need a clear outline of where you want to go and a solid understanding of where you are now. 

Business budgets are essential financial planning tools that help you map out your company’s future. The budget process involves forecasting revenue and predicting upcoming expenses.

Budgets are also helpful for understanding your current performance. With a budget analysis, you can compare your actual performance to the predictions in your operating budget. 

A budget analysis allows you to see if you’re on track or veering off course. Once you have that information, you can adjust your strategy and make decisions that help you maximize growth while keeping costs under control. 

What is a budget analysis?

A budget analysis is the process of looking at your actual income and expenditures and comparing them to your budget to see if you’re on track. Conducting a budget analysis gives you a chance to correct overspending and update your forecasts.

Benefits of conducting a budget analysis

Conducting regular budget analyses helps you improve your company’s financial management.

Ben Walker, owner of transcription company Ditto Transcripts, explains, “A budget analysis can highlight areas of high spending, identify opportunities for cost savings, and help prioritize investment initiatives.”

Budget analysis is especially useful for startups that rely on a fixed amount of investment capital. Entrepreneurs need to be in touch with their company’s revenue and expenses to ensure they don’t run out of funds before they start generating profits.

You can also use your findings to inform future budget decisions and financial projections.

How to do a budget analysis

1. choose your analysis frequency.

You should conduct budget analyses regularly throughout the budget cycle, such as monthly, quarterly, or biannually. 

Kamyar Shah, CEO of management consulting firm World Consulting Group, recommends startups analyze their budgets monthly. This lets you adapt to changes in your business and helps correct overspending before it grows into a serious issue. 

Not to mention, startups and high-growth companies often experiment with tactics and strategies, so it’s harder to predict revenue and expenses.

Once your business starts earning steady profits and it’s easier to forecast sales or predict expenses, you can switch to a less frequent schedule.

2. Gather data and calculate budget variance

Once you know your schedule, you can gather the data you need to analyze. 

Specifically, you want to gather:

• Master budget numbers : The overall projections outlined in your budget, including breakdowns for monthly or quarterly performance.
• Departmental budget numbers : Expense limits for each department and revenue projections, if they apply.
• Your current performance metrics : Year-to-date totals for your budget line items. 

Next, it’s time to identify budget variances. A budget variance is the difference between your expected performance (budgeted number) and your actual performance. 

For instance, say you predicted $20k in monthly expenses, but in January, you spent $23k. That’s an expense variance of $3k.

In the next step, you’ll use variance analysis to figure out if any of the discrepancies you found are cause for concern.

3. Analyze budget variances

Variance analysis means collecting more information about the differences between your expected and actual performance. The process of analyzing variance involves three steps: 

• Qualify the variance . Is the difference favorable or unfavorable ?
• Quantify the variance . Is the variance significant? 
• Identify the cause . Why is the variance happening? 

The first step is simple. You’re figuring out if the variance is good or bad for your business. 

Here’s how to tell: 

Using the previous example, you predicted $20k in expenses for January, but your actual expenses were $23k. 

Since your actual expenses were higher than expected, this is an unfavorable variance. 

Now that you’ve categorized it, the next question is, “Is this variance significant?” In other words, should you be concerned that your expenses were higher than expected?

As a general accounting guideline, variances of 10% or less are tolerable. That means you don’t have to start worrying about a variance until it goes over 10%. 

However, you can set a lower budget variance threshold (like 5%) if you want to be stricter about sticking to your budget. 

To calculate variance as a percentage, you can use the following formula. 

Budget variance (percent) = (Total difference / Expected amount) x 100

Budget variance (percent) = ($3k / $20k) x 100 = 15% 

Your actual expenses in January were 15% higher than expected. At this point, you’ve identified a significant unfavorable budget variance, which you’ll want to investigate further.

You need to identify the source of the variance to know how to fix it.

Budget variance often results from one of three causes: 

4. Make necessary adjustments

The whole point of budget analysis is to make informed decisions that will improve your performance. There are two main types of changes: adjusting tactics and managing expectations. 

Adjusting tactics can help improve your performance and adapt to changes in the external environment. For instance, if you’re overspending, you may look for possible cost reductions. You can also adjust to take advantage of new industry trends, like selling through social media.

Managing expectations refers to adjusting your budget forecasts based on new information. This works for businesses that use a flexible or rolling budget that lets them periodically update their forecasts. (You can skip this step if you use a static budget .)

Say your costs are significantly higher because of something out of your control, like inflation. You can’t reduce them, but you can adjust your budget forecasts to reflect the change.

Budget analysis example

Here’s an example to get a better idea of how this works. This example includes total revenue , total expenses, and net profit. However, you can break these numbers down into different categories, such as departments, when doing your own analysis. 

Step 1: Choose a frequency

Say your business has started generating profits, and your expenses have become more predictable. You decide to do a quarterly budget analysis.

Step 2: Gather data and calculate variances

You’re reviewing your budget at the end of Q1, so you gather your Q1 forecasts and actual performance. From there, you calculate the variance for each line item. 

Step 3: Variance analysis

In the next step, you can use green to highlight favorable variance and red for unfavorable. Add a column for variance percent, which will help determine which variances are significant.

You can bold text to identify any variance over 10%.

From the analysis, you can see the unfavorable variance in variable expenses is significant and requires further investigation. 

A root-cause analysis reveals two causes:

• Your packaging supplier increased prices, costing you $5k more.
• Rising gas prices increased the cost of shipping by $10k.

Step 4: Make adjustments

Based on your budget analysis insights, you can now make adjustments. First, you realize you can reduce costs by $5k if you switch to a different packaging material and smaller sizes. 

Next, you research gas prices and see they’re likely to stay high. There’s not much you can do about shipping costs, so you update your budget to reflect higher variable expenses for the rest of the fiscal year.

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Budget Analysis Examples: How to Learn from Real World Budget Analysis Cases

1. what is budget analysis and why is it important, 2. how to analyze a budget using key concepts and tools, 3. how the us federal government prepares and executes its budget, 4. how a non-profit organization manages its budget for a social project, 5. how a small business creates and monitors its budget for growth, 6. how a household plans and tracks its budget for savings and expenses, 7. how to improve your budget analysis skills and avoid common mistakes, 8. how to apply budget analysis to your own situation and goals.

budget analysis is the process of examining how a budget is planned, executed, and monitored. It involves comparing the actual spending and performance of a budget with the planned or expected outcomes. Budget analysis can help identify the strengths and weaknesses of a budget, as well as the opportunities and threats that may affect its success. Budget analysis can also provide insights into the efficiency, effectiveness, and equity of a budget, as well as its impact on the goals and objectives of the organization or entity that created it.

budget analysis is important for several reasons. Some of them are:

1. It helps to improve accountability and transparency . Budget analysis can reveal how the budget is aligned with the priorities and values of the stakeholders, such as the public, the donors, the beneficiaries, or the management. It can also show how the budget is distributed and utilized, and whether it meets the standards and expectations of the stakeholders. Budget analysis can also help to detect and prevent fraud, corruption, waste, or mismanagement of the budget.

2. It helps to enhance decision-making and planning. Budget analysis can provide useful information and feedback for the budget makers and implementers, such as the policymakers, the administrators, the managers, or the staff. It can help them to evaluate the performance and outcomes of the budget, and to identify the gaps, challenges, or risks that may affect the budget. Budget analysis can also help them to adjust, revise, or improve the budget, as well as to set realistic and achievable targets and indicators for the budget.

3. It helps to promote learning and innovation. Budget analysis can foster a culture of learning and innovation within the organization or entity that created the budget. It can encourage the budget makers and implementers to reflect on their practices and experiences, and to learn from their successes and failures . Budget analysis can also inspire them to explore new ideas and approaches, and to experiment with different strategies and methods for the budget.

4. It helps to influence policy and advocacy. Budget analysis can generate evidence and arguments that can be used to influence the policy and advocacy agendas of the organization or entity that created the budget, as well as of other stakeholders, such as the media, the civil society, the academia, or the public. It can help them to raise awareness and understanding of the budget, and to advocate for more resources, better policies, or greater participation for the budget.

Some examples of budget analysis in different contexts are:

- A nonprofit organization that conducts budget analysis of its own projects and programs. The organization can use budget analysis to monitor and evaluate the progress and impact of its projects and programs, and to report to its donors and beneficiaries. The organization can also use budget analysis to improve its internal management and governance, and to enhance its organizational capacity and sustainability.

- A government agency that conducts budget analysis of its own policies and services. The agency can use budget analysis to assess the efficiency and effectiveness of its policies and services, and to ensure that they are responsive to the needs and preferences of the citizens. The agency can also use budget analysis to improve its public accountability and transparency, and to increase its public trust and legitimacy.

- A research institute that conducts budget analysis of the national or regional budget. The institute can use budget analysis to analyze the economic and social implications of the budget, and to provide policy recommendations and alternatives. The institute can also use budget analysis to inform and educate the public and the media about the budget, and to stimulate public debate and dialogue about the budget.

What is Budget Analysis and Why is it Important - Budget Analysis Examples: How to Learn from Real World Budget Analysis Cases

Budget analysis is the process of examining and evaluating a budget to understand its strengths, weaknesses, opportunities, and threats. Budget analysis can help decision-makers to allocate resources efficiently , monitor performance, identify problems, and plan for the future. budget analysis can also help stakeholders to assess the impact of a budget on different groups of people, such as the poor, the marginalized, the environment, and the economy. Budget analysis can be done from different perspectives, such as:

- Financial perspective : This involves analyzing the sources and uses of funds, the balance between revenues and expenditures, the sustainability of the fiscal position, and the efficiency and effectiveness of spending .

- Economic perspective : This involves analyzing the macroeconomic implications of the budget, such as the effects on growth, inflation, employment, trade, and debt.

- Social perspective : This involves analyzing the distributional and welfare effects of the budget, such as the impact on poverty, inequality, human rights, gender, and social protection.

- Environmental perspective : This involves analyzing the environmental consequences of the budget, such as the impact on natural resources, climate change, biodiversity, and pollution.

To conduct a comprehensive and rigorous budget analysis, one can use the following key concepts and tools :

1. Budget cycle : This is the sequence of stages that a budget goes through, from formulation to execution to evaluation. A budget cycle typically consists of four phases: planning, approval, implementation, and audit. Each phase has its own objectives, actors, processes, and challenges. Budget analysis can be done at any stage of the budget cycle, but it is most useful when it is done before and during the approval phase, to influence the budget decisions, and after the implementation phase, to evaluate the budget outcomes .

2. Budget documents : These are the official records and reports that provide information about the budget. Budget documents can be classified into three types: executive budget proposals, enacted budgets, and budget execution reports. Executive budget proposals are the plans and estimates submitted by the executive branch to the legislature for approval. Enacted budgets are the laws and resolutions passed by the legislature that authorize the executive branch to collect revenues and incur expenditures. Budget execution reports are the statements and accounts prepared by the executive branch that show the actual revenues and expenditures compared to the budgeted amounts. budget analysis can use budget documents as the primary sources of data and evidence , but it should also verify and supplement them with other sources, such as surveys, audits, and independent assessments.

3. Budget classification : This is the system of categories and codes used to organize and present the budget data . Budget classification can be based on different criteria, such as:

- Administrative classification : This shows the allocation of funds by ministries, departments, agencies, and units.

- Functional classification : This shows the allocation of funds by sectors, sub-sectors, and programs, such as education, health, defense, etc.

- Economic classification : This shows the allocation of funds by types of revenues and expenditures, such as taxes, grants, salaries, goods and services, capital, etc.

- Program classification : This shows the allocation of funds by objectives, outcomes, outputs, and activities, such as reducing poverty, improving health, building roads, etc.

Budget classification can help budget analysis to compare and contrast the budget data across different dimensions, levels, and time periods, and to identify the linkages and trade-offs between them.

4. Budget indicators : These are the numerical measures and ratios used to describe and evaluate the budget data. Budget indicators can be derived from different sources, such as budget documents, national accounts, population statistics, etc. Budget indicators can be used to assess different aspects of the budget, such as:

- Size : This indicates the magnitude of the budget in absolute or relative terms, such as total revenues, total expenditures, budget deficit or surplus, budget balance as a percentage of GDP, etc.

- Composition : This indicates the structure and distribution of the budget by different categories, such as revenues by sources, expenditures by functions, sectors, programs, etc.

- Performance : This indicates the results and impacts of the budget on different dimensions, such as revenue collection efficiency, expenditure quality and effectiveness, fiscal sustainability, economic growth, social welfare, environmental protection, etc.

Budget indicators can help budget analysis to summarize and simplify the budget data, to compare and benchmark the budget data with other countries or standards, and to monitor and evaluate the budget performance and impact.

5. Budget models : These are the analytical frameworks and methods used to simulate and project the budget data. Budget models can be based on different assumptions, scenarios, and techniques, such as:

- Static models : These assume that the budget data remain constant or change proportionally over time, such as using the previous year's budget as the baseline or applying a uniform growth rate to all budget items.

- Dynamic models : These assume that the budget data change according to the interactions and feedbacks between different variables, such as using econometric models or system dynamics models to estimate the effects of fiscal policy on macroeconomic variables and vice versa.

- Optimization models : These assume that the budget data are determined by the maximization or minimization of an objective function subject to some constraints, such as using linear programming or quadratic programming to allocate resources to achieve the highest social welfare or the lowest budget deficit.

Budget models can help budget analysis to forecast and plan the budget data, to test and compare the budget data under different assumptions and scenarios, and to optimize and improve the budget decisions and outcomes .

These are some of the key concepts and tools that can be used to analyze a budget using a budget analysis framework. Budget analysis can be a powerful tool to enhance the transparency, accountability, and effectiveness of the budget process and outcomes . However, budget analysis also faces some challenges and limitations, such as:

- Data availability and quality : Budget analysis depends on the availability and quality of the budget data , which may vary across countries and time periods. Some budget data may be missing, incomplete, inconsistent, inaccurate, or outdated, which may affect the validity and reliability of the budget analysis.

- Methodological complexity and uncertainty : Budget analysis involves the use of complex and uncertain methods and models, which may require technical skills and expertise , and may involve some assumptions and simplifications, which may affect the accuracy and robustness of the budget analysis.

- Political sensitivity and resistance : budget analysis may challenge the existing budget practices and preferences, and may expose the budget problems and gaps, which may generate some political sensitivity and resistance from the budget actors and stakeholders, which may affect the feasibility and acceptability of the budget analysis.

Therefore, budget analysis should be done with caution and care, and should be complemented with other methods and sources, such as stakeholder consultation, participatory budgeting, and social audit, to ensure the quality and usefulness of the budget analysis.

How to Analyze a Budget Using Key Concepts and Tools - Budget Analysis Examples: How to Learn from Real World Budget Analysis Cases

One of the most complex and influential budgeting processes in the world is the one carried out by the US federal government. The federal budget affects the economy, national security, social welfare, and many other aspects of American society. In this section, we will explore how the US federal government prepares and executes its budget, and what are some of the challenges and controversies involved in this process. We will also look at some of the tools and techniques that budget analysts use to evaluate and improve the federal budget.

The US federal budget process can be divided into four main stages: formulation, authorization, appropriation, and execution. Here is a brief overview of each stage and some of the key actors and issues involved:

1. Formulation : This is the stage where the president and the executive branch agencies propose their budget plans for the next fiscal year, which runs from October 1 to September 30. The president submits his budget request to Congress by the first Monday in February, which outlines his spending and revenue priorities and estimates the economic and fiscal outlook. The executive branch agencies also prepare their own budget requests, which are reviewed and consolidated by the Office of Management and Budget (OMB), a central agency that oversees the federal budget and provides guidance and analysis to the president and other executive officials. The OMB also prepares the president's annual Economic Report, which provides a comprehensive assessment of the state of the economy and the impact of the federal budget on it.

2. Authorization : This is the stage where Congress reviews and approves the president's budget request and sets the legal framework for federal programs and activities. The authorization process involves two types of committees: authorizing committees and budget committees. The authorizing committees have jurisdiction over specific policy areas and programs, such as defense, education, health, etc. They review the president's budget request and propose legislation that authorizes the existence and scope of federal programs and activities, as well as the maximum amount of money that can be spent on them. The budget committees, on the other hand, have jurisdiction over the overall budget and fiscal policy. They review the president's budget request and the authorizing legislation and propose a budget resolution, which is a concurrent resolution that sets the aggregate spending and revenue levels, the budget surplus or deficit, and the debt limit for the next fiscal year and beyond. The budget resolution also allocates the spending and revenue levels among the major functional categories of the budget, such as national defense, health, income security, etc. The budget resolution is not a law and does not require the president's signature, but it serves as a blueprint and a binding framework for the subsequent stages of the budget process .

3. Appropriation : This is the stage where Congress provides the legal authority and the specific amount of money for federal programs and activities to spend from the Treasury. The appropriation process involves 12 subcommittees of the Appropriations Committees in both the House and the Senate, which correspond to the major functional categories of the budget. These subcommittees review the president's budget request, the authorizing legislation, and the budget resolution, and propose appropriation bills, which are legislation that specify the amount of money available for each program and activity within their jurisdiction, as well as any conditions or restrictions on how the money can be used. The appropriation bills must be passed by both chambers of Congress and signed by the president before they become law. If the appropriation bills are not enacted by the start of the fiscal year, Congress may pass a continuing resolution, which is a temporary measure that provides funding for federal programs and activities at the current or reduced level until the regular appropriation bills are enacted. Alternatively, Congress may pass an omnibus appropriation bill, which is a single bill that combines several or all of the regular appropriation bills into one.

4. Execution : This is the stage where the executive branch agencies and the Treasury implement and manage the federal programs and activities according to the laws and regulations established by Congress and the president. The execution stage involves several steps, such as apportionment, allotment, obligation, and outlay. Apportionment is the process where the OMB distributes the appropriated funds to the executive branch agencies on a quarterly or annual basis, based on their spending plans and performance. Allotment is the process where the executive branch agencies further divide the apportioned funds among their subunits, such as bureaus, offices, or projects. Obligation is the process where the executive branch agencies commit to spend the allotted funds for a specific purpose, such as signing a contract, placing an order, or hiring an employee. Outlay is the process where the Treasury disburses the obligated funds to the recipients, such as contractors, vendors, or beneficiaries. The execution stage also involves monitoring and reporting on the performance and results of the federal programs and activities, as well as auditing and evaluating their efficiency and effectiveness .

The US federal budget process is a complex and dynamic system that involves multiple actors, institutions, and interests. It is also a highly political and contentious process that reflects the values, preferences, and trade-offs of the American people and their representatives. Some of the challenges and controversies that the US federal budget process faces include:

- Balancing the competing demands and priorities of different stakeholders, such as the president, Congress, executive branch agencies, interest groups, and the public.

- Managing the fiscal and economic implications of the federal budget, such as the budget deficit, the national debt, the economic growth, the inflation, the unemployment, and the income distribution.

- adapting to the changing needs and circumstances of the nation and the world, such as the COVID-19 pandemic, the climate change, the national security threats, and the global competition.

- Improving the transparency, accountability, and effectiveness of the federal budget, such as the accuracy and reliability of the budget data and estimates, the compliance and oversight of the budget laws and rules, and the evaluation and feedback of the budget outcomes and impacts .

Budget analysts play a vital role in the US federal budget process, as they provide information, analysis, and advice to the decision-makers and the stakeholders at each stage of the process. Some of the tools and techniques that budget analysts use to perform their tasks include:

- Budget classification and accounting systems, which are the methods and standards for organizing and recording the budget data and transactions, such as the budget functions, the budget accounts, the budget authority, the budget outlays, etc.

- Budget formulation and projection models, which are the mathematical and statistical methods for estimating and forecasting the budget revenues and expenditures , as well as the economic and fiscal indicators, such as the gross domestic product , the inflation rate, the tax base, the spending needs, etc.

- Budget analysis and evaluation methods, which are the analytical and empirical methods for assessing and comparing the budget alternatives and options, as well as the budget performance and results , such as the cost-benefit analysis , the cost-effectiveness analysis , the program evaluation, the performance measurement, etc.

- Budget presentation and communication techniques, which are the graphical and verbal methods for displaying and explaining the budget information and analysis, such as the budget tables, charts, graphs, reports, briefings, testimonies, etc.

The US federal budget process is a fascinating and important topic for anyone who wants to learn more about how the US government operates and how the public resources are allocated and used. By understanding the basic concepts and principles of the US federal budget process, as well as the tools and techniques of budget analysis , one can gain valuable insights and skills that can be applied to other budgeting contexts and scenarios.

How the US Federal Government Prepares and Executes its Budget - Budget Analysis Examples: How to Learn from Real World Budget Analysis Cases

In this section, we will delve into the budget management practices of a non-profit organization that is dedicated to a social project. The organization aims to make a positive impact on society by addressing a specific social issue. Through effective budget analysis and allocation, they ensure the efficient utilization of resources to achieve their goals.

1. Understanding the Project Scope:

The first step in budget analysis is to gain a comprehensive understanding of the project's scope. This involves identifying the specific social issue being addressed, the target audience, and the desired outcomes. By clearly defining the project scope, the organization can align its budget with the objectives and allocate resources accordingly.

2. Identifying Funding Sources:

Non-profit organizations often rely on multiple funding sources to support their projects. These sources may include grants, donations, sponsorships, and fundraising events. It is crucial to identify and evaluate the viability of each funding source to ensure a sustainable budget for the social project.

3. Creating a Detailed Budget Plan:

Once the funding sources are identified, the organization creates a detailed budget plan. This plan outlines the estimated costs for various project components, such as personnel, materials, marketing, and overhead expenses. By breaking down the budget into specific categories, the organization can track and manage expenses effectively.

4. Prioritizing Expenditures:

In budget analysis, it is essential to prioritize expenditures based on their impact on the project's goals. The organization assesses the importance of each expense and allocates resources accordingly. For example, they may prioritize spending on direct project activities over administrative costs to maximize the project's impact .

5. Monitoring and Adjusting the Budget:

Budget analysis is an ongoing process that requires continuous monitoring and adjustment. The organization regularly reviews its budget to ensure that expenditures align with the project's progress and objectives. If necessary, they make adjustments to optimize resource allocation and address any unforeseen challenges.

6. evaluating the Return on investment :

To measure the effectiveness of budget allocation, the organization evaluates the return on investment (ROI) of the social project. This involves assessing the project's outcomes, such as the number of beneficiaries, the level of social impact, and the achievement of predefined goals. By analyzing the ROI, the organization can make informed decisions for future budget planning.

How a Non Profit Organization Manages its Budget for a Social Project - Budget Analysis Examples: How to Learn from Real World Budget Analysis Cases

In this section, we will explore how a small business can effectively create and monitor its budget to drive growth. Budget analysis plays a crucial role in financial planning and decision-making , allowing businesses to allocate resources efficiently and identify areas for improvement .

1. Understanding Business Goals: The first step in budget analysis is to clearly define the business goals. This involves identifying the key objectives, such as increasing revenue, reducing costs, or expanding into new markets. By aligning the budget with these goals, businesses can prioritize their financial resources effectively .

2. Revenue Forecasting: Small businesses need to accurately forecast their revenue to create a realistic budget. This involves analyzing historical sales data, market trends, and customer behavior. By considering factors such as seasonality, market conditions, and competitive landscape, businesses can estimate their future revenue streams.

3. Expense Categorization: To create a comprehensive budget, small businesses should categorize their expenses into different categories, such as fixed costs (rent, utilities), variable costs (raw materials, inventory), and discretionary expenses (marketing, training). This helps in identifying areas where cost-saving measures can be implemented.

4. Cost Control Measures: Small businesses should implement cost control measures to optimize their expenses. This can include negotiating better deals with suppliers, streamlining operations, and identifying areas of wastage. By closely monitoring expenses and implementing cost-saving strategies , businesses can improve their profitability.

5. cash Flow management : effective cash flow management is essential for small businesses. By analyzing cash inflows and outflows , businesses can ensure they have sufficient funds to meet their financial obligations . This involves monitoring accounts receivable, accounts payable, and managing working capital effectively.

6. Performance Metrics: Small businesses should establish key performance indicators (KPIs) to monitor their budget performance . This can include metrics such as revenue growth , profit margins, return on investment (ROI), and customer acquisition costs . By regularly tracking these metrics, businesses can identify areas of improvement and make informed financial decisions .

7. Scenario Analysis: Small businesses should conduct scenario analysis to assess the impact of different variables on their budget. This involves creating "what-if" scenarios to evaluate the financial implications of various factors, such as changes in pricing, market conditions, or unexpected events. By considering different scenarios, businesses can develop contingency plans and make proactive adjustments to their budget.

How a Small Business Creates and Monitors its Budget for Growth - Budget Analysis Examples: How to Learn from Real World Budget Analysis Cases

Budget analysis is a process of evaluating how well a person, organization, or project manages its financial resources and meets its goals. In this section, we will look at how a household plans and tracks its budget for savings and expenses, and what are some of the benefits and challenges of doing so. We will also provide some tips and tools that can help households improve their budgeting skills and achieve their financial objectives .

A household budget is a plan that shows how much income a family or an individual receives and how much they spend on various categories such as housing, food, transportation, entertainment, health care, education, and so on. A household budget can help people:

- monitor their cash flow and see where their money goes each month

- Identify their needs and wants and prioritize their spending accordingly

- set realistic and attainable goals for saving, investing, paying off debt, or making a major purchase

- Track their progress and adjust their plan as their circumstances change

- Avoid overspending and getting into financial trouble

- Build financial literacy and confidence

However, creating and maintaining a household budget can also pose some challenges, such as:

- Lack of time and motivation to collect and analyze the data

- Difficulty in estimating irregular or variable income and expenses

- Inconsistency in recording and categorizing transactions

- Disagreement among family members on how to allocate the funds

- Unexpected events that disrupt the plan, such as emergencies, income loss, or inflation

To overcome these challenges, households can use some of the following strategies and tools:

1. Choose a budgeting method that suits their preferences and goals. There are different ways to plan and track a household budget, such as the 50/30/20 rule, the envelope system, the zero-based budget, or the pay-yourself-first approach. Each method has its own advantages and disadvantages, and households can experiment with different options until they find the one that works best for them.

2. Use a budgeting app or software that can automate and simplify the process. There are many apps and software available that can help households create and manage their budget, such as Mint, YNAB, Quicken, or Excel. These tools can help households link their bank accounts and credit cards, track their income and expenses , categorize their transactions, set and monitor their goals , generate reports and charts, and receive alerts and reminders.

3. Review and update their budget regularly and make adjustments as needed. A household budget is not a static document, but a dynamic and flexible plan that reflects the changing reality and needs of the household. Households should review their budget at least once a month, or more often if there are significant changes in their income or expenses. They should also compare their actual spending with their planned spending, and identify any gaps or discrepancies. If they find that they are spending more than they earn, or not saving enough for their goals, they should look for ways to increase their income or reduce their expenses, or both.

4. involve all family members in the budgeting process and communicate openly and respectfully. A household budget affects everyone in the family, and everyone should have a say in how the money is spent and saved. Households should discuss their budget with their spouse, partner, children, or other dependents, and listen to their opinions and suggestions. They should also agree on some ground rules and expectations, such as how much each person can spend on discretionary items, how to handle debt and savings, and how to deal with conflicts and disagreements.

5. Celebrate their achievements and reward themselves for their efforts. Budgeting can be a challenging and stressful task, but it can also be a rewarding and satisfying one. Households should acknowledge and appreciate their progress and accomplishments, and celebrate their milestones and successes. They should also treat themselves to something they enjoy, such as a movie, a meal, or a hobby, as long as it fits within their budget and does not compromise their goals. This can help them stay motivated and positive , and reinforce their good habits.

Budget analysis is a vital skill for anyone who wants to manage their finances effectively , plan for the future, and achieve their goals. Budget analysis involves comparing your income and expenses, identifying your needs and wants, setting priorities, and finding ways to save money or increase your income. However, budget analysis is not always easy or straightforward. There are many common mistakes that people make when creating and analyzing their budgets, such as underestimating their expenses, forgetting to account for irregular or unexpected costs, or being unrealistic about their spending habits. In this section, we will share some tips and best practices on how to improve your budget analysis skills and avoid these common pitfalls. We will also provide some examples of real-world budget analysis cases that you can learn from and apply to your own situation.

Here are some of the tips and best practices that you can follow to improve your budget analysis skills and avoid common mistakes:

1. Use a reliable and user-friendly tool to create and track your budget. There are many tools available online or offline that can help you create and manage your budget, such as spreadsheets, apps, websites, or software. Choose a tool that suits your preferences, needs, and goals, and that allows you to easily input, update, and monitor your income and expenses. Some of the features that you should look for in a budgeting tool are:

- The ability to categorize your income and expenses into different groups, such as fixed, variable, discretionary, or essential.

- The ability to set and track your savings and debt repayment goals, and to see your progress and projections over time.

- The ability to generate reports, charts, and graphs that show your income and expense breakdown, your spending patterns, your cash flow, and your net worth.

- The ability to sync your data across multiple devices, and to import or export your data to other platforms or formats.

- The ability to customize your budget according to your preferences, such as currency, frequency, date range, or layout.

- The ability to access your budget online or offline, and to secure your data with encryption or password protection.

- Some examples of popular and reputable budgeting tools are: Mint, YNAB, Quicken, Excel, Google Sheets, or Personal Capital.

2. Review your budget regularly and adjust it as needed. Your budget is not a static document that you create once and forget about. It is a dynamic and flexible tool that you should review and update regularly, at least once a month, or more often if your income or expenses change significantly. Reviewing your budget will help you to:

- Track your income and expenses, and see if you are meeting your budget targets or if you need to make changes.

- Identify any gaps, errors, or discrepancies in your budget, and correct them as soon as possible.

- Evaluate your spending habits, and see if you are spending more or less than you planned, and on what categories or items.

- Assess your savings and debt repayment progress, and see if you are on track to achieve your goals or if you need to adjust them.

- Celebrate your successes, and reward yourself for sticking to your budget or reaching your milestones.

- Some examples of how to review and adjust your budget are:

- Compare your actual income and expenses to your budgeted income and expenses, and calculate the difference or variance for each category or item. If the variance is positive, it means you spent less or earned more than you planned. If the variance is negative, it means you spent more or earned less than you planned.

- Analyze the reasons for the variance, and see if they are due to one-time or recurring factors, such as unexpected income or expenses, seasonal fluctuations, or changes in your lifestyle or circumstances.

- Decide if you need to adjust your budget to reflect the changes, or if you need to take action to reduce your expenses or increase your income. For example, if you received a bonus or a tax refund, you can decide to save it, invest it, pay off debt, or spend it on something you need or want. If you had a medical emergency or a car repair, you can decide to use your emergency fund, borrow money, or cut back on other expenses to cover the cost.

- Update your budget with the new information, and make sure it is realistic, accurate, and balanced. A balanced budget means that your income is equal to or greater than your expenses, and that you are able to save money or pay off debt every month.

3. Use the 50/30/20 rule as a guideline for allocating your income and expenses. The 50/30/20 rule is a simple and effective way to divide your income and expenses into three main categories: needs, wants, and savings or debt repayment. The rule suggests that you should spend 50% of your income on your needs, 30% on your wants, and 20% on your savings or debt repayment. However, you can adjust these percentages according to your situation and goals, as long as you maintain a balanced budget . Here is how to apply the 50/30/20 rule to your budget:

- Calculate your net income, which is your income after taxes and deductions, such as social security, health insurance, or retirement contributions.

- Multiply your net income by 0.5, 0.3, and 0.2, to get the amount that you should spend on your needs, wants, and savings or debt repayment, respectively.

- Categorize your expenses into needs, wants, and savings or debt repayment, and assign a budget amount to each category or item.

- Needs are the expenses that are essential for your survival and well-being, such as housing, food, utilities, transportation, health care, or insurance.

- Wants are the expenses that are not essential but enhance your quality of life , such as entertainment, hobbies, travel, or dining out.

- Savings or debt repayment are the expenses that help you achieve your financial goals , such as saving for retirement, emergency fund, education, or a major purchase, or paying off credit cards , loans, or mortgages.

- Compare your budgeted expenses to your actual expenses, and see if you are spending within or beyond your limits for each category. If you are spending more than you should on your needs or wants, you will have less money for your savings or debt repayment, and vice versa.

- adjust your spending habits or your budget accordingly, and try to stick to the 50/30/20 rule as much as possible. Some examples of how to adjust your spending habits or your budget are:

- If you are spending more than 50% of your income on your needs, you can try to reduce your fixed or variable expenses , such as finding a cheaper place to live, switching to a more affordable utility provider, or using public transportation or carpooling instead of driving.

- If you are spending more than 30% of your income on your wants, you can try to limit your discretionary or impulse spending, such as setting a budget for entertainment, hobbies, travel, or dining out, or using the envelope system or cash-only method to control your spending.

- If you are spending less than 20% of your income on your savings or debt repayment, you can try to increase your income or decrease your expenses, such as finding a side hustle, asking for a raise, or selling some of your unwanted items, or cutting back on your needs or wants, or using the snowball or avalanche method to pay off your debt faster.

In this blog, we have seen some real-world examples of how budget analysis can help individuals and organizations achieve their financial goals and improve their performance. Budget analysis is the process of comparing actual results with planned or expected results, identifying the causes of variances, and taking corrective actions if needed. Budget analysis can be applied to any aspect of your personal or professional life , such as income, expenses, savings, investments, projects, programs, etc. In this section, we will discuss how you can apply budget analysis to your own situation and goals, and what benefits you can expect from it. Here are some steps you can follow to conduct your own budget analysis :

1. Define your objectives and scope. What are you trying to achieve with your budget analysis? What are the specific areas or categories you want to focus on? For example, you may want to analyze your monthly household budget, your annual business budget, or your retirement savings plan . You should also define the time period and the level of detail you want to use for your analysis. For example, you may want to compare your budget on a monthly, quarterly, or yearly basis, and use summary or detailed data.

2. collect and organize your data . You will need to gather the actual and planned data for the areas or categories you want to analyze. You can use various sources of information, such as bank statements, receipts, invoices, reports, etc. You should also organize your data in a consistent and logical way, using categories, subcategories, and labels that make sense to you. You can use tools such as spreadsheets, software, or apps to help you store and manipulate your data.

3. Calculate and interpret the variances. Once you have your data ready, you can calculate the differences between the actual and planned results for each area or category. You can use formulas, functions, or charts to help you perform the calculations. You should also interpret the meaning and significance of the variances, and identify the possible causes and effects of them. For example, you may find that your actual income was higher than your planned income, which could be due to a raise, a bonus, or a side hustle. Or you may find that your actual expenses were lower than your planned expenses, which could be due to a change in your lifestyle, a bargain, or a refund.

4. Evaluate and adjust your budget. Based on your analysis, you can evaluate how well you are meeting your objectives and how realistic your budget is. You can also adjust your budget to reflect the changes in your situation and goals, and to improve your future performance. For example, you may decide to increase your savings rate , reduce your debt, invest in a new opportunity, or revise your spending habits. You should also monitor your progress and update your budget regularly, to ensure that you are on track and to address any new issues or opportunities that may arise.

By applying budget analysis to your own situation and goals, you can benefit from:

- Having a clear and accurate picture of your financial situation and performance

- Identifying and resolving any problems or gaps in your budget

- Finding and seizing any opportunities or advantages in your budget

- enhancing your decision-making and planning skills

- achieving your financial goals and improving your financial well-being

Budget analysis is a powerful and useful tool that can help you take control of your finances and achieve your desired outcomes. By following the steps and tips we have discussed in this section, you can conduct your own budget analysis and apply the insights and lessons you learn to your own situation and goals. We hope you have enjoyed this blog and found it helpful and informative. Thank you for reading!

How to Apply Budget Analysis to Your Own Situation and Goals - Budget Analysis Examples: How to Learn from Real World Budget Analysis Cases

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Budget Variance Analysis: How To Monitor, Calculate, and Analyze

• Written by Rob Biedron
• 14 min read

Building a budget is a standard part of doing business for organizations of all sizes and types. But as most financial pros know, making a budget and sticking to it are two very different things. 

Into every life a few budget variances —differences between actual spend and the amount budgeted—must fall. 

Human error, changing market conditions, new customers, and even employee fraud can push the actual numbers on your balance sheet a fair distance from their budgeted forebears.

By using budget variance analysis , you can monitor spending to identify where the actual results deviate in your business budget and analyze those deviations to reveal valuable insights. 

These insights can, in turn, help you improve your financial planning and implement process improvements to hew more closely to your budgets in the future and pursue opportunities to build value.

What is Budget Variance Analysis?

When actual expenses vary from the amounts budgeted, a budget variance is created. 

These deviations from planned spend are one of several types of variances chief financial officers (CFOs) and other financial professionals analyze to create a clear, comprehensive snapshot of how well their organizations are performing for a given financial reporting period.

These variances are generally split into two broad categories:

• Materials, Labor, and Variable Overhead Variances , which include:
• Price/Rate Variances , or differences between industry standard costs and actual pricing for materials.
• Efficiency Variances and Quantity Variances , or differences between actual input values and the input amounts specified.
• Fixed Overhead Variances , which include:
• Volume Variances , or differences between actual fixed overhead costs applied and budget fixed overhead costs.
• Budget Variances , or differences between actual and budgeted amounts.

For budget variances in particular, variance analysis is helpful in optimizing business budget planning and identifying new opportunities to create value through process optimization, more strategic spending, etc.

Budget variances also contain two subgroups: expense variances and revenue variances .

As their name implies, expense variances are directly related to costs. 

They tend to garner the lion’s share of attention during variance analysis because they can be more easily controlled and streamlined than revenue.

Revenue expenses are much more volatile and difficult to quantify or predict. 

They contain fantastic potential value, however, because analyzing them can help you uncover opportunities to correct or further refine business processes to improve revenue, value, and efficiency while reducing waste and total cost of ownership .

When conducting a budget variance analysis, you have two options: taking corrective action to reduce future variances (this is used in static budgets ), or adjust the budgets as required to match actual costs (used with flexible budgets).

Whether they’re favorable or unfavorable, budget variances need to be monitored and analyzed if you want accurate financial reporting, reliable cash flow, and both short- and long-term planning and spending strategies you can trust.

Unfavorable Budget Variances and Favorable Budget Variances

Even though they represent missed spending targets, not all variances are necessarily “bad.”

For both revenue and expense variances:

Unfavorable budget variances (also called negative variances ) are indeed a cause for concern, as they have a negative impact on the company’s profitability, cash flow, competitive strength, etc.

Favorable budget variances (also called positive variances ), however, generally indicate a net gain for the organization, either through actual revenue that’s higher than anticipated or costs below those projected.

Root Causes of Budget Variances

Whether they’re favorable or unfavorable, budget variances need to be monitored and analyzed if you want accurate financial reporting, reliable cash flow, and both short- and long-term planning and spending strategies you can trust. 

Variances occur for a wide range of reasons; some of the most common include:

• A shifting market economy , either due to external factors (disruptions due to natural disasters or pandemics, for example) or internal challenges (underperforming sales and customer support departments).
• Human error , which could be caused by a number of factors, including unoptimized budgeting processes, lack of training, etc.
• Increased competition , often in tandem with changes to economic conditions and with direct impact on how effectively you attract and retain customers—and important revenue concerns such as sales volume.
• Supplier pricing changes , such as a supplier announcing new pricing after your budget has already been finalized.
• Employee fraud , a frequent and regrettable source of unfavorable variances.
• Process Improvement , which can create more favorable variances through increased efficiency and lower costs.

Benefits of Effective Budget Variance Analysis

Any way you slice it, knowing how your budgeted amounts stack up against actual costs means stronger financial and competitive performance for your organization. 

In fact, with today’s digital budget analysis tools, you can perform actual variance analysis in real time.

And with a cloud-based budgeting software solution like Planergy—supported by artificial intelligence and featuring advanced automation and analysis capabilities—stakeholders from the CFO down get leveled, secure, and mobile-friendly access to the actual numbers in your business budget on demand.

This benefits financial planning and your overall budgeting strategy in several important ways:

• Improved spending decisions based on up-to-date balance sheets.
• More accurate cash flow to help you plan spend to accommodate upcoming expenses or invest strategically while still meeting your obligations.
• Immediate insight into potentially problematic workflows, vendors, or market trends that are affecting spend and creating negative variances and the process and efficiency improvements that support positive variances.
• Accurate and complete financial statements, variance reports, and forecasts, fully customizable for both static and flexible budgets.

How to Perform Budget Variance Analysis

While access to digital dashboards, actual variance analysis modules, and other best-in-class budgeting tools help, the basic formula for obtaining the data necessary to a budget variance analysis boils down to two simple formulae:

The first is the positive convention, which measures variance as a positive value (but a negative variance) (negative figures indicate actual figures are under budget, which is a positive variance).

Actual Spending – Budgeted Spending = Variance

  The second formula is the negative convention, which measures negative variances as a negative value and positive variances as a positive figure.

Budgeted Spending – Actual Spending = Variance

There’s no “right” way here; either convention is acceptable, provided it’s consistently applied across all your analyses.

Of course, obtaining the actual figures for a variance is only the first step. Contextual analysis is crucial to harvesting actionable insights.

So, for example, if your indirect expense account for office supplies indicates a budgeted purchase price of $200 for copier paper, but you spent $600 that quarter, you might be alarmed, since you’re effectively 300% over budget.

However, the overage is only $400 in a budget that might measure in the millions. This is a good point for investigation (is it possible to reduce paper usage by automating certain processes? 

Can documents be converted to digital versions, eliminating the need for not just paper, but physical document storage and management? 

Is paper being used for non-company purposes?) and an opportunity to adjust both procedures and future budgets to best meet your business needs, but it’s not a five-alarm financial fire.

Let’s take a look at a more advanced example using a method known as the column method .

A leading producer of doodads, Company X ties overhead to production based on direct labor hours. The industry standard is 4,000 hours.

So, Company X’s standard cost card when drawing up their budget might look something like this:

Direct materials cost: 5 pieces/doodad. Unit cost: $0.25

Direct labor cost: 1.5 hours per doodad at $10/hour.

Variable manufacturing overhead: 1.5 hours per doodad at $2.50/hour.

Fixed manufacturing overhead: 1.5 hours per doodad at $3.75/hour

For the month of August, Company X produced 5,000 doodads. The fixed overhead expense budget was $30,000. The actual costs for August were:

Direct materials cost: 30,000 pieces at $0.24 each

Direct labor cost: 4,100 hours were worked (total cost: $41,000)

Actual cost of variable manufacturing overhead: $20,000

Actual cost of fixed manufacturing overhead: $32,000

If we choose to focus on materials variance, we see the following:

Actual Quantity (AQ) of doodads produced x Actual Price (AP) is 30,000 x $0.24 = $7,200

Actual Quantity (AQ) of doodads produced x Standard Price (SP) is 30,000 x $0.25 = $7,500

Standard Quantity (AQ) of doodads produced x Standard Price (SP) is 25,000 x $0.25 = $6,250

This tells us we have a favorable variance on price, since we paid less than standard pricing for the number of pieces used to produce our completed doodads. 

However, we have an unfavorable quantity variance, as it took 5,000 more pieces than budgeted to produce our completed doodads.

At this point in the analysis, our financial team will likely investigate the reasons for these discrepancies, both to protect (or even positively increase) the price variance while reducing or eliminating the quantity variance, which may be due to quality control issues, supply chain disruptions, or other factors.

Ultimately, ongoing monitoring of those budgets and line items critical to your business can provide you with timely insights you need to either adjust spend to match your budget or reallocate resources to compensate for increased spending needs.

Stay (or Improve!) the Course with Budget Variance Analysis

Digging deeply into your spend data and exploring the reasons for variances in your budget can yield rich rewards for the enterprising analyst. 

When companies understand where their financial health stands compared to their budgets, they can take the corrective actions necessary to recover lost revenue and value—or, better still, leverage the insights they’ve gained to make more strategic business decisions and pursue new opportunities for efficiency, profitability, and competitive advantage.

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Top 10 Budget Analysis Templates To Ace Your Financial Planning!

Naveen Kumar

"Follow the money trail," — a catchphrase popularized after All the President's Men , is now the fundamental tenet of investigating white-collar crimes. But did you know that it also holds immense significance in the world of business? Understanding your business's financial landscape, tracking every dollar, and predicting future outcomes are essential for sustainable growth and success. While it is a financial investigation for crimes, for businesses, its Budget Analysis.

What is Budget Analysis

Budget analysis is the systematic evaluation of your company's financial data to gain insights into its financial performance, identify trends, and make informed decisions. It involves dissecting revenue, expenses, and internal/industry financial metrics to determine areas of improvement, allocate resources in an effective manner, and plan for a sustainable future.

Budget Analysis Transforms Business Fortunes

Studies say that 9 of ten successful businesses attribute their growth to effective budget analysis practices. For businesses, budget analysis is crucial. The major reasons are:

• Did you know that companies that conduct budget analysis on a regular basis are 30% more likely to achieve their financial goals? It provides a clear picture of your financial health, allowing you to assess profitability and cash flow and identify potential risks or inefficiencies.
• It helps set data-based and realistic financial objectives, ensuring that your resource allocation is wise. In fact, a study found that businesses that actively engage in budget analysis experience 40% more positive growth.
• The budget analysis enables you to monitor and measure performance, comparing actual against projected figures and adjusting your strategies.

Budget Analysis Templates

Conducting budget analysis is challenging. Managing and organizing large volumes of financial data can be overwhelming, leading to errors and overlooked details during manual data entry or calculations. Analyzing financial metrics and understanding their relationships can be complex and challenging. Presenting budget analysis findings in a clear and concise manner is often difficult, especially when communicating complex financial information to stakeholders.

Our budget analysis templates resolve all these pain points. These presentation designs streamline data management by providing built-in tools for input and organization, reducing the chances of errors and saving time. They simplify analysis by breaking down complex financial concepts into manageable sections and offering predefined formulas and calculations for easy interpretation of data.

The 100% customizable nature of these templates provides you with the desired flexibility to conduct a comprehensive budget analysis. The content-ready slides give you the much-needed structure that saves your accounts team time and effort. 

Lets’s explore these budget analysis templates together to get you the ideal virtual finance manager.

1. Budget Vs. Actual Variance Analysis Presentation Deck

 Discover the reasons behind variances in finance as you explore this budget PPT presentation template. This comprehensive deck is packed with research-driven templates, including actual cost vs. budget, month-wise forecasting, overhead cost analysis, quarterly budget analysis, variance analysis, actual vs. target variance, budget vs. plan vs. forecast, and more. It will help you stay ahead of the game with periodic reviews of actual expenses compared to the budget. Use this slide to identify potential cost overruns and revenue shortfalls that impact your business's bottom line. Download it now!

Download this presentation deck

2. Quarterly Budget Analysis Presentation Template

Take your budget analysis to new heights with this content-ready PPT Template crafted to help you analyze and assess your financial performance over a quarter. Delve into the intricacies of your budget and explore quarter revenue trends, expense patterns, and budget variances. It contains a budget table that highlights variable expenses, total variable expenses, fixed expenses, and non-income statement items, along with other sub-elements. Gain insights into the financial health of your business and make data-driven decisions. Get it now!

Download this template

3. Project Budgeting Analysis With Work Breakdown Structure PPT Template

Analyze and manage project budgets using a structured approach with this structured presentation layout. It allows you to create a multi-phase Work Breakdown Structure (WBS) of your project with manageable components. Use this template to organize project tasks, resources, and costs with precision, allowing you to gain a holistic view of your budget allocation. You can assign a responsible person for each task and budget item in this PPT Design, which makes the project flow and financial implications easy to follow. Grab it today!

4. Corporate Development Training Budget Analysis PowerPoint Slide

Use this ready-to-use budget analysis PPT Design to maximize the impact of your training initiatives. The slide helps you analyze and manage training budgets, ensuring optimal utilization of resources. With this PowerPoint Set, you can track and evaluate training expenses, projected costs, actual expenditures, and variance. Evaluate and refine budget allocations for training programs like employee induction, soft skill training, and cybersecurity training, and make informed decisions to optimize this investment. Download it now!

5. Budget Analysis Template for Digital Marketing Project

This easy-to-read presentation template is designed to help you analyze and compare expenses across five key digital marketing channels: SEO, SCO, Web Development, Email Marketing, and Blog Writing. The centerpiece of this PowerPoint Layout is a bar graph featuring blue bars that represent the allocated budget and green bars depicting the actual expenses for each channel. Use the spaces provided to present chart summaries or key insights derived from the bar graph. Highlight trends, cost-saving opportunities, and potential areas for improvement, fostering data-driven decision-making and enhanced budget optimization. Get this presentation template now!

6. Overhead Cost Budget Analysis Presentation Template

Take advantage of this expert-designed PPT Slide to optimize your overhead cost management in an efficient way. It empowers you to analyze, assess, and control your overhead expenses, ensuring optimal financial performance for your organization. Our PowerPoint Set provides a structured framework to navigate overhead cost categories, such as indirect labor, plan & infrastructure, utilities, rent, salaries, maintenance, etc. It highlights each quarter's forecast, expense, variance, and variance percentage. Visualize the breakdown of your overhead costs with an easy-to-understand table and present the data in a clear and concise manner. Grab it today!

7. Influencer Marketing Campaign Budget Analysis PPT Template

Elevate your influencer marketing campaigns with this PPT Template, designed to help businesses analyze and optimize their budget allocations and expenditures. It features two vibrant and identical pie charts, showcasing a clear breakdown of the allocated budgets and actual expenditure for elements of influencer marketing campaigns. The left pie chart represents the allocated budgets or shares, while the right pie chart reflects the actual expenditure for influencer fees, influencer incentives, media expenses, staff costs, software costs, agency fees, promotion, content creation, and design fees. Navigate through the template to assess the variance between the allocated budgets and actual expenditures for each element. Take advantage of the dedicated section provided at the bottom of the template to share key insights from the comparison of the two pie charts. Highlight trends, pinpoint areas of improvement, and communicate the financial impact of your influencer marketing strategies. Download it now!

8. Budget Scenario Analysis PowerPoint Presentation Template

Make informed decisions and plan for the future with this detailed template that explores and evaluates three distinct scenarios — worst, average, and best — across key budget drivers, revenue impact, and overall budget. It helps you visualize the impact on budget drivers, revenue projections, and overall budget allocation for each scenario, enabling you to assess risk, identify opportunities, and make strategic decisions. The budget scenarios highlight the budget amount, base case variance, and percentage to enhance strategic planning and proactive decision-making. Get it now!

9. Post Corporate Event Budget Analysis Presentation Template

This PPT Template helps you assess and analyze your event expenses with ease and clarity. The PPT Layout features a colorful pie chart on the left, providing a visual representation of the percentage of the budget allocated to each category. From this pie chart, event managers can identify the distribution of funds across categories such as food and beverage, marketing , transportation, venue, decorations, and speakers.  On the right side of the template, you'll find a comprehensive and easy-to-read table showcasing the detailed cost breakdown. The first row lists the expense categories, followed by the estimated budget and the actual expenses in the second and third rows. The top section of this event budget analysis template provides spaces to add the event title and date, ensuring a personalized touch for your presentation. Grab it today!

10. Annual Budget Analysis One-page Summary Template

This user-friendly template enables you to condense and present key financial insights. It features three tables and bar charts that provide a comprehensive overview of your annual budget analysis. The first table presents a month-wise breakdown of the revenue forecasted and generated from business sources. This allows you to compare and assess the financial performance of your business throughout the year. In the second table, you have estimated and levied costs for business components, including operations, materials & supplies, labor costs, field wages, overtime, and more. Below this, two bar charts showcase the budget and variance analysis for the four quarters of the year. Through this, you identify areas of over or under-spending and make informed adjustments. This one-page template provides a final table that offers detailed statistics on overhead cost budget analysis for a quarter. At the top, you'll find dedicated space to add an executive summary of the budget analysis report and your company logo, adding a personalized touch. Download it now!

From Chaos to Control

By leveraging budget analysis, you gain a competitive edge in the market, enhance financial stability, and maximize profitability. With our presentation templates enhance clarity and comprehension through charts, graphs, and infographics, making complex information more engaging and understandable. 

With their polished and professional layouts, our budget analysis templates ensure that your presentations look impressive, maintaining consistent formatting, fonts, and design elements for a cohesive and professional appearance.

Download these budget analysis templates now and make the process more efficient by addressing data management, complexity, and communication challenges.

FAQs on Budget Analysis

1. what is a budget analysis.

A budget analysis is a systematic evaluation of financial data to assess the financial performance and effectiveness of a business or individual's budget . It involves reviewing income, expenses, and financial metrics to gain insights into the financial health and efficiency of budget allocation.

2. What are the stages of the budget analysis?

The stages of a budget analysis include:

• Data Collection: Gather relevant financial data, such as income statements, expense records, and cash flow statements, for the period under analysis.
• Data Organization: Arranging the collected data in a structured manner, categorizing income and expenses, and ensuring accuracy and completeness.
• Comparison and Evaluation: Comparing the actual financial performance with the budgeted or projected figures, assessing variances, and identifying areas where targets were met or missed.
• Identification of Trends and Patterns: Analyzing the data to identify trends, patterns, and potential causes for variances, such as changes in market conditions, pricing, or operational efficiency.
• Recommendations and Action Planning: Based on the analysis, developing recommendations for improving financial performance, optimizing resource allocation, and setting realistic financial goals. This stage may involve creating action plans and implementing strategies to address identified issues or capitalize on opportunities.
• Monitoring and Review: Scrutinizing the financial performance and reviewing the budget analysis results on a periodic basis to track progress, make adjustments, and ensure financial stability.

3. What are the three main types of budgets?

The three main types of budgets are:

• Operating Budget: An operating budget focuses on day-to-day operations and includes revenue and expense projections for a specific period, often a year. It outlines the projected sales, costs, and expenses related to the core business activities, such as production , marketing, and administration.
• Capital Budget: A capital budget is used for planning and managing long-term investments and expenditures. It involves budgeting for significant purchases or projects that have a lasting impact on the business, such as acquiring new equipment, expanding facilities, or launching new product lines.
• Cash Flow Budget: A cash flow budget focuses on the inflows and outflows of cash within a time frame, usually a month or quarter. It helps monitor and manage the timing and availability of cash to ensure that the business has sufficient liquidity to meet its financial obligations, such as paying bills, loan repayments, and managing working capital. 

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• An All-Encompassing Guide to Business Management (Best Templates Included)
• How Financial Management Templates Can Make a Money Master Out of You
•  Top 10 Budget Management Templates to Keep Your Finances in Order
• The Superfast Guide to Break-Even Analysis [PPT Templates Included] [Free PDF Attached]

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Cost-Benefit Analysis: A Quick Guide with Examples and Templates

When managing a project, many key decisions are required. Project managers strive to control costs while getting the highest return on investment and other benefits for their business or organization. A cost-benefit analysis (CBA) is just what they need to help them do that. Before we explain how to do a cost-benefit analysis, let’s briefly define what it is.

What Is a Cost-Benefit Analysis?

A cost-benefit analysis (CBA) is a process that’s used to estimate the costs and benefits of projects or investments to determine their profitability for an organization. A CBA is a versatile method that’s often used for business administration, project management and public policy decisions. An effective CBA evaluates the following costs and benefits:

• Direct costs
• Indirect costs
• Intangible costs
• Opportunity costs
• Costs of potential risks
• Total benefits
• Net benefits

These project costs and benefits are then assigned a monetary value and used to determine the cost-benefit ratio. However, a cost-benefit analysis might also involve other calculations such as return on investment (ROI), internal rate of return (IRR), net present value (NPV) and the payback period (PBP).

The Purpose of Cost-Benefit Analysis

The purpose of cost-benefit analysis is to have a systemic approach to figure out the pluses and minuses of various business or project proposals. The cost-benefit analysis gives you options and offers the best project budgeting approach to achieve your goal while saving on investment costs.

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Cost Benefit Analysis Template

Use this free Cost Benefit Analysis Template for Excel to manage your projects better.

When to Do a Cost-Benefit Analysis

Cost-benefit analysis is a technique that helps decision-makers choose the best investment opportunities in different scenarios. Here are some of the most common applications for a cost-benefit analysis in project management.

Cost Benefit Analysis & Feasibility Studies

A feasibility study determines whether a project or business initiative is feasible by determining whether it meets technical, economic, legal and market criteria.

Cost Benefit Analysis & Business Requirements Documents

A cost-benefit analysis should be included in a business requirements document , a document that explains what a project entails and what it requires for its successful completion.

Cost Benefit Analysis & Government Projects

Government projects also require conducting a cost-benefit analysis. However, in these types of projects, decision-makers must not only focus on financial gain, but rather think about the impact projects have on the communities and external stakeholders who might benefit from them.

Keeping track of project costs is easier with project management software. For example, ProjectManager has a sheet view, which is exactly like a Gantt but without a visual timeline. You can switch back and forth from the Gantt to the sheet view when you want to just look at your costs in a spreadsheet. You can add as many columns as you like and filter the sheet to capture only the relevant data. Keeping track of your costs and benefits is what makes a successful project. Get started for free today.

How to Do a Cost-Benefit Analysis

According to the Economist , CBA has been around for a long time. In 1772, Benjamin Franklin wrote of its use. But the concept of CBA as we know it dates to Jules Dupuit, a French engineer, who outlined the process in an article in 1848.

Since then, the CBA process has greatly evolved. Let’s go through this checklist to learn how to do a basic cost-benefit analysis using the cost-benefit ratio and present value formulas:

1. What Are the Project Goals and Objectives?

Create a business case for your project and state its goals and objectives.

2. Review Historical Data

Before you can know if a project proposal might be valuable, you need to compare it to similar past projects to see which is the best path forward. Check their success metrics such as their return on investment, internal rate of return, payback period and benefit-cost ratio.

3. Who Are the Stakeholders?

List all stakeholders in the project. They’re the ones affected by the costs and benefits. Describe which of them are decision-makers.

4. What Are the Project Costs and Benefits?

Estimate the future value of your project costs and benefits and think about all the non-financial benefits that a project proposal might bring

The process can be greatly improved with project management software. ProjectManager has one-click reporting that lets you can create eight different project reports. Get data on project status, variance and more. Reports can be easily shared as PDFs or printed out for stakeholders. Filter any report to display only the data you need at the time.

5. Define a Project Timeframe

Look over the costs and benefits of the project, assign them a monetary value and map them over a relevant time period. It’s important to understand that the cost-benefit ratio formula factors in the number of periods in which the project is expected to generate benefits.

6. What Is the Rate of Return?

As explained above, the rate of return is used to calculate the present values of your project’s costs and benefits, which are needed to find the cost-benefit ratio.

Free Cost-Benefit Analysis Template

Use this Excel template to put what you’ve learned into practice. This free cost-benefit analysis template helps you identify quanitative costs and benefits, as well as qualitative costs and benefits, so you can appreciate the full impact of your project. Download yours today.

What Is the Cost-Benefit Ratio?

The cost-benefit ratio, or benefit-cost ratio, is the mathematical relation between the costs and financial benefits of a project. The cost-benefit ratio compares the present value of the estimated costs and benefits of a project or investment.

Cost-Benefit Ratio Formula

This is a simplified version of the cost-benefit ratio formula.

Cost-Benefit Ratio= Sum of Present Value Benefits / Sum of Present Value Costs

Here’s how you should interpret the result of the cost-benefit ratio formula.

• If the result is less than 1: The benefit-cost ratio is negative, therefore the project isn’t a good investment as its expected costs exceed the benefits.
• If the result is greater than 1: The cost-benefit ratio is positive, which means the project will generate financial benefits for the organization and it’s a good investment. The larger the number, the most benefits it’ll generate.

Present Value Formula

The present value of a project’s benefits and costs is calculated with the present value formula (PV).

PV = FV/(1+r)^n

• FV: Future value
• r= Rate of return
• n= Number of periods

We’ll apply these formulas in the cost-benefit analysis example below. Our free cost-benefit analysis template can help you gather the information you need for the cost-benefit ratio analysis.

Cost-Benefit Analysis Example

Now let’s put the formulas reviewed above into practice. For our cost-benefit analysis example, we’ll think about a residential construction project, the renovation of an apartment complex. After using project cost estimation methods and evaluating past-project data, the apartment management company concludes that:

• The project costs are $65,000. They’re paid upfront, so it’s not necessary to calculate their present value
• The project is expected to generate $100,000 in profit for the next 3 years
• The rate of return based on inflation data is 2%

Next, we’ll need to calculate the present value of the benefits expected to be earned in the future using the present value formula:

PV= ($100,000 / (1 + 0.02)^1) + ($100,000 / (1 + 0.02)^2) + ($100,000 / (1 + 0.02)^3)=$288,000

Now we need to use this cost value to find the cost-benefit ratio. Here’s how it would be calculated in this case:

Cost-Benefit Ratio: 288,000/65,000= 4.43

Since we obtained a positive benefit-cost ratio, we can conclude that the project will be profitable for this company. This result implies that the project will generate about $4,43 dollars per each $1 spent to cover expenses .

This is a simple cost-benefit analysis that relies on the cost-benefit ratio to establish the profitability of this project. In other scenarios, you might also need to calculate the return on investment (ROI), internal rate of return (IRR), net present value (NPV) and the payback period (PBP). In addition, it’s advisable to conduct a sensitivity analysis to evaluate different scenarios and how those affect your cost-benefit analysis.

Capture all the costs and benefits with project management software. But unlike many apps with inferior to-do lists, ProjectManager has a list view that is dynamic. It adds priority and customized tags you can assign team members to own each item. Our online tool automatically tracks the percentage complete for each item in real time. All the data you collect in our list view is visible throughout the tool. Regardless of the view, they all update live and they’re ready for you to utilize.

How Accurate Is Cost-Benefit Analysis?

How accurate is CBA? The short answer is it’s as accurate as the data you put into the process. The more accurate your estimates, the more accurate your results.

Some inaccuracies are caused by the following:

• Relying too heavily on data collected from past projects, especially when those projects differ in function, size, etc., from the one you’re working on
• Using subjective impressions when you’re making your assessment
• Improperly using heuristics (problem-solving employing a practical method that is not guaranteed) to get the cost of intangibles
• Confirmation bias or only using data that backs up what you want to find

Cost-Benefit Analysis Limitations

Cost-benefit analysis is best suited to smaller to mid-sized projects that don’t take too long to complete. In these cases, the analysis can help decision-makers optimize the benefit-cost ratio of their projects.

However, large projects that go on for a long time can be problematic in terms of CBA. There are outside factors, such as inflation, interest rates, etc., that impact the accuracy of the analysis. In those cases, calculating the net present value, time value of money, discount rates and other metrics can be complicated for most project managers .

There are other methods that complement CBA in assessing larger projects, such as NPV and IRR. Overall, though, the use of CBA is a crucial step in determining if any project is worth pursuing.

Templates to Help With Your Cost-Benefit Analysis

As you work to calculate the cost-benefit analysis of your project, you can get help from some of the free project management templates we offer on our site. We have dozens of free templates that assist every phase of the project life cycle. For cost-benefit analysis, use these three.

RACI Matrix Template

One of the steps when executing a cost-benefit analysis includes identifying project stakeholders. You need to list those stakeholders, but our free RACI matrix template takes that one step further by outlining who needs to know what. RACI is an acronym for responsible, accountable, consulted and informed. By filling out this template, you’ll organize your team and stakeholders and keep everyone on the same page.

Project Budget Template

You can’t do a cost-benefit analysis without outlining all your expenses first. That’s where our free project budget template comes in. It helps you capture all the expenses related to your project from labor costs, consultant fees, the price of raw materials, software licenses and travel. There’s even space to capture other line items, such as telephone charges, rental space, office equipment, admin and insurance. A thorough budget makes for a more accurate cost analysis.

Project Risk Register Template

You have your stakeholders identified and your budget outlined, but there’s always the unknown to consider. You can’t leave that up to chance: you must manage risk, which is why our free project risk register is so essential. Use it to outline inherent project risks. There are places to list the description of the risk, its impact, the level of risk and who’s responsible for it. By maintaining a risk register, you can control the project variables and make a better cost-benefit analysis.

Make Any Project Profitable With ProjectManager

No matter how great your return on investment might be on paper, a lot of that value can evaporate with poor execution of your project. ProjectManager is award-winning project management software with the tools you need to realize the potential of your project. First, you need an airtight plan.

Planning on Gantt Charts

Our online Gantt charts have features to plan your projects and organize your tasks, so they lead to a successful final deliverable. If things change, and they will, the Gantt is easy to edit, so you can pivot quickly.

Resource Management Tools

Another snag that can waylay a project is your resources. ProjectManager has resource management tools that track your materials, supplies and your most valuable resource: the project team. If they’re overworked, morale erodes and production suffers.

The workload page on ProjectManager is color-coded to show who is working on what and gives you the tools to reassign to keep the workload balanced and the team productive.

Real-Time Cost Tracking

The surest way to kill any project is for it to bleed money. ProjectManager lets you set a budget for your project from the start. This figure is then reflected in reports and in the charts and graphs of the real-time dashboard , so you’re always aware of how costs are impacting your project. ProjectManager has the features you need to lead your project to profitability.

Cost benefits analysis is a data-driven process and requires project management software robust enough to digest and distribute the information. ProjectManager is online project management software with tools, such as a real-time dashboard, that can collect, filter and share your results in easy-to-understand graphs and charts. Try it today with this free 30-day trial.

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How to create (and stick with) a project budget

A project budget is more than just money—it’s also a spending plan that guides you through the ideation, execution, and delivery of your project. When you master the art of budgeting, you can ensure your team has the resources they need to deliver quality results. In this article, we guide you through the budget creation process and offer tips to set your project up for success.

If your project was a car, a budget would be its fuel. Just like a truck needs gas in its tank, projects need money and resources to keep them going. And as a project manager, you have the power to plan and use those resources in the most effective way—so your project gets to its required destination on time, without running out of gas. 

Because a project budget is essential to move work forward, knowing how to create and follow a solid budget plan is one of the most important project management skills you can develop over the course of your career. 

What is a project budget? 

Budgeting before you begin your project helps you scope work and control costs . It’s also a good way to pitch your project to stakeholders and get the funds you need, because a detailed spending plan helps approvers understand how costs contribute to your objectives. And as your project progresses, you can use your project budget as a baseline to compare actual spend to budgeted spend and mitigate extra costs as they arise. 

9 steps to create a project budget

Creating a project budget may seem daunting, but you can do it by following a sequence of steps. We’ve laid out each part of the budgeting process below. 

1. Set project objectives

Project objectives are what you plan to achieve by the end of your project. They’re a good place to start because they help you understand where work is headed, and act as a north star while you iron out the rest of your project plan . 

The best objectives are clearly defined and falsifiable, so you can use them as a benchmark to measure success once your project is finished. To write clear objectives, use the SMART methodology. SMART stands for specific, measurable, achievable, realistic, and time-bound. For example, if you were trying to boost visitors to your website, you might set this objective: “By the end of this quarter, increase organic traffic to the website homepage by 10%.” 

2. Define project scope

Once you’ve set your objectives, you can determine the scope of work you’ll need to achieve those goals. Your project scope sets boundaries for your project, such as what work you’ll do—or not do—and what deadlines and deliverables you’re working towards. When defining your project scope, consider the following: 

Available resources: Before you determine the specific deliverables you want to target, take stock of the resources available to you. If you’re working with a hard budget cap or limited project team bandwidth, you may need to adjust your deliverables accordingly. As such, it’s useful to be aware of any limitations before you dive into the details of deliverables and required resources (which we’ll get to in later steps). 

Time restrictions : Is there a time crunch for this project, or can you take as long as you need? A tight project schedule can influence the cost of resources. For example, you may need to pay freelancers a rush rate if you’re working with a tight deadline. 

Non-goals : What’s outside the project scope? It can be helpful to identify what you’re not trying to achieve, so you can avoid scope creep and potential overspending. 

Remember that your project scope is all about setting boundaries. It helps you understand what you want to achieve, what type of work you’ll do, and what deliverables you’re working towards.

3. Break deliverables into sub-dependencies

Next up, list out all the deliverables that fall within your project scope and break them down into sub-dependencies. For example, imagine that one of your project deliverables is to publish a blog post. You might break it down into the following line items: 

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This method helps you include any hidden project expenses when you create your budget. For example, if you just tried to estimate the budget for publishing a blog post as a whole, you’d be more likely to omit extra costs—such as the hourly rate for a freelance editor, or the price of paid social posts. 

If you prefer diagrams over lists, try creating a work breakdown structure (WBS) . This visual tool breaks down work into multiple levels, starting with your main objective at the top and branching out into deliverables and sub-dependencies below. 

4. List required resources

Now that you’ve laid out all of your deliverables and sub-dependencies, it’s time to list the resources required for each item. Be as specific as possible, and remember that “resource” can mean more than just staff or equipment—it may also include indirect costs like training or a physical space to work in. 

To get you started, here are some common project cost categories to consider: 

Team members : Who are you relying on to do the work? Make a note if they’re salaried in-house staff, or if you need to hire additional hourly contractors.

Procurement : What do you need to do to acquire external resources? For example, you may need a team member to research the best products to use, communicate with sales reps, and purchase a tool.  

Training : Do team members need time or resources to get up to speed? Think of the time needed for staff to train new employees or courses required to learn new skills. 

Equipment : What tools are required? This can include things like extra computer monitors, design software, or even internet service. 

Space : Where is your team going to work? For example, consider if you’ll require meeting rooms or desk space for new team members, 

Research : What data do you need? Think if you’ll rely on information like user research studies, web analytics, or polling. 

Professional services : Do you need to hire external experts, like legal or marketing consultants? 

Travel : Does your team need transportation, lodging, or an allowance for on-the-go meals? 

5. Estimate amounts

Ultimately, a budget is an estimate of costs. But while we can’t predict the future, there are a few methods to help you make the most accurate estimates possible. And you don’t have to stick to just one—you can use a combination of these approaches, depending on your unique project circumstances. 

Here are a few of the estimation techniques you can use:

Estimate and sum the cost of each individual piece 

Often called a bottom-up estimate, this is the best approach if you know exactly what deliverables and sub-dependencies will comprise your current project. If you’ve created a work breakdown structure , you’re already set up nicely to use this method.

To cover your bases, you can also compare your cost estimates with another one of these methods—for example, you could note how the budget was spent for a similar project in the past.  

Work backwards from a fixed amount 

In this approach, you start with a fixed budget amount and break it up into deliverables or project milestones . While working backwards can get a bit hairy—especially if you don’t already know how much project deliverables might cost—it can be helpful if you need to determine what objectives you’re able to achieve with a limited budget. 

If you need to use this method, try combining it with another one of these options. For example, once you determine what you’re able to achieve, take a bottom-up approach to ensure you’re not missing any critical pieces. 

Compare budgets from similar projects

Previous projects are a gold mine of historical data, because they’re a real-life record of where spend stayed on (or off) track. As such, they can help you see costs you might have overlooked, or how unexpected circumstances might influence spend. If possible, see if you can review lessons learned from a similar project in the past. 

Consider different scenarios

Estimation can be hard for complex projects with a wide range of potential outcomes. For example, if you’re planning an outdoor event in April, costs may vary depending on the weather—you might need tents or fans to mitigate unexpected heat, heaters if it’s too cold, or an indoor venue if it rains. 

In this case, it’s useful to estimate spend for each of these scenarios. Depending on your budget flexibility, you can play it safe and plan for the most expensive scenario. Or, you could calculate expected spend for the worst, best, and most likely outcome—then take the average of all three. 

6. Set aside a contingency fund

Sometimes, the unexpected happens. Tools break, schedules change, and once-in-a-century pandemics make things a bit harder. Or, you might uncover an unexpected opportunity during your project—like the chance to purchase a business asset at a reduced cost. Contingency reserves give your budget extra padding when plans change. The typical recommendation is to set aside 5-10% of your total budget for contingencies. 

Budgeting is a process of estimation, so you should always include a contingency fund. And if you’ve created a 100% accurate budget and don’t end up needing that extra padding, you can bolster your company’s bottom line with the leftover funds. 

7. Build your budget

At this point you’ve identified all of your project’s deliverables, allocated resources , and estimated costs. Now, it’s time for the fun part—creating your actual budget document. Here are some key components to include: 

Line items for each deliverable, sub-deliverable, and required resource—plus the expected cost of each. 

A timeline of when you’ll need each resource, and when you expect to spend funds. 

The person responsible for each budget component. For example, you might note that your assistant editor is responsible for tracking freelancer hours and invoices. 

Clear documentation of which part of the company budget you’ll pull from for each line item. For example, you may use the marketing department budget to create video ads, and the IT department budget for computer upgrades. 

A total of expenditures for your entire project. If applicable, include individual totals for each department budget you’ll be using. 

A place to track actual costs vs. budgeted costs once your project kicks off. 

Project budgeting tools

Selecting the right project budgeting tool is important, too. Make sure the program you choose has functionality to automatically total dollar amounts, so you don’t have to manually recalculate every time you need to adjust a line item. Also, your chosen tool should let you easily share and update your budget in real time, so you can make sure all team members are working with the most current version. 

There are lots of options to choose from, including basic excel spreadsheets and more robust project management software . Not surprisingly, we’re partial to Asana because it lets you input and total line items, build custom fields, assign owners, and easily share information with teammates. And aside from your actual budget, you can iterate on past workflows , create process documents , and save project budget templates to ensure you’re not missing any steps.

8. Make a plan to monitor spend

A budget is only good as long as you stick to it. Plan in advance how often you’ll keep tabs on actual costs vs. budgeted costs, so you can mitigate potential issues before they get too big. You can also decide up-front what you’ll do if you go over (or under) budget.

The benefit of a tool like Asana is that it lets you share, manage, and track your budget in real time. For example, Asana’s Universal Reporting feature automatically pulls data from your projects and displays spend, task status, and completed milestones in one place—so you don’t have to dig to figure out if you’re on track or not. 

9. Get approval from key stakeholders 

Now that you have your project budget plan in hand, it’s time to share it with project stakeholders and ask for sign-off. Thankfully, the detailed plan you’ve made should give approvers a crystal clear picture of how each individual line item will contribute to your project objectives. 

Example of a project budget

Let’s say you’re updating the checkout flow for your mobile app, and your project objective is to decrease average checkout time by 25% in Q3. To achieve that goal, you’ve scoped two priority deliverables and laid out the resources required. 

Here’s a simple example of what your project budget might look like. Note that you’ve included the timeline, owner, and estimated cost for each. You’ve also indicated which department budget you’ll use for each line item, and added columns to track budget approval and actual spend. 

Spend smart with project budgets

A well-crafted budget helps you through the entire project lifecycle—including planning, approval, and execution. Once you’ve mastered the skill of budgeting, you can ensure your project team has the resources they need to conquer key objectives and deliver quality results. And when you set up a process to stay on track with spend, you can tackle unexpected costs as they arise, build trust with budget approvers, and set a solid track record of successful projects. 

Want to learn more about project management? Here are 25 essential project management skills you need to succeed .

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Budget Analysis for Your Business

Creating a budget plan for your business is a key factor in the company’s development. An insufficient budget may cause the company to take drastic measures with their operations, such as laying off a number of employees in order to cut down costs.

Business Budget Analysis Template

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But of course, it’s essential for a company to create a realistic budget. This would mean that a company should refrain from making investments that would not contribute to its growth.

A budget analysis example is a crucial process that is done to evaluate the budget plan made for the company. With a budget analysis, the company may thoroughly analyse existing or potential problems that may affect the company’s financial analysis sector.

What Is Needed for a Budget Analysis?

In making a budget analysis, you need to be aware of your company’s financial behaviour. This would include the company’s total sales analyis and expenses as well as its current cash balance. With this, the company would need to identify the amount of cash that they would need to support various sectors of the company.

To put it simply, the essential information needed for a budget analysis should include the adopted budget of the current year, the proposed budget for the succeeding year, the company’s total revenue and expenditure data, and its recent financial statement . With this, the team responsible for the analysis would need to determine whether the proposed budget is appropriate enough to be implemented.

Why Is Budgeting Important to Your Business?

When you think about it, your budget is actually a tool used for planning. The investment analysis you make may greatly impact various sectors of your company, but may simultaneously help you attain your goals as well. Having a budget will allow you to limit the money you spend on certain operations.

This would ensure that resources are not wasted on items that aren’t necessary to the company’s growth. This would mean that the company would need to be strict with their material resources in order to meet the budget limit. Furthermore, budgeting will also allow the company to closely monitor its financial department.

Tips to Writing a Budget Analysis for Your Business

Writing a budget analysis is a crucial step for any business analyiss . Any major, or even minor, mistake may cause the company its resources. The goal for any business is to maintain sufficient cash for their operations within a given period of time.

• Think of the future. Unforeseen circumstances may greatly affect the initial budget plan. Make assumptions based on possible issues that may take a toll on the set budget.
• Ask for help. Gaining input from financial professionals will help you with your analysis example . After all, a reliable analysis should be based on facts. Uncertainty may lead to negative outcomes.
• Make use of visuals. Graphs and charts may easily present statistical data that will provide a precise and clear view of your analysis.
• Review your calculations. Human error is a common, yet crucial, problem when dealing with numbers. Double check your calculations to ensure that everything is correct.

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National Budget Analysis

Executive summary

A government budget is a legal document that is often passed by the legislature, & approved by the chief executive-or president. For example, only certain types of revenue may be imposed & collected. Property tax is frequently the basis for municipal & county revenues, while sales tax or income tax are the basis for state revenues, & income tax & corporate tax are the basis for national revenues.

The two basic elements of any budget are the revenues & expenses. In the case of the government, revenues are derived primarily from taxes. Government expenses include spending on current goods & services, which economists call government consumption; government investment expenditures such as infrastructure investment or research expenditure; & transfer payments like unemployment or retirement benefits.

Introduction

THE announcement of the budget is an important event in a country’s political and economic calendar. In Bangladesh, public focus on the budget is still confined to a few weeks in June. The incumbent politicians and allied pundits hail the document as visionary and pro-people, the opposition denounces it as anti-poor and anti-people, and then, after a few weeks, nothing more is heard of it.

This is not conducive to democratic policymaking. With little review of the previous year’s budget, there is little accountability for the government if it fails to implement what was announced, or change course if announced policies produce undesirable outcomes. By requiring the finance minister to regularly update the parliament on budget implementation, the Public Moneys and Budget Management Act, 2009 should improve both the economic policy and our democratic culture

Objective of the report

There are various objectives of report, so some important objectives are as follows:

1.To gather practical experience on the national budget used in our country.

 2.To get involved in real projects related with our economy.

 3.To obtain more knowledge about the budget influencing factors.

4.To findout the ways of making the budget more efficient.

Methodology

Data are collected from two sources.

• Primary data
•  Secondary data

For doing the job, we took the help of the Financil ministry official website. Then we took the help of our text and analyzed the national budget for last three years. We also went to Bangladesh Bank and collected information from the library

National Budget

A government budget is a legal document that is often passed by the legislature, & approved by the chief executive-or president. For example, only certain types of revenue may be imposed & collected. Property tax is frequently the basis for municipal & county revenues, while sales tax &/or income tax are the basis for state revenues, & income tax & corporate tax are the basis for national revenues.

GOVERNMENT REVENUE

Government revenue includes all amounts of money received from sources outside the government entity. Large governments usually have an agency or department responsible for collecting government revenue from companies & individuals.

Government revenue may also include Reserve Bank currency which is printed. This is recorded as an advance to the retail bank together with a corresponding currency in circulation expense entry. The income derives from the Official Cash rate payable by the retail banks for instruments such as 90 day bills. There is a question as to whether using generic business based accounting standards can give a fair & accurate picture of government accounts in that with a monetary policy statement to the reserve bank directing a positive inflation rate the expense provision for the return of currency to the reserve bank is largely symbolic in that to totally cancel the currency in circulation provision all currency would have to be returned to the reserve bank & cancelled.

GOVERNMENT EXPENDITURE

Government spending or government expenditure is classified by economists into three main types. Government acquisition of goods & services for current use to directly satisfy individual or collective needs of the members of the community is classed as government final consumption expenditure. Government acquisition of goods & services intended to create future benefits, such as infrastructure investment or research spending, is classed as government investment (gross fixed capital formation), which usually is the largest part of the government gross capital formation. Acquisition of goods & services is made through own production by the government (using the government’s labor force, fixed assets & purchased goods & services for intermediate consumption) or through purchases of goods & services from market producers. Government expenditures that are not acquisition of goods & services, & instead just represent transfers of money, such as social security payments, are called transfer payments.

To ensure consistency between a national accounts logic expressed in the sequence of accounts (production, generation, distribution, redistribution & use of income, accumulation & financing) & a government budget perspective (government spending & receipts), two additional concepts are defined to national accounts categories:

AN OVERVIEW OF NATIONAL BUDGET IN BANGLADESH

Government forecast of a government’s expenditures & revenues for a specific period of time. The period covered by a budget of the government of Bangladesh is a financial year that starts on 1 July of a calendar year & ends on 30 June of the next calendar year. Government budget contains the strategies for mobilization, allocation & disbursement of public money by means of fiscal & monetary operations with due consideration of political, economic, & bureaucratic decision making process. It developed in Bangladesh on the basis of legal requirements, economy’s management needs, conventions, functional conveniences as well as accounting & auditing requirements, including transparency & accountability.

The Constitution of Bangladesh, however, does not use the term budget. Instead, it uses an equivalent term ‘Annual Financial Statement’, which is to show the estimated receipts & expenditures of the government for a particular financial year. Government budget in the country has two parts: Revenue & Development. The former is concerned with current revenues & expenditures ie, maintenance of normal priority & essential services, while the latter is prepared for development activities. Formulation of the two budgets follows different procedures. Their financing pattern & the delegated authorities of incurring expenditure in different tiers in them are also different. Receipts in revenue budget are: domestic receipts (tax & non-tax); foreign grants; capital receipts (foreign loans); domestic capital (net of current receipts & expenditures in public accounts); extra-budgetary resources (debenture of autonomous bodies, their self-financing & accumulated balance, & materials at stock); & domestic loans & advances (net).

Receipts in development budget are grouped as public & private receipts. Public receipts are the revenue surplus (revenue receipts minus revenue expenditures), incomes through new measures (such as new taxes), net domestic capital, & extra budgetary resources. A special form of public receipts is the foreign aid (project aid, counterpart fund from commodity aid & net food aid). Receipts under the private head for development budget are generated through direct private investment, borrowing from banking system & foreign private investment. Revenue budget is prepared by the Finance Division & the agency to prepare the development budget is the Planning Commission.

Preparation of the revenue budget is a multi-stage process implemented under a time schedule. The first stage is the printing of departmental estimates, which is followed by printing & distribution of Budget Forms (Estimating Officer’s forms) for supply to the accounts officers concerned, who fill them up with estimates from all controlling offices & send consolidated estimates to the ministry of finance. The ministry of finance then examines the estimates, receives schedule of new expenditures & information on actual expenditures of agencies & organizations in last six months, reviews new estimates on the basis of these information, & prepares a rough edition of the budget & the schedule of new expenditures. The ministry also collects forecasts of foreign development assistance & development programs from ministry of planning & after making necessary adjustments, prepares the budget documents for presentation in the JATIYA SHANGSHAD (Parliament) for discussion & approval.

Two constituent parts of the government budget are the consolidated funds (Fund) & the public accounts (Account). These are not separate entities but are distinguished by differences in receipts & disbursements. Consolidated Fund includes all receipts of the government, all loans & grants received from domestic & foreign sources & the recoveries of loans & interest thereon.  Receipts in Public Accounts of the Republic represent the part of the exchequer, which do not constitute the Consolidated Fund. These relate mostly to transactions, in respect of which the government acts as custodian or banker in trust. These receipts include provident funds of government employees, post office savings deposits, various deposit accounts (local funds, judicial deposits, foreign aid deposits etc.), & adjusting heads like suspense & remittances.

Stages of budget procedure in Bangladesh are preparation, approval, implementation, & follow-up. Policy components of the budget are:

(a)    Fiscal measures or revenue policy;

(b)   Expenditure proposed for basic functions of the government,

(c)    Development or public investment, ie, ADP;

(d)   Money budget, commonly called credit & liquidity program; &

(e)    Authorization for implementation of these policies.

The finance minister places the budget before parliament in June. It accompanies an introductory speech known as budget speech consisting of two parts. Part one deals with the overall financial & economic conditions prevailing in the country & government economic performance during the last one year & government economic plans & programs & the budgetary allocation. Part two deals with taxation measures. After budget discussions, money bills, supplementary bill, & appropriation bill are placed before the parliament. If, for any reason, it is not possible to pass the appropriation bill within 30 June, a vote on account bill has to be placed before the parliament. Usually, through this bill an amount equivalent to two months expenditure is sanctioned

Implementation of the approved budget is carried out through various rules & orders embodied in General Financial Rules, Treasury Rules & the Delegation of Financial Orders issued by the finance division of ministry of finance. Authorizations embodied in the Appropriation Act constitute the outer framework of a control, while expenditure sanction & disbursement by executive authority at various levels follows a given pattern of delegated financial powers. Budget implementation also involves balancing of government incomes & expenditures. Measures for realization of income & its quantum & the direction of expenditure affect the economic life of corporate bodies, individuals & households of different income groups differently during the budget year.

BUDGET 2010-11

Tax revenue  in 2010-11 was 54.9%, non NBR tax revenue is 2.6%, non tax revenueis 12.7% foreign grants is 3.6% of the  total revenue. The ambitious revenue target for FY10, which was set at 16.6 per cent higher than the realized figure of FY09, marginally fell short of target by   1.9 per cent. The realisation in FY10 was 14.4 per cent higher than the corresponding figure of previous fiscal year. Tax component grew by 13.2 per cent during this period, while NBR and Non-NBR components grew by 13.0 per cent and 18.6 per cent respectively. The incremental contribution of VAT in total revenue growth was about 31.6 per cent, while tax on income contributed only 19.6 per cent to the added revenue intake. To match the high reaching expenditure target in a pre-election year, the government has set a new height in its revenue target. According to the new target of revenue earnings, the government will have to collect 17.1 per cent more revenue in FY10 whereas NBR will have to record a 19.15 per cent growth. Given the past record of revenue collection, this is just an unachievable target! Its seems that the government (average 11.5 per cent) first decided on a high spending outlay and then tried to make adjustment for the financing sources leading to improbable resource projection.

The targeted amount of revenue expenditure for FY10 was Tk 132170 crores which has been revised at Tk 34805 crores. Though the revised revenue expenditure for FY10 is only 2.0 percent lower than its target, it is however 10.2 per cent higher than the revised figure of FY09. Economic analysis of the composition of revenue expenditure indicates that the three heads which account for more than 80 per cent of the total revenue expenditure, accounted a 12.6 per cent growth in FY10, over the corresponding figures of the previous year. The share of these three heads increased marginally from 79.1 per cent in FY09 to 82.6 per cent in FY10.  Within these three heads, “Salary and Allowances” registered a 15.5 per cent annual growth in FY10, of which “Pay of officers” increased by 22.1 per cent. According to the target for FY11, salary and allowances and other would increase by 15.8 per cent over the augmented figures of FY10. The “pay of officer” is projected to be increased by 5.8 per cent in FY11. “Subsidies and transfers” registered a 6.1 per cent growth in FY10, while “interest payments” accounted a 16.0 per cent growth during this period. Interest payment (domestic) during FY10 accounted a significant growth of 17.6 per cent, while Interest Payment (foreign) recorded an 8.3 per cent growth. Among others, “Goods and Services” registered a moderate growth of 7.1 per cent in FY10.

EXPENDITURE ANALYSIS

Non-development expenditure is 65.66%, net outlay for food account operation is 0.18%, loans and advances 2.44%, structural adjustment expenditure is 0.11% and development expenditure is 31.98% of the total expenditure. Total revenue earnings registered 14.5 per cent growth in FY10 as against a 9.8 per cent growth in total public expenditure. Revenue expenditure registered a whooping 17.3 per cent growth against a 4.9 per cent ADP growth. Given the poor utilisation of ADP, a moderate budget deficit (3.89 per cent of GDP) was also observed. For FY11, the government has set the growth of public expenditure at 14.2 per cent, which is lower than the projected growth of revenue earnings (17.1 per cent). Target of ADP growth has been set at 20.9 per cent in FY11 as against a 14.1 per cent growth in revenue expenditure.

The total expenditure of 2010-11 was BDT 132170 crore. The expenditure was distributed among fifteen sectors. The percentage of the distributed  sectors are given below:

Budget2008-09

EXPLANATORY NOTES:

1. Grants have been grouped together with government revenues as they are unrequited receipts from development partners;

2. Expenditure for acquisition of assets, acquisition of land, construction and works, and investment in shares and equities has been included in Non-Development Capital Expenditure;

3. Loans and Advances to state-owned enterprises/autonomous bodies and government employees minus repayment of loans and advances have been shown as Loans and Advances (Net);

4. This group includes allocation to some small development programmes under Non-Development Budget and but included in the ADP;

5. As per agreements with development partners these are transfers of food sale-proceeds and parts of FFW that are not included in the ADP but forms part of the Development Budget;

2. Expenditure for acquisition of assets, acquisition of land, construction and works, and investment in shares and equities etc. has been included in Non-Development Capital Expenditure;

4. This group includes some development programmes that are financed from Revenue Budget but not included in the ADP;

5. Transfer of sale proceeds from food grains received under the agreement with development partners & receipts from food for works which are not included in the ADP have been shown;

6. Net Increase/Decrease in the Public Accounts of the Republic (excluding National Savings Schemes) has been included in this group.

Budget2010-11

5. Transfer of sale proceeds from food grains received under the agreement with development partners & receipts from food for works which are not included in the ADP have been shown.

PUBLIC-PRIVATE PARTNERSHIP (PPP)

 BACKGROUND

In order to achieve the Vision 2021 goal of Bangladesh becoming a middle income country by 2021, we will need to ensure a more rapid, inclusive growth trajectory. To reflect the aspirations of the people the target of the government is to raise the GDP growth rate to 8 percent by 2013. To achieve this GDP growth rate, the share of investment to GDP needs to be raised to 35-40 percent. At present average investment GDP ratio is 24-25 percent, which is lower than the national savings ratio. One estimate suggests that to sustain GDP growth rate of 8 percent in 2013 and beyond requires additional USD 28 billion or BDT 1.96 trillion for 2010-2015. To reduce the investment deficit, participation of the private sector through public-private partnership (PPP) is an important route. In order to create an enabling environment for attracting private investments on a sustained basis, GOB has taken a series of measures. Previously, the GOB had issued the Bangladesh Private Sector Infrastructure Guidelines (PSIG) for implementing the PPP Projects. There has been some success in attracting private investment through PPP route in the power, gas and telecom sectors. The Government seeks more investment in these and other sectors such as ports, roads, railway, water supply, waste management, tourism, e-service delivery etc.

For the first time in the country, the Government through its national budget FY 2009-10 introduced the concept of PPP budget. This is a very strong statement and commitment for the development of PPP in the country. In addition, the Government issued a position paper on PPP, titled, æ Invigorating Investment Initiative Through Public-Private Partnership” dated June 2009. The PPP Budget aims to provide support for upfront development of PPP projects, create a mechanism for targeted subsidies and set long term financing of PPP projects.

The government has taken a two-pronged strategy for building public-private partnership: one is to attract investment for projects, where building new infrastructure and expanding existing infrastructure is the major component; the second is to attract innovation and sustainability of public service delivery to the citizens. While the government is committed to launch public-private partnership in a big scale, the essential ingredient to that Endeavour is to set up a forwardlooking strategy and a framework for operationalisation of public-private partnership as well as clear-cut procedural guidelines for the sake of ensuringtransparency and building confidence among the private sector players.

A wide spectrum of PPP arrangements exists, differing in purpose, service scope, legal structure and risk sharing. The choice of the PPP arrangement for a particular project will depend on social and economic importance and potential value for money to be generated under such arrangement.

PPP fosters economic growth by developing new commercial opportunities and increasing competition in the provision of public services, thus encouraging crowding-in of private investment. Successful application of PPP concept through this æPolicy and Strategy” document is likely to open up the doors for

increased flow of investment from both local and foreign investors.

Presently, initiation and approval process of PPP projects in Bangladesh are unclear. Procurement processes for PPP projects are less well known and understood compared to similar projects included in the Annual Development Programme (ADP). A major cause for the lack of private sector participation in

PPP projects is the absence of consistent procedures to identify, formulate, appraise and approve PPP Projects.

In this context, the objectives of this Policy and Strategy are to :

a.         spell out The principles of partnership with private sector for undertaking various projects related to infrastructure as well as public service delivery;

b.         define an institutional framework, which is conductive and efficient in handling the PPP projects as well as effective to protect public interest; and

c.         ensure balance between risk and reward for both the government and private partners while aiming to keep the undertaking attractive for the private sector.

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Analysis of the 2024 social security trustees’ report.

The Social Security and Medicare Trustees released their annual reports today on the financial status of the Social Security and Medicare programs over the next 75 years. The latest Social Security projections show that the program is quickly approaching insolvency and highlight the need for trust fund solutions sooner rather than later to prevent across-the-board benefit cuts or abrupt changes to tax or benefit levels. The Social Security Trustees project:

• Social Security is approaching insolvency. Under current law, Social Security cannot guarantee full benefits to current retirees. The Trustees project the Social Security Old-Age and Survivors Insurance (OASI) trust fund will deplete its reserves by 2033, when today’s 58-year-olds reach the full retirement age and today’s youngest retirees turn 71. Upon insolvency, all beneficiaries will face a 21 percent across-the-board benefit cut. Including the Disability Insurance (SSDI) trust fund, the theoretically combined trust funds will be insolvent by 2035 and beneficiaries would face a 17 percent cut.
• Social Security faces large and rising imbalances. According to the Trustees, Social Security will run cash deficits of $3 trillion over the next decade, the equivalent of 2.3 percent of taxable payroll or 0.8 percent of Gross Domestic Product (GDP). Annual deficits will grow to 3.4 percent of payroll (1.2 percent of GDP) by 2050 and 4.6 percent of payroll (1.6 percent of GDP) by 2098. Social Security’s 75-year actuarial imbalance totals 3.5 percent of payroll, which is over 1.2 percent of GDP or nearly $24 trillion in present value terms.
• Social Security’s finances have improved from last year but remain perilous. Social Security’s 75-year solvency gap was reduced from 3.61 to 3.50 percent of payroll as a result of stronger-than-expected economic performance and fewer expected disability applicants, partially offset by lower expected birth rates in future years.
• Time is running out to save Social Security. Policymakers have only a few years left to restore solvency to the program, and the longer they wait, the larger and more costly the necessary adjustments will be. Acting sooner allows more policy options to be considered, allows for more gradual phase in, and gives employees and employers time to plan.

With insolvency rapidly approaching, failing to address Social Security’s imbalances is an implicit endorsement of a 21 percent benefit cut imposed on all beneficiaries regardless of age, income, or need. Policymakers should implement pro-growth trust fund solutions sooner rather than later to ensure long-term solvency and give beneficiaries time to plan and adjust.

Social Security is Approaching Insolvency

Social Security’s retirement program is only nine years from insolvency, and action must be taken soon to prevent an across-the-board benefit cut for many current and future beneficiaries.

The Trustees project the Social Security Old-Age and Survivors’ Insurance (OASI) trust fund will deplete its reserves by 2033; the SSDI trust fund is in much stronger shape and will remain solvent over the next 75 years. On a theoretically combined basis – assuming revenue is reallocated between the trust funds – Social Security will become insolvent by 2035.

Upon insolvency of the OASI fund, all retirees – regardless of age, income, or need – will face a 21 percent across-the-board benefit cut, which will grow to 31 percent by the end of the 75-year projection window. We previously estimated that a typical couple retiring in the year of insolvency would face a $17,400 cut in their annual benefits. On a combined basis, insolvency would lead to a 17 percent initial cut, growing to 27 percent by the end of the window.

The year 2033 is only nine years away. That means the OASI trust fund is on course to run out of reserves when today’s 58-year-olds reach the normal retirement age and when today’s youngest retirees turn 71. Meanwhile, the Medicare Hospital Insurance (HI) trust fund will exhaust its reserves in 2036, when today’s 53-year-olds become eligible.

The Trustees’ findings are similar to recent estimates from the Congressional Budget Office (CBO), which estimated the OASI trust fund would be exhausted by Fiscal Year (FY) 2033, the HI trust fund by FY 2035, and the theoretically combined Social Security trust funds by FY 2034.

Social Security Faces a Large and Growing Shortfall

The Trustees project that Social Security will run chronic deficits. They estimate the combined program will run a cash-flow deficit of $169 billion this year – which is 1.7 percent of taxable payroll or 0.6 percent of GDP. Social Security will run $3.0 trillion of deficits over the next decade.

Over the long term, the Trustees project Social Security’s cash shortfall (assuming full benefits are paid) will grow to 2.6 percent of taxable payroll (0.9 percent of GDP) by 2035, to 3.4 percent of payroll (1.2 percent of GDP) by 2050, and to a high of 5.1 percent of payroll (1.7 percent of GDP) by 2079. Costs will then decline to 4.6 percent of payroll (1.6 percent of GDP) by 2098.

Social Security’s growing long-term shortfall is the result of rising costs, mostly due to the aging of the population. Total Social Security costs have already risen from 11.0 percent of taxable payroll in 2003 to 14.5 percent of payroll in 2023 and are projected to rise further to 16.8 percent by 2050 and 18.1 percent of payroll by 2098. Revenue will fail to keep up with growing costs, rising only modestly from 13.0 percent of payroll today to 13.5 percent by 2098.

On a 75-years basis, the Social Security trust funds face an actuarial shortfall of 3.5 percent of taxable payroll, which is 1.2 percent of GDP or $23.8 trillion in present-value terms. A plan to restore sustainable solvency over the next 75 years would require the equivalent of increasing payroll taxes immediately by 27 percent or reducing spending by 21 percent for all current and future beneficiaries, or some combination. Actual reforms could be better targeted, rather than across the board, and phased in gradually.

Social Security’s Finances Have Improved Modestly But Time Has Run Short

Social Security’s long-term outlook has improved relative to last year’s projection, mainly on the disability side, but its financial challenges remain large. The 2023 Social Security Trustees’ Report estimated a 75-year actuarial imbalance of 3.61 percent of taxable payroll, which has declined to 3.50 percent in this year’s report. The insolvency date for the theoretically combined trust funds has been pushed back one year from 2034 to 2035 but is still only 11 years away. 

The most significant improvements from last year’s report are driven by changes in economic and disability assumptions. On the economic side, stronger near-term output, updated educational attainment, and greater covered employment led to a 0.13 percent of payroll improvement. Meanwhile, a significant reduction in expected disability applications – driven by recent experience – led to an additional 0.12 percent of payroll improvement.

Methodological and programmatic data changes improved the 75-year outlook by 0.08 percentage points of payroll mostly due to updates to the sample of newly eligible retired worker and disabled-worker beneficiaries used to project average benefit levels as well as updated post-entitlement benefit adjustment factors.

Partially offsetting these improvements, new demographic assumptions increased Social Security’s 75-year shortfall by 0.16 percentage points of payroll. Most significantly, the Trustees now expect lower fertility – at 1.9 children per woman instead of 2.0 percent. They also incorporated lower-than-projected actual fertility in 2023, higher mortality rates, and other updates to population, immigration, and marriage assumptions.

Legislative and regulatory changes had a negligible effect on Social Security’s 75-year shortfall. Since the 2023 report, there have been ongoing judicial developments related to immigration policy, including a ruling on the Deferred Action for Childhood Arrivals (DACA) program that deferred full implementation of the program. While the 2023 report assumed the DACA program would be fully implemented by mid-2023, the Trustees now assume the program will not be fully implemented until mid-2024.

The remaining changes to the outlook come from the new projection window. Including the year 2098 in the Trustees’ 75-year solvency projections worsened Social Security’s 75-year actuarial imbalance by 0.06 percentage points of payroll.

Although the 75-year imbalance shrunk this year, it has generally been growing over the past 15 years. This year’s 3.50 percent of payroll imbalance is more than 80 percent larger than the 1.92 percent of payroll imbalance estimated in 2010.

Importantly, while Social Security’s finances have generally worsened overall, Social Security Disability Insurance’s finances have continued to improve. As recently as 2015, the SSDI program faced a 0.31 percent of payroll (17 percent of revenue) shortfall and was only one year from insolvency. A temporary reallocation of payroll taxes from the old-age program reduced that shortfall to 0.26 percent of payroll the next year.

Since that time, a combination of administrative reforms, strong labor markets, and other factors has eliminated that shortfall, turning it into a 0.14 percent of payroll surplus. Despite this improvement, policymakers should continue to support improvements to the disability program, which can improve fairness and administration of benefits while supporting individuals with disabilities who want to remain in or return to the workforce. Such reforms can also help grow the economy and improve the Social Security program’s combined finances.

Delaying Fixes to Social Security is Costly

The Trustees recommend that “lawmakers address the projected trust fund shortfalls in a timely way in order to phase in necessary changes gradually and give workers and beneficiaries time to adjust to them.” Quick action would also give policymakers choices in making targeted adjustments, enhancing benefits for vulnerable populations, and achieving pro-growth reforms.

According to the Trustees, lawmakers could restore 75-year solvency with the equivalent of a 27 percent (3.3 percentage point) payroll tax increase, a 21 percent reduction in all benefits, or a 25 percent reduction in benefits for new beneficiaries if they act today.

Delaying action until 2035 would increase the size of necessary adjustments by about one-fifth. In that year, taxes would need to be raised by 32 percent (4.0 percentage points) or benefits cut for all beneficiaries by 25 percent. It would be impossible to restore solvency from new beneficiaries alone – even eliminating all benefits would be insufficient.

Thoughtful trust fund solutions would not only prevent deep across-the-board benefit cuts, but could also support economic growth , reduce inflationary pressures, and improve the nation’s fiscal outlook . We have published ten options to improve Social Security solvency   – including a number of benefit and revenue changes. Other proposals can be designed with our Social Security Reformer tool . The closer we get to insolvency, the fewer of these options remain available.

The Social Security Trustees continue to warn that the Social Security retirement program is significantly out of balance and just nine years from insolvency. Absent reforms, Social Security will be unable to pay full benefits to many current beneficiaries, let alone today’s workers and future generations.  Taking no action to fix Social Security will be an implicit endorsement of a 21 percent across-the-board cut to all beneficiaries, regardless of age or need.

As policymakers delay necessary action, the program’s finances continue to deteriorate. The longer policymakers wait, the larger and more abrupt any adjustments will need to be. All options should be on the table including changes to revenue, spending and the retirement age.

Fortunately, many well-known options to fix Social Security’s finances exist and could be enacted and implemented with political will and bipartisanship. A number of comprehensive plans already exist to restore solvency, and our Social Security Reformer Tool allows anyone to design their own. Policymakers should also consider pursuing new, innovative solutions to promote economic growth and improve retirement security in concert with addressing the program’s finances.

Policymakers cannot wait much longer to enact thoughtful Social Security reforms.

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Iron ore still king as WA government looks to diversify economy in sixth consecutive budget surplus

Analysis Iron ore still king as WA government looks to diversify economy in sixth consecutive budget surplus

For much of the past decade, or even longer, the words 'economic diversification' have been thrown around by politicians and business folk seemingly ad nauseum.

Got a legacy industry that supposedly faces a bleak future? Diversify.

Got an addiction to a dirty source of energy? Diversify. Better yet, do it cleanly.

Got an unhealthy reliance on one source of revenue? You get the idea.

But in handing down her first state budget as Western Australia's Treasurer, Rita Saffioti has inadvertently shown that diversifying can be difficult. Very difficult.

WA remains a resources powerhouse

Perhaps more than any other state, WA is a case study in what a lack of economic diversity looks like.

The state is a resources powerhouse, for sure.

But its budget is predicated to an extreme extent on the fortunes of one industry in particular – iron ore.

The fiscal blueprint released today has only entrenched that position.

Budget papers show that about a quarter of the WA government's entire revenue comes from iron ore royalties.

By the time the current financial year ends on June 30, those royalties are expected to amount to an extraordinary $9.8 billion, following similarly eye-popping receipts the previous two financial years.

While those sums will be welcomed by the government, treasury boffins and punters alike, they also serve to highlight how far WA is from diversifying its economy.

There had, up until recently, been high hopes that the tectonic shift towards decarbonisation could provide the impetus for a reshaping of the way WA does business and makes its money.

The abundance of minerals deemed central to the energy transition – nickel, lithium, rare earths – was supposedly going to make the state rich all over again.

But the budget shows these hopes were premature, if not misplaced.

After soaring on the back of a remarkable boom for the industry, lithium royalties have collapsed from $1.04 billion in 2022-23 to a projected $422 million this financial year.

They're tipped to slump further to just $378 million in 2024-25.

Nickel industry woes laid bare

At the same time, the woes in the nickel industry have been laid bare, with royalties tumbling and predictions grim.

From a relatively rosy outlook 12 months ago, nickel royalties have fallen from $138 million in 2022-23 to a forecast $88 million next year.

What's more, treasury expects royalties to stay at that level as the industry limps along, struggling for viability in the face of cheap output from Indonesia funded by Chinese investment.

"There has been a rapid ramp-up in global nickel supply, particularly from Indonesia, supported by substantial Chinese investment in new processing capacity," treasury noted.

"Also, technological advances have enabled Indonesia to produce battery-grade nickel using (lower quality) laterite ore.

"Consequently, the Indonesian share of global nickel mine output has grown from 10 per cent in 2016 to 55 per cent in 2023."

To help stem the bleeding of local nickel miners and players, the WA Government has extended royalty relief whenever the price of the metal falls below $US20,000 a tonne – where it remains mired despite a recent rally of sorts.

Rare earths, another of the critical minerals, barely gets a mention in the budget at all.

All of this matters at a national level.

For all of the talk of economic diversification – both at a state and federal level – iron ore remains an engine room for much of Australia's national prosperity.

It's an industry that has taken 60 years to become so profitable, too.

In recent times, there have been a flurry of announcements made and initiatives launched by governments promising to build similar success stories in other industries, from critical mineral mining and hydrogen production to solar panel manufacturing.

Just this week, Prime Minister Anthony Albanese was in Perth to trumpet the virtues of Australia's critical minerals and why it was so important to identify and develop them.

"So much of our future prosperity depends on finding more critical minerals, extracting more critical minerals and doing more with minerals before we export them," the prime minister said.

To that end, the WA Budget is a reality check for such lofty ambitions.

Treasurer acknowledges challenges

Ms Saffioti, in answer to questions about the budget, was not flinching from the challenges ahead.

She acknowledged that weaning off a reliance on iron ore would not be easy.

"A big challenge for us is to ensure that we continue to diversify our economy to ensure that we have a stronger base in the future," Ms Saffioti said.

"Iron ore, of course, continues to play a major role in our revenue base.

"There is volatility as we know and there's all these geopolitical issues that are happening out there.

"But our key task – and that's what we're doing – is trying to ensure that we continue to diversify and grow our revenue base to protect us in the future from other volatility or other changes that happen in the global supply and demand of iron ore."

Offsetting WA's dependence on an inherently volatile commodity – one whose fortunes are dictated largely by a single, authoritarian customer in China – is the state's rising take of the national GST pie.

From an estimated $6.4 billion this financial year, receipts will jump to a forecast $7.2 billion next year, propelled by an increase in the state's GST floor from 70 cents in the dollar to 75 cents from July.

It's a windfall that's built in no small part on the economic activity directly and indirectly generated by WA's powerhouse iron ore industry.

Few sandgropers will be complaining – the money will help fund a $400 credit against every household electricity bill and changes to tariffs and charges that are among the lowest in the country.

But how – or even whether – WA can ever develop and industry or industries to replace iron ore is a live question that appears to have few answers in this budget.

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Redpath Museum - Accessibility Of Building

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Project Scope:

As a public institution, the Redpath Museum is intended to provide educational value to the student population in addition to the general public without discrimination.  The age and layout of the building makes accessibility a challenge to a number of people. In 2017, McGill was provided a subsidy for $4M to be allocated towards improving and removing barriers to universal accessibility.

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Projects 18-001 and 18-116 (Redpath Museum – HVAC Upgrade) designs will be done at the same time.

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