The importance of budget tracking to NPOs

Posted on 25 November, 2022 at 15:57

What is budgeting in non-profit?

A nonprofit budget is essentially a financial document which lays out how your nonprofit is planning on spending its money

What is a budget tracking?

Budget tracking is the process of tracking expenses, receipts, and invoices so that a project can be completed within its allotted budget.

Budget tracking can be done using budgeting and forecasting software. Project management software can also be used, in which case the budget details the anticipated expenses and profit for a specific project. This type of budget tracking helps teams manage how much of their budget they’re using, where the money is going, and what adjustments need to be made to properly complete the job. 

Tracking budgets also give teams the opportunity to offset extra expenses before it’s too late. With budget tracking, teams can easily identify budget items that need more funding than anticipated. Funds can be reallocated to compensate for this so that the project can be completed without going over budget.

 Types of budget tracking

 

There are many different types of budget tracking. Typically, the types are chosen based on a team’s specific goal. 

• Incremental budgeting is the type of budget tracking most similar to a traditional budget. It works by adding increments to a budget in accordance with the growth or decline of the company. It’s a simple way to calculate budget adjustments, but it can overlook complexities like trends and inflation. 

 

• Activity-based budgeting works backward from the goals the company wants to achieve. This method starts with a desired end result, then outlines what needs to happen to reach that goal and creates a budget that accommodates those actions. This method is best for short-term, goal-oriented budget tracking.

 

• Value proposition budgeting examines the reason behind why each amount is included in a budget, along with what value each item yields for customers, employees, or stakeholders. Ultimately, value proposition budgeting helps teams decide if the value of the item is enough to justify its cost. This method weeds out unnecessary expenditures by ensuring every part of the budget brings value to the project.

 

• Zero-based budgeting is when all department budgets start at zero. Teams then add to these budget categories, justifying every expense along the way. This method is ideal for companies with tight budgets. It’s often used in situations that require a dramatic reduction in budget and is extremely time-consuming. 

 

Benefits of budget tracking

 Budget tracking helps organizations optimize their project management in many ways. Key benefits include:

 

Monitor costs: Budget tracking helps teams monitor all of the costs and commitments associated with a project. If certain budget items need more funding, teams can reallocate resources in real-time to prevent going over budget when the project is complete.

 Comprehensive records: Proper budget tracking provides teams with records of what was spent. These records are useful when creating new targets for growth and can also help teams create more accurate project budgets in the future.

 

Monitor team efficiency: The manager will have a closer look at how much time is spent on each aspect of a project.