Page 76 - Budgeting for Managers

Creating a Production Budget
59
through the next period and what the prices will be. You
should also negotiate any new contracts or at least confirm
expectations of price changes with your vendors. This
approach is best for fixed costs; it also works for variable
costs if you know how much you’ll be producing this year.
3. Talk to people. Find out what current customers plan to
do; lock in contracts if you can. Do the same with ven-
dors. Then, ask the members of your team how they want
to do their work this year. Then, plan for what they’ll need
to spend to do it. If you don’t have good records from
prior years, talk to your team about how you’ll keep better
records through the year this time.
4. Estimate variable costs based on production. See the
example later in this chapter for details.
5. By this point, you should have finished most of the major
items. If any individual items worth over 10% of the total
are still not finished, tackle those next.
6. Review the whole budget to make sure it makes sense.
7. Look at last year’s total value for the items you haven’t esti-
mated yet and calculate the percent of last year’s actual
budget they represent. If that percentage is small, decide
how much time you want to spend on those items.
8. For the remaining items, work on the ones most likely to
change a lot first. Use any of the above methods or, if
appropriate, the ones below.
9. Determine if an item can be calculated from another item. If
the calculation is precise, such as sales tax, go ahead and
do it. If the calculation is approximate, such as estimating
the total cost of toner from the cost of paper, do it, but
check your assumptions more closely.
10. Check your figures. Then have someone else check them,
too.
11. Add budgetary assumptions.
As you work on each line in the budget, you may find that
you can’t calculate the item using just one method. Perhaps
you’re looking at equipment leasing and see that you have cur-