IUCN Project Budgeting Guidelines

Transcription

1 IUCN Project Budgeting Guidelines Version: 14 February 2014 Issued by: Chief Financial Officer Contents 1. Definition Purpose Budget principles : Budget types Budget structure Budget development Budget timeframe Budget currency and exchange rates Co-funding In-kind Roles and responsibilities Tools Budget revisions and modifications Budget monitoring

2 1. Definition A budget is a financial plan. It is a projection (forecast) of what will happen financially if certain decisions are implemented and actions undertaken over a certain period of time. A project budget is a prediction of the costs associated with a particular project. These costs include labour, materials, and other related expenses. A project is normally broken down into specific activities, with costs assigned to each activity. The sum of the activity budgets equals the project budget. 2. Purpose The purposes of a budget are: To determine the estimated cost of doing something To inform resource allocation decisions To assess the financial consequences of alternative scenarios To control costs To measure performance through the comparison of actual costs against budget To enable the measurement of the comparative performance of different projects To enforce financial accountability Once the budget has been set, it budget provides a financial framework for the decision making process, i.e. is the proposed course of action something we have planned for or not. Do we have the financial resource to fund the proposed course of action? Once a budget is in place, it enables the actual project performance to be measured against the budget. 3. Budget principles : Key budget principles that need to be adhered to when developing a project budget are: The budget must reflect the activities to be performed. The starting point should therefore be to consider the planned project activities and consider all the costs necessary to perform the activities. The budget should reflect the total project lifecycle and be divided into appropriate time periods (e.g. years) so that it is clear as to when expenditures are planned to be incurred. The budget should be realistic. It should be based on a realistic assessment of expected costs. It should neither be inflated nor should costs be underestimated. It should be based on real cost data to the extent possible, e.g. actual staff costs, price lists for standardised goods or services, quotations from suppliers, or past experience. The budget should be comprehensive in that it should include all costs necessary for the delivery of the project. The budget should be transparent. The budget should be simple to understand with clear links between the activities to be performed and the associated costs. The budget should be built from first principles with unit costs and quantities clearly shown. Budget assumptions should be clearly stated. The budget should be accurate. It should not contain arithmetic errors. 2

3 The budget should be timely, i.e. developed early on as part of the project planning process to allow for assessing alternative scenarios and to assist in the establishment of a cost effective project plan. The budget should be flexible, e.g. it should be possible to modify the budget if new information is obtained or project plans are revised. The budget should demonstrate value for money. The budget should be results based with clear linkages between costs (inputs) and results (outputs). 4. Budget types A budget should be prepared for each project included in the ABC list. a) A - project concepts A preliminary budget should be developed for each project concept. This should be a broad estimation of the costs necessary to implement the project. In order to estimate the costs it will be necessary to have an understanding of the expected activities and where they will be performed. The cost estimate will assist in determining the feasibility of the project. The cost estimate can be developed by considering the main cost categories and assigning a value to each, e.g. Staff costs Consultants Cost of implementing partners Travel Other costs For projects with an estimated cost of CHF 500k or over, the project concept budget needs to be submitted together with other project documents for peer review. (See project appraisal procedure.) By its nature a project concept budget is likely to contain a high margin of error. However, the estimate should be sufficiently useful to respond to questions such as: Is the project feasible? Will anyone be interested in funding it? Is it a funding priority or is it likely to divert funds from more important areas of work? b) B - donor proposals Once a concept has been approved a detailed workplan and budget will need to be prepared. This will be an iterative process. First the workplan will need to be drafted and the project activities identified. Once this has been done, work can start on the budget. The workplan and budget should then be adjusted and refined in parallel with the objective of maximising benefits vs. costs and achieving an optimal allocation of resources. 3

4 The below checklist can be used to assess the completeness of a budget: Checklist for draft budgets This checklist may be used to assess the completeness of either a project concept budget or a project proposal budget. It should be completed by the project manager and reviewed by the project sponsor (unit head or responsible global programme/regional director). For further information and guidance, please contact Finance. Key data Project name Total Value Staff time: value and % Management fees/indirect cost % 1 General 1.1 Do the proposed implementing units/offices/partners have the technical capacity to carry out the work? Assess, to the extent possible, based on knowledge of the capacity of the various entities that will be responsible for implementation. 1.2 Is the project to be implemented in several countries? If so, which offices and do they have available resources to take on the project? 1.3 Are implementing partners to be used? Are they already known? Have they worked with IUCN before? 2 Budget 2.1 Does the budget match the described scope of work? Check that the budget is aligned to the scope of work 2.2 Does the budget include itemised costs for: a) Communications b) Finance support c) Reporting support d) Audit e) Monitoring & Evaluation Yes/ No/NA Comments from project manager Comments from project sponsor 4

5 2.3 Is there sufficient provision for IUCN staff? Consider all staff inputs that will be required including support staff such as project administration, finance, monitoring, legal etc. 2.4 Is there a clear distinction between consultancy costs and IUCN staff costs? 2.5 Is there sufficient provision for indirect costs/overheads: Overheads may be covered by a flat fee, e.g. 7% of total budget; be shown as direct project costs, e.g. office costs; or included in the charge out rate of staff; or a combination of these mechanisms. 2.6 Is co-funding planned? If yes, has it been identified? 2.7 Are in-kind contributions planned, and if so, what are they? 3. Other comments c) C- signed contracts At the point a contract is signed the budget becomes part of the contractual agreement with the donor. The budget is now fixed and can only be amended in accordance with the terms of the contract. 5. Budget structure Budgets need to be built following a standard structure that represents a logical breakdown of the work to be performed. The fundamental budget unit is the activity budget. Each project activity should have its own budget, and when consolidated these budgets make up the project budget. The project budget hierarchy is: Project budget Activity 1 Expenses Activity 2 Expenses Activity n Expenses 5

6 In addition, the budget structure should also include a link between project activities and component results so that the costs associated with delivering component results can be tracked. Example Activity 1 Contribution to component result 1: 20% Contribution to component result 2: 30% Contribution to component result 3: 50% (This attribution process will be further developed during the course of 2014.) This budget structure should be used for all projects and where acceptable to donors this should be the same format presented to donors. In the event that a donor insists on its own standard format the budget should be rearranged and presented in the donor format. The above budget structure is also aligned with the IUCN accounting dimensions set up in the ERP system. The relevant ERP dimensions are: Project code project identifier Activity code one for each project activity Expense code which identifies the specific expenses to be incurred An additional, non mandatory, dimension exists called Donor Reporting code for projects that need to be presented and tracked in accordance with specific donor formats. For projects that are funded by more than one donor the budget needs to be further analysed by who is funding what. A fund code exists in the ERP system for this purpose. 6. Budget development The first task is to identify all possible costs. Some costs will be easy to identify while others will be less apparent. Costs may be "one-off" or be repeated throughout the period of the project. Costs should be identified by considering each activity in turn and determining the cost inputs necessary to deliver those activities. The recommended approach is to first identify direct project costs and then build in indirect costs. These are defined as follows: Direct costs - costs that can be directly attributed to a project activity. Indirect costs - costs that cannot be directly attributed to a project activity. a) Direct costs 6

7 Many direct costs (but by no means all) are costs that would only be incurred if the project goes ahead. However, application of this principle is likely to lead to a too narrow set of costs being defined as direct costs, and although it may be a useful consideration, it is best to apply the principle of attribution as the key determinant of whether something can be budgeted as a direct cost or not. For example, a person may be recruited for the sole purpose of implementing a project, in which case the costs are clearly direct, but similarly, existing staff may be allocated to a project. Since the time they work on the project can be tracked through time sheets their costs can be directly attributed to the project and treated as a direct cost. Categories of direct costs: i. Staff time Staff time is the cost of the time of staff spent on a project activity. Staff time should be budgeted for all the positions required to implement the activities, the number of days required for each position and the daily charge out rate of each position. I.e. for each position: Number of days X charge out rate = budgeted cost Daily charge out rates should be calculated in accordance with the IUCN Time Management Policy. (add link/reference) The following functions should be considered when budgeting staff time: Project staff i.e. those staff responsible for delivering the bulk of the project activities Specialists, e.g. communications, policy, gender Project management / coordination Time of senior management if they have a specific role to play in the project Project monitoring Project finance staff (donor reporting) Project administration staff Legal staff for review of the contract As a general rule, if someone s time can be directly attributed to a project it should be budgeted as a direct cost! In order to allow for budget flexibility, the names of individual should not be shown in the budget; only the positions. Key staff that are proposed to work on the project can be included in the project workplan. The cost of recruitment and termination of project staff should be built into the daily charge out rates. There is no set rule as to the amount of staff time (as a percentage of the total budget) that should be budgeted. It will depend on the type of project being implemented and the mechanism of implementation. Projects with a substantial part implemented by partners will have a low percentage of staff time compared with projects with the majority of the work being performed by IUCN staff. It is important to map out the activities, consider how they will be implemented and by whom, determine the expertise required and then build the staff budget. 7

8 In cases where the targeted donor/grant conditions preclude full cost recovery, the managing unit will need to document the reasons and allocate other funds as co-funding to the project, in order for the project to be approved. ii. Other direct costs incurred by IUCN Costs of workshops, meetings, Consultants Project specific communications, e.g. publications, website development and maintenance Knowledge Management (KM) capturing outputs and lessons learnt Project evaluations Project audits Project equipment, e.g. computers and licences, cameras (if purchased for a specific project) Project vehicles (if purchased for a specific project) iii. Cost of implementing partners Commission engagement Implementing partners iv. Other costs which can be potentially treated as direct costs: Depending on the nature and size of a project, it may be possible to treat certain costs as direct costs which would otherwise be treated as indirect cost Office rent and utilities where space is dedicated to the management of a project (i.e. the office space used by project staff) the cost of that space may be treated as a direct cost. In such cases the cost of office space and services must be based on a robust and fair cost allocation mechanism used to distribute costs to all projects and activities being carried out by the office concerned. In cases where the office is opened purely for the purpose of implementing a single project all the office costs can be treated as direct costs. Eligible office costs would be: office rent, utilities (electricity, heating, ventilation), cleaning, security, building maintenance. Vehicle usage where common IUCN vehicles (i.e. vehicles not purchased for the sole purpose of the project) are used for project implementation, the cost of the vehicles can be treated as a direct cost on the basis of planned usage (expected number of kilometres). A log book must be maintained and the cost per kilometre determined based on either the cost of purchasing/running/maintaining the vehicle divided by the estimated total kilometres that the vehicle is envisaged to complete over its useful life, or an acceptable local standard rate. Telephone where the cost of telephone calls can be tracked by project the cost can be treated as a direct cost. Photocopy same principle as telephone costs. 8

9 Storage if specific storage facilities are required for project equipment or documents then the costs should be treated as a direct cost. Project development to the extent possible project development should be budgeted as a direct project cost, e.g. the time of staff incurred on project development, the time and costs of assessment missions etc. b) Indirect cost Indirect costs are those costs that cannot be directly attributed to a project activity. Categories of indirect costs Office rent and utilities (if it is not possible to attribute them to a specific project) office rent utilities (electricity, heating, ventilation) cleaning security building maintenance Vehicle and equipment costs Vehicle depreciation and running costs Equipment depreciation and maintenance Implementation, maintenance and operation of central systems (finance, HR etc) Software licences Communication costs Telephone Internet Services Financial services transaction processing, treasury (not project finance services which should be treated as a direct cost) HR services IT services help desk Reception Insurance Document management and storage Financial control and oversight Tools and frameworks Project cycle management frameworks Risk management Processes and procedures Management infrastructure General Management Expert staff Maintaining and developing the Union Governance Institutional capacity building Union development and support Corporate communications and branding Knowledge management Project development (if not possible to budget as a separate activity) 9

10 c) Service charges Indirect costs may be bundled together and presented as service charges. The IUCN Headquarters administers two service charges: i. HQ service charge The HQ service charge represents the cost of services provided by HQ service units to all IUCN HQ units, including Global Thematic Programmes which implement projects. The service charge covers the following costs: Personnel services, e.g. recruitment, payroll Transaction processing, cash management Local IT infrastructure and services Office space and services Only the costs of those services where there is a direct relationship between the service provided and a member of staff are included in the service charge fee. The service charge is presented as a cost per workstation and is currently CHF 20k p.a. Programmes based at IUCN Headquarters must therefore include recovery of the annual workstation fee in their project budgets in order to recover the costs of HQ Services. The service charge should be presented as a direct cost in budget proposals and be based on the number of days budgeted for each position. The amount can be budgeted as a separate line in the project budget, or included in the daily chargeout rates of the persons budgeted. The latter is the preferred approach but this is not accepted by all donors. (See IUCN time management policy for guidance on charge-out rates.) ii. Global service charge The global service charge represents the cost of services provided by HQ service units to all IUCN programmes and offices worldwide. The services covered by the charge are different to those covered by the HQ service charge there is no duplication. The global service charge covers the following costs: Global HR systems and processes, e.g. Human Resources Management System Global finance systems and processes Project management tools, standards and processes Programme support and development The global service charge is currently 2% of total project expenditure, i.e. 2% of all other budgeted costs, including costs to be incurred by implementing partners. All IUCN programmes units worldwide must therefore budget for the 2% charge in project budgets in order to recover the costs of these global services. 10

11 The costs covered by the global services fee are indirect costs. They will normally be covered from the indirect cost % allowed by most donors. In cases where a donor is willing to accept the cost as a separate budget item they should be budgeted accordingly. iii. Regional service charges Several regions operate cost allocation systems, e.g. for the allocation of office space and common services. The cost of these services must be included in project budgets as either a direct cost (preferably) or as an indirect cost. d) Management fees The indirect costs detailed in section ii which cannot be packaged and presented as either a direct cost or as a service charge need to be budgeted as a management fee. Many donors do not recognise the term Management Fee but instead use terms such as Administration, Overheads, Indirect costs. For all intents and purposes they are all one of the same thing. What level of management fee should be budgeted? All donor agreements need to include a contribution to cover IUCN indirect costs. Indirect costs are mostly incurred by IUCN corporate units, though some may also be incurred by programme units. The level of the management fee can therefore be determined by looking at the cost of IUCN corporate units. The figure below gives a breakdown of the IUCN 2014 budget by programme areas and corporate functions Budget: split by programme area/corporate functions Valuing and conserving nature 25% 36% Governing nature's use and sharing its benefits equitably 25% 14% Deploying nature-based solutions to global challenges: climate, food, economy Corporate functions The cost of the various corporate functions of IUCN represents approximately 25% of the total IUCN expenditure budget 1. The figure below gives a breakdown of the various corporate functions as a % of the total budget. 1 Source: 2014 workplan and budget 11

12 2014 Budget: corporate functions as a % of total budget 4% 4% Finance 0.6% 0.6% 0.7% 0.7% 1.0% 4% 4% 3% 2% Information systems Human resources Office services Programme support Communications Membership Governance Legal and oversight Fund-raising Management A substantial part of the corporate functions are funded from core contributions to the IUCN global budget. The below table shows how different functions are funded: Cost of corporate functions as a % of total budget by funding source Corporate Funded Funded by Function functions by core projects Finance 3.8% 1.0% 2.8% Information systems 3.1% 1.7% 1.4% Human resources 1.7% 0.5% 1.2% Office services 4.5% 1.6% 2.9% Programme support 4.5% 1.2% 3.3% Communications 1.0% 0.5% 0.5% Membership 0.7% 0.7% 0.0% Governance 0.7% 0.7% 0.0% Legal and oversight 0.6% 0.6% 0.0% Fund-raising 0.6% 0.6% 0.0% Management 3.8% 1.0% 2.8% 25% 10.0% 15.0% 40% of the cost of corporate functions (representing 10% of the total budget) is funded by core funding and 60% (representing 15% of the total budget) by project funding. Therefore, as a guide, 15% every project budget should fund corporate costs. Budget Direct costs 85% Indirect costs 15% Total 100% These corporate costs may be budgeted as: Direct staff costs for items such as project finance time Service charges for items such as office space, human resources, information systems, general finance 12

13 Management fees for items such as programme support, communications and programme support. The above analysis only includes the cost of corporate functions which are managed as separate functions within IUCN. It does not include the cost of administration incurred by individual programme units. These costs to the extent that they are not covered by core funding need to be included as direct costs in a project budget, e.g. the staff time of project administration staff. Projects funded by governments, multi-lateral donors and not-for-profit entities are not charged the full cost of running the Union. If each project was also to cover a portion of the costs related to governance, Membership, corporate communications, then the indirect cost % would be 25% instead of 15%. This recognises the fact that many of the donors that funds specific projects also provide core funds, either through framework agreements or Membership dues. It would not be appropriate to charge the donor twice for the same cost. The IUCN platform is however necessary for the implementation of all projects and is indeed one of the main selling points to project donors. The cost of the platform funded by core funding therefore represents a type of co-financing. Projects funded by the corporate sector Corporate sector donors are neither framework partners nor Members and therefore should pay a higher management fee. In short, corporate donors should pay the full 25%. It could be argued that the fee should be even higher as it includes neither a risk premium nor a profit element. e) Budgeting for contingencies When developing a budget there is always an element of uncertainty which need to be taken into consideration. There is always a risk that costs will be higher than budgeted and that some cost have been overlooked. In addition there may be monetary factors such as inflation and exchange rate fluctuations which cannot be foreseen at the time of budget preparation. To cover these risks a contingency should be budgeted. This should not exceed 10%. However, many donors will not accept a contingency, preferring to deal with unforeseen costs as a budget modification. 7. Budget timeframe The time frame of the budget should match the time frame of the project. The expenditure budget should cover all phases of the project, including: f) Project Development All costs associated with the planning and design incurred prior to signature of a donor project agreement. Even if the donor will not fund these costs, the costs should however be budgeted, e.g. as a separate activity, and tracked. It is important to understand the costs that go into developing new initiatives and projects even if the costs are borne by IUCN. In such cases the costs can be considered to be cofinancing. g) Project Implementation All costs associated with the delivery of the project work-plan. 13

14 h) Project closure Project closure costs may include things such as final project evaluation and audit and also internal project reviews and lessons learning exercises and ensuring that all knowledge generated from the project is captured. 8. Budget currency and exchange rates A budget can be prepared in any currency. The choice of currency will depend on the currency of the expected expenditures and on where the expenditure will take place. For example, if the project is to be implemented in Indian and most (50% or more) of the expenditure will be in Indian rupees it would be advisable to prepare the budget in Indian rupees. If the project was to be implemented in India but most of the expenditure was expected to be in another currency, e.g. USD, the project should be budgeted in that currency. If the project is going to be implemented in several locations and expenditure is planned in multiple currencies, with no one currency predominating, a common currency should be chosen such as USD, EUR or CHF. The budget should not be developed in the currency of the anticipated donor. In the event that the donor wishes to receive a budget in its own currency, the budget should first be prepared in the most suitable currency and then translated into the donor currency. In countries experiencing hyperinflation budgets should be prepared in a suitable hard currency. Exchange rates Expenses to be incurred in a currency different to the budget currency should be translated to the budget currency using the rate on the date of budget preparation. If the rate on the day of budget preparation is unusually high or low or if there is a high level of volatility, the average rate of the previous month, or previous 3 months should be used. 9. Co-funding Co-funding is when more than one donor funds a single action. Many donors make their own funding conditional on IUCN obtaining co-funding. There are several types of co-funding: a) Multi donor funding for the same project Two or more donors agree to fund the same project. The funds are pooled and used to cover activities planned under a common project concept. IUCN accounts for all expenditure under a single project, though individual expenses may be attributed to specific donations. b) Similar projects implemented by IUCN with the same or similar objectives. Projects with similar or complimentary objectives are implemented by IUCN. Each project is funded by a different donor and the projects are managed and accounted for separately. 14

15 c) Parallel funding Funds are received by another entity for the same or similar objectives. The funds do not pass through the books of IUCN and IUCN is not responsible for their implementation. d) Core co-funding Part of the project is financed from IUCN s core resources. This may be contributions of staff time from core funded staff or indirect costs not funded by the donor, e.g., office services, management and oversight, cost of the Union. Project development costs may be considered as core co-funding. Core co-financing must be budgeted as part of the project budget and then actual contributions tracked in the financial system. (Mechanism to do this has not yet been developed) e) Donor initiated co-funding A donor may receive funding from multiple sources (sometimes referred to as back donors) and then donate the funds as a single pool of funds to IUCN. For all intents and purposes the funds are treated as a single donation to IUCN and recognised as a donation from the donor with which IUCN has a contract When preparing a project budget it is advised to first prepare an expenditure budget inclusive of all costs and then consider how the costs will be funded, e.g. by a single donation or through a mix of funding. Many donors require co-financing has to be secured before signature of the donor contract. If the cofunding is not secured at the time the contract with the main donor is signed or early on in the project life cycle there is a risk that the conditions of the contract will be breached and the donor may reduce its contribution. 10. In-kind A project plan may assume that certain inputs will be received as in-kind contributions as opposed to cash contributions. In-kind contributions may include: a) Commission time Parts of the project may be delivered by Commission Members who have agreed to provide their services free of charge. b) Other experts/other organisations Other experts or organisations may also agree to provide services free of charge. c) Goods donated for a project A company may agree to donate certain goods for a project, e.g. computers. 15

16 d) Services donated A company or other entity may agree to donate certain services, e.g. meeting venues, free office space. IUCN does not currently have a standardised methodology for valuing in-kind contributions and hence it is not possible to budget for such items. It is important however that all expected in-kind contributions are included as part of the project plan and their receipt is tracked during project implementation. 11. Roles and responsibilities a) Project manager The roles and responsibilities of the Project Manager in the budget process are to: Prepare project budgets in accordance with these procedures and also with the reference to other relevant policies and procedures such as the Time Management Policy Obtain advice and input on budgets from project finance staff Submit budget proposals to donors Negotiate budget proposals with donors Ensure agreed budgets are correctly reflected in donor contracts Identify and secure co-funding where it is a condition of the donor contract Develop and agree budgets with implementing partners Enter budgets into the financial system Monitor budget performance Request budget modifications from donors when necessary b) Finance The roles and responsibilities of Finance are to: Advise on and review budget concepts and proposals Review budgets and sign them off as part of the contract clearance procedure Ensure budgets have been correctly entered into the finance system Develop project budgeting tools and train programme staff on their use Provide support to programme staff on all aspects of the budget process Monitor budget performance and alert project managers if budgets are not being adhered to Prepare interim and final reports for donors with budget comparisons c) Human resources The roles and responsibilities of the human resources unit are to: Maintain charge out rates for IUCN staff Advise on all budget issues related to staff and consultants 16

17 12. Tools The following tools are available to support the budgeting process. a) Project budget tool This is a macro enabled spreadsheet designed to build project budgets in line with the budget structure described in section 5. The tool can be found at ref. The key benefits of using this tool are: It structures the budget in the standard IUCN format and ensures budgets are built in a logical way It contains automated calculations and controls which facilitates the budget process It reduces the risk of error or omission The data can be uploaded into the ERP system without the need for re-keying data b) ERP system The Award Vision module of the ERP system is where the budget is entered and managed in the ERP system. This module is also used for managing sub-awards to implementing partners including the budget component. The module also tracks performance against key indicators, e.g. % of budget implemented, value of income received, income due, expenditure incurred, outstanding commitments. The module is also used for managing budget allocations to other offices and partners. c) JET reports Jet reports is the IUCN standard financial reporting tool. Available reports include budget vs. actual reports at the project and grant levels and detailed transaction reports. These reports allow project managers and project finance staff to track budget performance. 13. Budget revisions and modifications A project budget is a living document. The best made plans normally require modification during the course of their execution. A budget is no exception. Modifications may range from just moving figures between lines, or changing the timing of expenditures, to full scale revisions. Budget modifications will be triggered by: Changes to the project plan A re-appraisal of certain costs or resource requirements Variances in actual expenditure incurred compared to budget A change in the value of the donation Budgets may be revised: During the budget proposal process 17

18 During the first phase of a project During the course of project implementation From the time of creating a high level budget concept to the time of agreeing a detailed project budget with a donor, a budget may be changed many times. This will be an iterative process which will go hand-in-hand with the development of the project plan. Once a contract has been signed, budget modifications will be governed by the donor contract. Large scale projects may include a further development phase after the donor contract has been signed. During this phase, the activities will be further scoped and the project plan and related budget refined. As project implementation progresses, budget modification may be required to adjust for changes to the project plan or because new or better information becomes available. There will always be a certain degree of variation between budgeted costs and actual costs. Minor variations will not normally trigger a budget modification. Donor contracts normally allow for overspends and underspends on individual budget lines, provided certain limits are not exceeded, e.g. 10%, and provided the total budget is respected. 14. Budget monitoring The project monitoring module (ref) provides details on the financial components of projects that need to be monitored. In summary, actual expenditure needs to be monitored on an ongoing basis and compared to budget. Budget variances may be a result of either: Overspends Underspends Budget variances may reflect either a timing difference, e.g. expenditure was incurred ahead of the date foreseen, or the fact that actual costs were lower or higher than the budgeted amounts. In all cases the reasons for the budget variances need to be investigated and understood. Budgeting is not an exact science. There will always be variances. The important thing is to understand the reason for the variance and take action to ensure that expenditure is brought under control. END 18