The traditional way to create budgets at the department level is to send each department manager a copy of the year-to-date department financials, and a blank budget form for the next year, with a detailed procedure for how to fill out the budget form for every line item in the department’s budget. By doing so, department managers are taken away from their operational duties for an extended period of time, while they read through the procedure and make a series of educated guesses about what their revenues and expenses will be for the upcoming year. The considerable amount of time taken up by budgeting activities is one of the main reasons why the budgeting cycle is roundly detested by many managers.
This level of aversion can be mitigated by having the accounting staff pre-load many of the budget line items. Most expenses are relatively fixed from year to year, or are easily linked to key drivers, such as headcount. Consequently, the accounting staff can probably arrive at more accurate budget numbers than a department manager for most line items. This approach leaves only a few of the larger and more variable accounts for managers to enter in the budget form. In some cases where a department is anticipating no major changes for the next budget year, it may even be possible for the accounting staff to create the entire department budget, so the department manager only has to make revisions to it. However, total preloading tends to shift responsibility (and blame) from the department managers to the accounting department, and so should only be used with caution.
Procedurally, the accounting staff should negotiate with each manager the number of budget line items they are to fill out, and the basis upon which they are to arrive at their numbers. The basis used could be the previous year’s numbers multiplied by the current inflation rate, or a set dollar amount per department employee. Once this agreement is set up, it can usually be rolled forward over multiple years with little subsequent change.