So, budgeting is important, and why? Because, you know, in the morning we saw that we have some income and we have some expenses, right? And in the earlier times, over a phone call, money used to come. Many of the social activists who lived in the 60s and 70s would say that, you know, why budgeting? We just call and money comes. We used to call that time there is a problem and send some money, and then donors used to send.

So, times have changed, you know, and budgeting is an important step, but budgeting is the first step, say it loudly, planning, because without a plan, there cannot be any budgets, right? So, planning in financial terms is what a budget is all about, right? So, first you have a plan, then put figures into it, and that becomes your budget. How many types of budgets do organizations prepare? Annual budget, mid-term budget, project-wise, and should there be an organizational budget? Yes, there should be an organizational budget.

Now, that is the bigger challenge because NGOs, even though we say that they are perpetual entities, going concerns and all that, there are a lot of things which are variable. So, there are a lot of different factors which affect an NGO's functioning. So, therefore, one is that donors normally would not approve a project without a budget. So, therefore, we need a project-wise budget, but what happens to an organizational budget? How do we prepare an organizational budget? So, this is something that we need to understand a bit.

You see, in a small organization, there is something called, let us put it this way. So, this is project A, B, C, D, and let us say this is organizational, and then this is the total budget, let us say. Now, let us take a small organization. For a small organization, sometimes they have only one donor and they have one organization. For them, the organizational budget is the project budget, or the project budget is the organizational budget because they have nothing else to do outside of that particular project. So, therefore, less complication, project A is equal to the organization is equal to the total, no problem.

Let us start with a bit more complicated areas. Then, let us say that the organization has grown. This small organization has got one more project here. There is no problem because that is an organization and the project, both were the same. Now, the organization gets project B apart from project A. So, project A was covering the overall organizational cost and all that. Now, when project B came, this donor of project A started reacting.

So, the project A donor said that, well, I was covering all your organizational costs and everything was going on fine. Now that another donor and another project has come, they should also cover part of your organizational cost. Why should I cover all the costs? Fair enough? So, now a bit of complication has started already. Now, therefore, what you need is two projects, one small organizational overhead budget which can be covered out of this as a common cost, and then, of course, a total budget, right?

So, you prepare this budget, you prepare this budget, have negotiation with both, say we have got one accountant. So, 50 percent of salary will go here, 50 percent of salary will go there. We have an office which has ₹10,000 rent, 50 percent will go here, 50 percent will go there, or two-thirds will go here, one-third will go there, right? So, then it grows further, then more projects start coming, and then the overall organizational costs get still further distributed. So, now the issue is that for a large or a medium-size organization, what you have is project budgets, project-wise, and some common costs which are common to all projects, that is your organization budget which needs to be covered on an agreed-upon basis by all the other projects.

Clear? So, this is what an organizational budget should look like. Now, what happens is, yes, common cost for all the budget. Common cost is that cost which cannot be allocated to a particular project, like for example, an accountant's salary. An accountant is doing accounting of all the projects, the executive director's salary, or the, you know, the support staff, electricity, water, office rent, all that. So, those expenses will be part of this organizational budget which will get absorbed by various other projects.

The challenge is also that these projects might have different timelines, like for example, project A might be for one year, project C might be for two years, right? So, it is important to prepare an annual breakup. Even though you may have prepared a three-year budget and got it approved by the donor, but for implementation purposes, preparing annual budgets and an overall forecast or a budget with the common cost which can be absorbed is a framework that needs to be prepared in every organization. Normally, what we do is that we do not prepare an annual budget of an organization. We run from project to project. So, therefore, there is sometimes no clarity on how these costs are going to be absorbed.

Yes, it could be a proportion of funds, it could be some parameters. Some parameters need to be determined. Now, this is a very important concept to keep in mind, that how do you allocate expenses and how do you run projects. What happens is that many times we do not break down the projects, the less a three-year project, to implementable annual plans. And if we do not make these calculations, it happens on a very haphazard or in an off-and-on sort of a situation. So, this is a very important exercise to be conducted in every organization. And this will vary from organization to organization, it cannot be the same practice in every organization. The principle will be the same.