Budget committee definition
/What is a Budget Committee?
A budget committee is the group of people within an organization that reviews, adjusts, and approves the budgets submitted by department managers. Committee members also review and approve capital budget requests. Once the budget is finalized, the committee then switches to comparing actual results to the budget, and taking steps to ensure that actual results do not stray far from expectations.
Who is on a Budget Committee?
Since the budget should support the strategic direction of the organization, all members of the budget committee should be conversant in the details of the entity's strategy; this means that they are all members of senior management. A few specialists may also be members of the committee, such as a financial analyst who is conversant in the nuts and bolts of the budget model; these individuals can answer questions about how the budget model functions.
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When to Use a Budget Committee
You should use a budget committee when the budgeting process needs to be more formal, coordinated, and aligned with the organization’s overall goals, especially in more complex or larger organizations. Here are some situations in which having a budget committee is highly recommended:
Large organizations. When there are multiple departments, divisions, or business units that each prepare their own budgets, a budget committee helps to coordinate, review, and align these budgets into a single cohesive company-wide budget.
Complex budgeting process. If the budgeting process involves capital budgeting, long-term strategic plans, or major financial decisions, a committee ensures thorough review and proper prioritization.
Need for Consistency. When consistency in assumptions (e.g., inflation rates, sales growth, cost projections) is critical across departments, the committee ensures that everyone is using the same guidelines.
Need for oversight. A budget committee provides oversight to prevent overly optimistic or unrealistic budgets from individual departments and ensures that budgets are aligned with organizational goals.
Post-budget monitoring. If you need a formal process for comparing actual results against the budget, investigating variances, and recommending corrective actions, a budget committee is valuable for this role.
In short, you should use a budget committee whenever you need structure, fairness, and objectivity in the budgeting process, especially when multiple people, departments, or significant amounts of money are involved.
The Budget Manual
A budget committee typically follows the procedures contained within a budget manual. This document lays out the timing of the budget creation process, who is responsible for which deliverables, what information is supposed to be prepared, and who can approve the budget. Having this manual in place makes it easier to coordinate budgeting activities, and tends to result in a budget being completed roughly on time.