Understand what the purpose of the budget is

Before constructing a form for budgets, we need to know what is the main purpose of preparing the budgets, if the budget is prepared for

  • Meeting some contractual requirements e.g. Oil and Gas companies are required to submit their headlines budgets to host governmental bodies and to their joint venture partners in according to requirements of PSA or JOA, there will be no detailed data only first and second level of budget information. And there is no need for justification for any variances appeared by individual element of costs, only high level justification might be enough for any total variances identified.

  • Controlling cost, the economic conditions, strategies of companies and management needs may need the budget for controlling the cost, therefore, activity-based budget will be more needed, and more detailed budget is required, and variances justification by element of cost is needed too. And putting in our consideration that justification for variances is needed by elements of cost in low management level, and summarized more for higher level management. Such budget is down-to-top budget

  • Determining the sources for other alternative investments, this purpose can reflect the power of  high management and make the preparation of budget to be top-down budget because the high management can give more priority to investment than other which may lead the middle management to change their budget accordingly, and this is more common in joint venture oil investment. In this case, the budget can be prepared in details but not as details as controlling cost and measuring performance purposes.

 

Constructing budget form or template

After knowing the types of budget that will be used, budget can be preliminary designed based on the information above. Budget Report contains financial and non-financial data and can be presented by product lines, geographic locations or/and business segmentation.

Also, Budgets is prepared on monthly estimated amounts, quarterly estimated, yearly amounts or total estimated amount during life of project, planned work program enable budget preparer to provide such detailed information. For example drilling well project or seismic acquisition and seismic processing projects work program, enable the budget preparer to prepare the timely budget. All variances between cost and budget of such project is caused by schedule variance and cost variance. Therefore, budget preparer needs to extend the budget over the year or budget period reflect the planned work program.

Budget template or system is supposed to be flexible and enable to itemize the expenses and revenue and to summarize the budget at different levels of activity.

 

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