When it comes to federal contracts, budgeting and forecasting are two sides of the same coin. Government contractors should forecast expenditures, create a budget, and ultimately execute the project while meeting that budget.
The question for many contractors lies in how to do so. Like nearly all things in business and government contracting, success here is directly proportional to the strength and execution of your plans.
With that in mind, we’ve created some guidelines that you can use to create (and meet) your budget. Whether you’re developing a project-specific plan, a budget that must run for a multi-year contract, or a single year budget, adding these tips to your arsenal will ensure that you develop an accurate budget.
Moreover, even if you’ve already created your budget, use these tips to check in throughout the year to ensure that any adjustments you make are in line with your overarching goals.
Step 1: Don’t Skimp on the Planning
Schedule a session with everyone who has a stake in the success of your project or company to ensure that all stakeholders are on the same page with regards to timeline, parameters, and goals.
Step 2: Identify and Introduce a Budget Management Tool
Ensure that your full team understands the tool that will help you and your team stay on track, manage the budget, and group information by month, quarter, or year. This tool should also be capable of managing different scenarios. By introducing the tool early in the budgeting process, your team can ask any essential questions to be confident they are using it correctly.
Step 3: Develop a Clear, Concise Brief
Whereas in step 1 you identify the goals, now it’s time to communicate them clearly to your entire project team. This document should include:
- Due dates
- Guidelines for handling future proposals and options
- Forecasted growth rates
Step 4: Know Your Key Performance Indicators (KPIs)
Understanding your KPIs helps you manage and identify milestones, timelines, and budget checkpoints. Although these vary widely depending on projects and deliverables, knowing what you’re measuring against is essential for making course corrections designed to maximize both your budget and the success of each project. To see examples of the most common KPIs, click here.
Step 5: Ensure Budgets Align with Projects
As you create budgets for each project, and in turn, each year, ensure that you understand every aspect of your project so that you can be sure to factor in all time, labor, and incurred costs and align your budgets to project scope.
Step 6: Perform Scenario Modeling
Consider all of the variables that could affect your project and then use them to help you understand and budget for best case, worst case, and most likely scenarios so that you can build them into your overall budget. In this phase, you should account for project specific rates, ceilings, budget and forecasting rates.
Step 7: Perform Monthly Reviews
Every month, perform a review that compares year-to-date actuals to budget/forecast performance so that you can adjust your forecast as needed at regular intervals. Doing so will help you avoid large (and often unpleasant) surprises later in the year.
Ultimately by following the best practices in this outline and thinking of your budget as a living, breathing entity rather than a static document, you’ll be primed for success. Although not everything goes as planned, as we learned firsthand in 2020, planning ahead, and reviewing your budget performance at regular intervals will help you minimize the effect of any outliers, abnormalities, or surprises on your overall budget.
If you need a consultant to help you evaluate your budget, guide you towards best budgeting practices for government contractors, or to help you review your budget performance, we’d love to help. Contact our team today.