HR budgets are prepared like any other functional department budget in the following stages:
1. Define functional objectives and plans.
2. Forecast the activity levels required to achieve objectives and plans in the light of company budget guidelines and assumptions on future business activity levels and any targets for reducing overheads or for maintaining them at the same level.
3. Assess the resources (people and finance) required to enable the activity levels to be achieved.
4. Cost each activity area – the sum of these costs will be the total budget.
Justification
Justifying budgets means ensuring in advance that objectives and plans are generally agreed – there should be no surprises in a budget submitted to top management. A cast-iron case should then be prepared to support the forecast levels of activity in each area and, on a cost/benefit basis, to justify any special expenditure. Ideally, the benefit should be defined as a return on investment expressed in financial terms.
Protection
The best way to protect a budget is to provide in advance a rationale for each area of expenditure that proves that it is necessary and will justify the costs involved. The worst thing that can happen is to be forced on to the defensive. If service delivery standards (service level agreements) are agreed and achieved these will provide a further basis for protecting the budget.
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