Creating an administrative budget requires the review of various aspects of a company's operations. Budget categories are derived from management objectives and show the priorities of a business for a quarter or fiscal year. Managers can use the administrative budget to assess the success of their objectives over time.
Administrative budgets may be drafted annually, quarterly or monthly, but all budgets are created for a specific time frame. This helps management assess the financial success of a department. It also gives management an opportunity to make revisions in the event significant changes occur in the operational plan of the company. Creating a short-term budget is especially useful for fast-paced business in constantly changing industries.
Administrative costs are rarely tied to an actual product or service. The items purchased through the administrative budget usually relate to supporting a company's human resources and operations. Administrative staff members create this budget on behalf of other staff as they understand the logistical needs of the company. Accounting departments may use business budgets to cover payroll taxes, legal and product fees.
Management measures the success of the administrative budget based on the effectiveness of the budget and the ability to stay within project estimations. For example, excessive legal fees in an administrative budget are an indication of poor crisis management techniques or faulty contract review. Managers can make adjustments to the practices of the overall company to avoid these excessive costs in the next period.
Small business owners may create their administrative budget along with a profit and loss statement for their business or sales projections for the upcoming year. Larger corporations with fiduciary responsibilities to shareholders release public financial statements indicating how their budget estimations compare with actual expenses. To avoid discrepancies, corporations often have departments in-house that exclusively handle budgeting and reporting.