What Is an Operating Budget? Key Components & Template Included


An operating budget is a tool that helps business owners and project managers alike to look at the long-term financial needs of their organization or project. It’s instrumental in forecasting the budget needed to run your business or project.

That alone should make you want to understand the definition and reasons to use an operating budget. We’ll explain that and go into what should be included in your operating budget. As an added bonus, we’ll also throw in a free operating budget template for Excel.

What Is an Operating Budget?

An operating budget is a tool that allows you to estimate the revenue and expenses you expect to have for the coming year. It provides a more detailed and accurate estimate by breaking down your expenses. This process is usually done at the fourth quarter or year’s end to have a picture of what to expect financially in the next year.

Forecasting your revenue and expenses does more than help create an accurate budget for the new year, as important as that is. It’s also used to set goals for companies so they have realistic expectations and targets. This makes it possible to hit the goals and still achieve profitability. For project managers, an operating budget is a great tool to track financial progress to stay on budget by ensuring their actual costs match their planned costs.

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Operating Budget Template

Use this free Operating Budget Template for Excel to manage your projects better.

An operating budget doesn’t have to be an annual endeavor. As used in project management, it can be reviewed monthly and businesses have been known to do quarterly reports. Reviewing and revising the operating budget is important, too, as there will always be unexpected expenses that impact the forecast. Being able to use the operating budget as a living document means that businesses and projects can respond to market pressure and changes in scope and adjust accordingly to avoid overspending.

To review and revise your operating budget you need project management software. ProjectManager is award-winning project management software with real-time dashboards that give you a high-level overview of your project. Our live dashboard automatically collects data on costs and other metrics, which are then displayed in easy-to-read graphs and charts. You can get a look at your budget anytime and, best of all, there’s no time-consuming configuration required as with lightweight alternatives. Get started with ProjectManager today for free.

ProjectManager's dashboard
ProjectManager has real-time dashboards to help you track costs in your project. Learn more

Why Should You Use an Operating Budget?

Operating budgets are used by everyone from businesspeople to project managers to estimate future revenue and expenses. But they’re also a great operations management tool, as we’ve noted, to capture if you’re keeping to that budget. They can help track day-to-day operations to stick you to your budget as you review your actual spending compared to what you expected to spend over a given period.

The use of operating budgets is also critical in making your company or project financially accountable. By tracking your revenue and expenses, you can more easily uncover areas in your budget that are wasteful and can be reduced to increase profitability. Beyond the important cost efficiency that this provides, an operating budget is a great asset for planning and managing your resources on a project. You can see how much you can spend over the coming year and plan accordingly.

When you’re planning your next operating budget, the prior operating budget is valuable. It provides you with historical data to better understand where your money went, which allows you to make more informed decisions when planning your new operating budget. Using that old operating budget with the knowledge you have of how the year actually panned out allows you to edit your operating budget to adjust for those issues. As you continue to make adjustments, your operating budget becomes more accurate.

What Should Be Included in an Operating Budget?

An operating budget helps you strategize and is part of what makes a business profitable or a project successful. It sets up your business or project for the year ahead and gives you the data you need to track whether you’re keeping to your budget.

This requires that you make a detailed operating budget. There are a number of sections that allow you to both estimate revenue and expenses for the coming year and be able to track them to keep to your budget. These sections include the sales budget, costs, operating expenses and unexpected expenses.

Related: Free Project Estimate Template for Excel

Sales Budget

If you’re making a project or a service, you need to start with a sales budget. This is a monthly estimate of how many products or services you’ll sell and what revenue those sales will bring into the business. By doing this monthly, you can better adjust for seasonal changes.

In order to make an accurate estimate of your sales budget, you need to list those products or services, including any variations, such as size, color, etc., that you might also be producing over the year. You’ll want to review last year’s sales as past financial data helps you create a more accurate sales budget.

Some things to think about when determining what your sales budget will include are what your monthly sales usually look like, if your product or service is impacted by seasonality, whether there’s going to be a new product or service launch for the coming year and how marketing will affect sales.


Costs are direct expenses from selling your product or service. These direct costs can include any materials that you use to make your product. The cost of labor involved in making your product or service is also part of your budget cost, even if you outsource your labor. Any merchandise you resell should also be added to your budget costs.

All these costs that are related to your product or service over the year will amount to your budget costs. You’ll want to figure out how much the cost per unit is and then multiply it by how many units you’ve sold, which is the total cost. This amount is determined for each line item on the budget costs and should be added to get the total cost for the month.

Operating Expenses

Here you’ll want to list all your expenses, including variable costs and fixed costs. For example, variable costs are those that change from month to month, such as marketing costs, a one-time software purchase, hourly wages, shipping costs, supplies and more. Fixed costs are then those that are unchanged from month to month, which include rent, software subscriptions, salaries, insurance and so forth. You’ll add each of these as a line item and then add both fixed and variable costs together for a monthly total.

Unexpected Expenses

The last part of your operating budget is the unexpected expenses. There will always be something that comes up that impacts your budget. To not get sidetracked by these unexpected expenses, you need to provide a bit of a cushion in your budget to absorb them. There are two ways you can prepare for unexpected expenses; one is to set aside funds that you think will cover those expenses and, two is to increase your monthly expenses by a percentage, maybe 10 percent.

This data helps determine your net income by following this equation:

Revenue – Costs – Expenses – Unexpected Expenses = Net Income

Operating Budget Example & Template

All this information may be hard to process, which is why we have an operating budget example. In it, we’ve filled in a few examples with the generic widget, adding prices for sales, cost, operating expenses and unexpected expenses. You can see it all on our free operating budget template for Excel, which you can download and use for your next operating budget. It’s one of dozens of free project management templates for Excel and Word that you can use to help you estimate, plan and manage your projects.

Operating budget template screenshot in ProjectManager

ProjectManager Helps You Track Operating Budgets

An operating budget template can help you figure out your budget, but it’s not going to let you manage it easily. Project management software gives you the tools you need to keep track of your expenses and make sure you’re not overspending. ProjectManager is award-winning project management software that helps you plan, manage and track your budget in real time.

Plan and Manage Budgets With Robust Gantt Charts

Once you have a budget, add it to our software and organize those costs on our Gantt chart. You can assign costs to resources and tasks and filter for the critical path to see which of those tasks are essential to delivering your project. Then set a baseline to capture your plan and track your planned costs against your actual costs to identify any over expenditures and resolve them before they negatively impact your budget.

ProjectManager's Gantt chart
Track Resources With Workload Charts and Timesheets

Resources, such as labor, materials, etc., need to be managed. Our resource management features help you keep track of all your resources in real time. The Gantt chart tracks human and non-human resources, but that’s just the starting point. Toggle over to the color-coded workload chart to see who is overallocated and balance your team’s resources right from that chart to keep them working at capacity. Another way to track costs is with our secure timesheets, which automatically update to show the logged hours of each team member.

ProjectManager's timesheet

If you want more information, use our reporting tools. Each report is customizable so you can filter the results to show only what you want to see for timesheets, workload, project status and more. The reports can also be shared in a variety of formats to keep your stakeholders informed. Our software helps you keep your budget from getting out of control.

ProjectManager is online project management software that helps you create realistic budgets and manage them so you don’t overspend. Use our task management features to keep teams productive and our risk management tools to avoid potentially damaging issues from taking you off budget. Join teams at Avis, Nestle and Siemens who are using our software to deliver success. Get started with ProjectManager today for free.