Remember this key point: The purpose of developing assumptions is not to specifically guess at future expense levels, but to arrive at a reasonable standard against which the level of future expense can be judged.

Some expenses can be budgeted from an assumption base dictated by contract, such as rent or equipment leases. For these types of expense, budgets are incredibly easy. Since there is no varying level to watch for, there is no need for control, nor is there an opportunity to reduce expenses through monitoring and correction. One exception: when market expansion could dictate additional facility or equipment leasing. In that instance, careful planning, control, and pre-approval should be part of the plan and budget.

Other expenses are entirely unpredictable, and present a much more complicated budget challenge. For example, building or equipment maintenance cannot be predicted by amount or by timing. The only fair way to budget is to set up a reserve in the budget, and allow expenses to fall against that reserve. The reserve amount can be established based on historical maintenance patterns, the age of equipment on hand, or plans to replace equipment during the year.