How to Read a Production Budget

Posted on: Aug 01, 2023

manager workingPhoto courtesy of Vladimir Sukhachev // Shutterstock

By Josh Deitch

The script is written, the star is chosen and the director has the perfect vision for telling this story. However, before any magic can be captured on film, careful consideration must be given to one other item that may not always get the attention it deserves: the budget. Film and television projects are first and foremost intended to be pieces of entertainment or art designed to capture the imagination, but they are often very costly business investments as well. 

To develop a better understanding of this crucial aspect of every film or TV series, this post will focus on what a production budget is, who needs to understand it and some of the common items you may find in one. We’ll also discuss how to track the costs incurred in the development and production of a project, and how those costs are reported to the stakeholders on the production. 

Production Budgets 101

Every project, from small independent films to massive studio blockbusters, relies on a detailed budget. A good production budget and effective tracking of costs ensures that resources are used wisely, and that the movie or show can make it from the page all the way to the screen. Budgets can range in size from hundreds of dollars to hundreds of millions of dollars, but almost all share common features that help department heads, producers and production companies stay on track from pre-production to the final cut.

Most budgets split production costs into above-the-line, below-the-line and post-production sections. Some budgets may be divided further, but it’s a good idea to use at least these main segments:

  • Above-the-line (ATL) costs include the wages for the cast, producers, director(s) and writer(s). The costs associated with the development, rights and creation of the script are also in this section. Costs for adapting a script from some other source, such as a book or video game, would fall into this category as well. It’s important to diligently review this portion of the budget, as these fees are often contractually defined and strictly enforced. As we’ll see below, some other items in the budget are more flexible, but ATL costs are more likely to be steadfast.
  • Below-the-line (BTL) costs generally cover the bulk of the production expenses in terms of dollar amount. BTL costs include behind-the-scenes crew members like hair and makeup stylists, grips, camera operators, location managers and production accountants. This portion also covers expenses such as office and stage rentals, camera equipment, trucks, set dressing and construction materials. 

Post-production costs include the expenses that arise in shaping the raw footage into its final form. This portion of the budget will allocate funds for editors, visual effects, music and final delivery steps of the film or video file. Within these main sections, an organized budget is broken down even further into specific accounts and line items.

What Are Accounts and Line Items?

Within the main sections mentioned above, most budgets contain dozens of smaller sections, usually called accounts, for specific costs that may be relevant to the movie or show. These accounts are usually separated by department. Each department’s account is then further separated into line items. For example, the property department may be given its own account number and within that account there may be a line item for the prop master, property assistants, property rentals, property purchases, a property trailer and so on. Each line item will have its own code number and budgeted amount, allowing the department, as well as the accountant and producers, to quantify how much they can spend on each item. 

The number of accounts, how they’re categorized and what is included in each account varies by project and preference of those shaping the budget. Normally a production company or studio employs an “estimator” to create the basic outline of the budget, using previous films or TV shows as a blueprint. Once an estimated budget is in place, the project’s accountant, line producer, executive producers and/or studio executives collaborate to determine the final budget. When the budget is “locked,” the project is ready to move forward, and the producers have a good idea of how much the entire film or show will cost. This allows them to plan ahead so they are prepared in the event of any overages to the schedule or budget.  

Moving Forward with a Locked Budget

With the locked budget in hand, the producers and accountant are ready to begin tracking the costs of the production. A carefully laid out budget is not worth much if the same attention is not paid to categorizing and reporting expenses as they come in. With this in mind, the tools that a production employs to track costs is one of the most important considerations. 

Effective management of costs begins with laying out good accounting practices for all departments to adhere to. Most productions use a Purchase Order (PO) system to track and pay expenses. When a department needs to make a rental or purchase, they will issue a PO to the vendor providing those goods or services. A copy of the PO also goes to the producers and the accountant and will include the account code and cost of the item. This allows the accounting and production teams to estimate the spending in real time, without having to wait for an invoice to arrive from the vendor, which may take days or weeks. A PO allows the cost to be recorded right away and avoids surprise costs down the line. 

Production companies also commonly issue credit cards to crew members to make smaller purchases, such as lunches and office supplies. These credit cards can be linked directly to the accounting software to rapidly track expenses, depending on the software the project is using. 

Production Accounting Software

Choosing the right software to track and pay costs is an important decision, and can allow various crew members to seamlessly collaborate across departments. There are many accounting software programs to choose from, and the size and scope of your project will likely determine the best fit for you. Most modern accounting software packages allow for digital purchase order creation and robust cost reporting, and can connect digitally with a bank account to process payments to cast, crew and outside vendors.

With the right system in place, an accountant and producer can share each department’s budget with the respective department head, so they know exactly how much they can spend on each line item. With a modern accounting system, the department head can then issue a digital PO for each expense, which allows the accountant or producers to import the cost directly into their accounting software. 

Common Production Accounting Software:

What to Do When the Budget Is Over

If the actual expenses of certain line items exceed the budgeted amount, the department head, accountant and producers need to work together to find a solution that satisfies creative and financial concerns. This may involve shifting money from other line items in the budget, or could be as drastic as cutting or rewriting scenes, depending on the scale of the overage. In other cases, there may be items that come in under the projected cost. In that instance, the accountant may decide to take a “savings” on that line item, which frees up that money to be used elsewhere if necessary. 

The most important thing to keep in mind, whether estimated costs end up higher or lower than the actual cost, is to always communicate in a timely manner when discrepancies are expected. When a department head suspects that a cost for a certain scene or location may differ substantially from their budgeted amount, they should notify the accountant and producers as soon as possible. This allows all parties more time to find a solution without risking delays to the shooting schedule, which can be incredibly costly in and of itself. 

With open and effective communication between departments, plus a meticulously planned budget with the right tools and procedures in place, productions can avoid many of the common pitfalls of the filmmaking process. A good budget helps productions stay on schedule and avoid surprises or last-minute changes. Now that you know the basics of a production budget, you’re ready to take on a larger role in the planning and execution of any project you’re involved in!

Josh Deitch started his career in post-production and distribution. He currently works as an assistant production accountant on scripted series for various streaming platforms.

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