Budgeting Tips and Tricks – Part Two

In the last issue of the Mastermind newsletter, we shared four tips for improving the budgeting process.  Those were just the tip of the iceberg!  Here are four additional ideas on how to make your budgeting cycle work for you – all year long!

#5 Test Scenarios and Simulations

In many cases, when budgets are being developed by teams it is an exercise of entering what is “expected to happen.” Teams may simply enter their best guess into the template and then they are done for the year – the “chore” is over.

Now imagine how much more meaningful and interactive it would be if you could provide those teams with the ability to test different scenarios and do simulations in order to test their assumptions.

In fact, there are software solutions that provide the capacity to set up models that allow for these comparisons.  Contributors have the ability to look at best case and worst case scenarios and make comparisons. For example, if we want to achieve our target growth in sales next year, how many more units would we have to sell and can this volume be achieved at this price? What would happen to our bottom line if the exchange rate changed dramatically next year? As these realities begin to play out through the year, the budget can be adjusted accordingly to enable easy re-forecasting of the rest of the year.

#6 Support with Explanations

The next tip is to support budget entries with explanations. What good is it to enter values into a budget without adding comments or annotations to explain where those values are coming from?

For example, if there is a spike in units in July for some reason, how do we find out where that spike is coming from? When you are building next years’ budget and looking back at the previous year you see no explanation for that spike, you will have to track the person down and hope they remember their reasoning.

There are budgeting solutions available that provide this ability to store comments and supportive documents as attachments that are tied to particular data points.  This feature provides value to the budget reviewers who are able to understand where the values are coming from, as well as to the budget contributors who can look back at last years’ budget and review their own comments and assumptions which may well have some relevance to the upcoming budget year.

#7 Reforecast, Reforecast, Reforecast!

A classic problem with completing an annual budget is that it essentially loses accuracy as the year progresses. Assumptions are made at the beginning of the year, but the reality is, things change in ways that are unpredictable. After a month or so, the annual budget often becomes irrelevant.

The next tip is to reforecast, and do this by enabling contributors to easily update their budgets throughout the year. As opposed to doing budgets annually or even biannually, make the process so simple that they can do it quarterly or monthly.

Budgeting applications allow individuals to look at the actuals for the year-to-date and then reforecast for the remainder of the year, or perform rolling forecasts so that the budget remains accurate and relevant all the time.

#8 Automated Reporting, Charts, KPIs

A big challenge many experience is the time involved in building and sending out monthly reports to the different groups within an organization. Closing out the month, doing variance analysis in Excel, and sending out the management reports manually each month puts a lot of strain on IT and finance – and that’s before different groups start asking for ad-hoc reports and data!

So the eighth and final budgeting tip is really a no-brainer. Automate it!

There are budgeting tools that actually automate reporting, charting and KPI dashboards and make them accessible to everyone as needed. These tools also give business users the ability to do ad-hoc reporting on their own, greatly reducing the strain on finance and IT.

At the senior management level and the board of director level, it is even possible to provide an interactive flip-book that is accessible on any kind of device and automatically refreshes each time the database updates. This allows for highly interactive meetings and facilitates more meaningful data-driven discussions where members can drill into the data together. This also saves hours of time from finance and IT, the groups that were historically required to produce the various reports.

As you can see, while these eight tips focus around gaps that many organizations have in the budgeting process, a key piece in enabling improvement is working with the right budgeting solution. For information on applications that could help your organization plan and budget more efficiently and effectively, please contact us today!