Best Practices for Budgeting and Planning

Key Issues with using Excel for Budgeting, Forecasting, and Financial Reporting

The rapidly changing business environment constantly challenges companies urging them to look for more effective business practices. What are the main factors and limitations needed to be taken into consideration for a successful budgeting and planning processes?
For an effective planning and budgeting process, the following should be properly determined:

  • Budget process definition
  • The right software solution
  • The correct input level
  • KPI definition
  • Efficiency
  • Change monitoring

Clear definition of a budget process
Ensure that your process is in line with corporate objectives: For instance, if your corporate objective is to sell more units, then your budget should take into account all variables that will deliver this end result.
Documentation: Documenting processes, timelines for task completion, clear objectives, and appropriate resource assignment are all factors that will attribute to fewer errors, increase overall efficiency and provide accountability for resources responsible for completing the tasks.
Assigning tasks to the appropriate resources: You must assign tasks to the appropriate resources that have the right skill-set. This will improve overall efficiency and mitigate the risk of operational errors within the process.

Choosing the right software solution that meets your process requirements

Available software options on the market: There is no “one shoe fits all” solution in the market. That is why it’s important for organizations to learn as much as they can about their software options, and move forward with the solution that best meets their requirements.

Automate repetitive tasks: Software solutions that specialize in budgeting and forecasting are great tools as they have the capability to automate many redundant tasks, which reduces the overall data input time that resources currently spend

Use software potential: Many of the existing software solutions also provide work flow, audit trail capabilities and security controls so that only the resources assigned to the task can actually view/edit it

Free your most valuable resource: Most importantly, the automation of tasks allows more time for analysis vs. data entry, which translates to an improvement in acquiring relevant business intelligence information more efficiently.

Determine the correct level of input

Plan at the relevant data level only: You should budget at a level of detail that affects the overall plan. Depending on the scenario, you should balance the detail based on how relevant it is to your budget. For instance, in the example of travel expenses, you may only need to budget at project level, vs. planning for each individual employee, which would be time consuming for a budget manager to go through each travelling consultant on that project. So the level of granularity is contingent on how relevant that data is to the overall plan .

Avoid spending your resources when not necessary: Sometimes too much detail is not necessary in the grand scheme of your budget allocation, and can be counterproductive.

Define Key Performance Indicators (KPI’s)

KPI’s: KPI’s allow you to assess the overall performance and health of your organization against set targets. Your KPI’s should be aligned with your strategic process, and up to your management team to decide. Appropriate and relevant indicators should be defined to reflect what is important for your business, your industry, and should be measurable.

Define the correct drivers: You should also have the appropriate drivers to calculate your KPI’s. Using an example of a manufacturing company that sells a product, one of the corporate objectives might be to produce high quality products. The KPI for this company might be: “what % of defective goods were produced”. Your target attainment is <1% and in order to determine if you are on target (meaning that only <=1% of goods are defective) you may want to compare the number of products sold vs. how many were returned or repaired, which are your drivers.

Be Efficient

Ensure Accuracy: Budget process should be concise so that when finalized, data is still relevant and up-to-date

Embrace new technologies: Leveraging best practices and embracing new technologies allows for faster budget cycle and more time for analysis/decision making

Use historical data: If possible, use previous budget or forecast data as a starting point for a new budget

Drivers: Use drivers whenever possible to calculate important financial data. Less input means faster budget cycle time

Monitor and manage change

Forecasts: Monitor your original plan to what is actually happening in your business and make updates accordingly. For instance, you may want to input your actuals by month so that you can compare it to your original plan and determine your overall performance on a MTD/YTD basis. In addition, rolling forecasts create a “forward” looking outlook to help you make better decisions as this process has up-to-date data.

‘What-if’ Modeling: Incorporating ‘what if’ modeling allows you to create multiple scenarios to examine the impact on your organization based on certain assumptions.

Budgeting and planning processes are a complicated matter that, if done incorrectly, can cause heavily impair the work flow of the entire company. By properly addressing issues mentioned in the blog, companies can gain a significant competitive advantage by optimizing their planning and budgeting processes and the use of their resources.

How Can Delbridge Help?

  • Business Process Re-Engineering: Work with clients to understand their existing budgeting, forecasting, reporting process and recommend process improvements
  • Vendor Selection Process: As a result of our partnerships, we can demo multiple CPM solutions (Tagetik, Prophix, IBM TM1, IBM Clarity) and help clients choose right software product that best meets their requirements
  • Product Support: Can provide support for your existing CPM solution including: Training, implementation support, best practices review, performance optimization

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