Budgeting is an inescapable part of modern business and it can have a significant impact on how a complex organisation functions because the budget guides many day-to-day decisions that are made across different divisions and disciplines. As such, the quality of your budgeting is worth focusing on so that you are as close to reality as you can be.
Here are 5 key things to consider when trying to improve the accuracy of your budgeting:
Have clear goals and objectives.
Your budgets need to be intentional and carefully considered if they are to accomplish what they promise. You need to be very clear about your goals and objectives for the business first before you start creating budgets that serve those objectives. If your budgeting process is siloed away from the higher-level strategic conversations then you’re going to have a problem. Your goals and objectives set the desired destination, and your budget is how you plan to get there. Don’t put the cart before the horse.
Implement driver-based budgeting.
Accurate budgets rely on a good understanding of the causal relationships between various business drivers and the costs that come along with them. If you’re able to tie those together and use a driver-based budget, rather than just an incremental approach based on last year’s data, you can get a much tighter fit that represents the reality of where your business is at. The art here is to select the right drivers of course, but even with imperfect correlations – this approach can drastically improve accuracy if implemented effectively.
Plan at the correct granularity.
Everyone would accept that just because actuals are available at transactional level is no reason to budget for each transaction. The same is true for the granularity on all business dimensions. Plan on regions not individual territories, on brands or categories not individual products, on sales channels not individual customers. Of course the appropriate segmentation depends on the nature of your business but the Pareto principle always applies. This is also known as the accuracy vs. precision paradox. It’s much easier to be accurate at a higher level of granularity as the data is cleaner and trends and correlations more discernable. Being accurate is always more important than being precise.
Collaborate effectively with all stakeholders.
´Budgeting should be a collaborative process that involves different departments and stakeholders. Constant communication and rapid iterations can help you to ensure that the budget is reflective of the unique aspects of each particular discipline and that the overall budget is holistic and well-rounded. In addition, involving people early in the process also helps with buy-in which can be a significant factor in determining budget accuracy.
Automate wherever possible.
If you have the right data structures in place within your FP&A system, it’s likely that you can build some automation into the process that transforms input data from your various cost drivers into budget figures that are later consolidated. Doing this helps reduce the scope for human error and allows your staff to focus on more important high-level tasks that cannot be automated. The optimisations here compound in value over time and can enable a much more robust and sophisticated budget process without skyrocketing the costs of doing so.
These five pillars can go a long way to improving how accurate your budgets are, which in turn helps you to grow in a sustainable and measured way. At the heart of this, you’ll want to use technology that assists with this process, and that’s where Apliqo comes in. We can help you leverage the power of IBM Planning Analytics / TM1 and our industry-leading interfaces to create a budgeting workflow that is uniquely suited to your unique circumstances.
If you’re ready to take your budgeting to the next level, get in touch today, and let’s see how we can help you.