Budgetary Control

Budget Documentation

Documentation makes an invaluable contribution to the budgeting process. The documentation takes many forms and addresses many issues:

  • assumptions and parameters
  • time tabling
  • forecasting and input sheet

Assumptions and parameters

These are an intrinsic part of the budgeting process, and will form the basis on which the budgets will be set. Assumptions and parameters will be top down, bottom up i.e. strategic and operational ones. If individual manager’s contributing to the budgeting process then they need to understand and be aware of any underlying assumptions for example budgeted margins, selling prices, costs etc.

A record of assumptions and parameters is helpful when monitoring and reporting against the budget, as well as helping compile budgets in subsequent years. As with any documentation effective filing and retrieval is vital.

Time tabling

Any timetable should have certain features if it is to be effective, such as:

  • It should be clearly headed
  • It should state what is to be done
  • It should state who is to complete the task
  • It should state when the task is to be completed by
  • It should be clear and logical

When we produce our timetable we need to consider holidays, evaluation of tasks, the sign off of the budget, phasing of the budget and reporting the final budget to all concerned.

Forecasting and input sheets

We will arrive at our budget information through a progression of steps and calculations. We should endeavour to make the process as straightforward and user-friendly as possible, carefully thought out ‘working papers’ can assist in this respect. Working papers can consist of graphs – for example, sales trend lines – or a series of calculations with underlying assumptions.

The key to preparing and designing working sheets is to focus on what we want to achieve and keep this in mind. Involvement is fundamental to budgeting and we always need to maintain a dialogue (not a monologue) with all concerned personnel at all stages.

Using the Budget

Once we have finalised our budgets we need to phase them, i.e. convert the annual figures into when budgeted income and costs occur on (say) a monthly basis. Phasing will be influenced by:

  • Seasonality
  • Anticipated expenditure – capital or otherwise
  • Strategic and operational objectives

Our finalised budgets represent our desired and anticipated results. It is important that we measure and monitor our actual performance against our expectations. We should compare and monitor:

  • To identify and act on deviations (favourable and unfavourable) from our budget
  • To identify future problem areas in our business

We should aim to have and compare our ‘actual’ income, costs and profit figures as soon as one month has ended. Meaningful and effective analysis and interpretation of our results against our budgets make a vital contribution to the management and control of our business.