5 ways to turn budgeting into an efficient management tool

12.01.2022

by Jan-Markus Viikari

The role of budgeting has changed over the years. The concept ‘Beyond budgeting’ puts budgeting in the background with more emphasis on forecasting, effectively leaving budgeting as a relic of the 1960-70’s. Meanwhile, budgeting has never really lost its role, and in later years we see a growing demand for it, since active forecasting has not fully been able to take its place, showing us that budgeting is still very much needed.

For many companies, the budgeting process is done once before the new financial year begins. It is common to measure against this budget and against last year, throughout the following year. But is this good enough in a world that is changing at an ever faster pace?

 

  • Plan ahead

The goal of a company is to deliver on the targets that have been set and to deliver growth. Growth contributes to the development of the company and provides greater room for maneuver both in relation to further growth, but also to meet downturns and crises when they come.

  • Utilize many resources

This is exactly what it is all about using these tools. There could be more predictability in the period we enter if we put in place measures as early as possible based on the numbers we have ahead of us. This is a powerful management tool. This provides clear goal management; it is realistic, achievable, measurable and sets goals that we can reach for. This makes it easier to communicate internally in the company and have a common understanding of what is required of us.

 

  • Communicate

To deliver on growth, we need to put the list high. A challenge we can imagine arises if the demand is far above what we have budgeted for. Do we then manage to set the list even higher to deliver on the opportunities that arise? A completely opposite challenge will arise if there is a crisis or a sharp fall in demand and the budget becomes unrealistic. This can demotivate, "we can not manage the budget anyway", which can lead to us underperforming. Or you may be operating in an industry with large, natural and unforeseen fluctuations.

 

  • Follow and react (on deviations)

We have tools in budgeting that allow us to manage the performance of the company, given the various situations described above. One possibility is to use a revised budget, either in the event of an abrupt change in the situation or that this is done systematically where we follow the quarter, term or month. Then it can be measured against the original budget, last year, and the revised budget.

 

  • Keep looking ahead

Another option is to use forecasts. Then we keep the budget, but use forecasts that are constantly floating. We get a clearer picture of the period ahead of us and can implement measures more quickly, based on the forecasts we have ahead of us.

Azets delivers simple budget tools to those who only use one budget throughout the year and do well with this. We can also deliver more advanced features through our budget tool Navita, which lets you work with revised budgets and multiple versions of forecasts.

 

Read more about Navita and how we can help you.

About Jan-Markus Viikari

Jan-Markus is the product owner of Navita budgeting tool and head of the development team. He has a long career as a consultant before current responsibilities in product development. Past two decades have given him strong experience in corporate analysis, forecasting, valuation and management reporting. He is interested in user experience and is thrilled to deliver solutions.