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Implementing a continuous budgeting process

In my last blog I wrote on ways the budget and the budgeting process could be improved, even though you may have recently finished this year's budget round. In this blog I will look at a way of transforming the annual budget into a continuous approach.
The starting point is to consider the current budget as 'business as usual'. In other words these are the resources that will be expended based on the view we had of the business environment when the budget was created. To this we now need to add two extra sets of measures (if not already present):
  • Measures that capture the work being done by individual departments. These are likely to be unique and should be kept to a minimum. The aim is to capture the effort that the budget resources allow us to perform. For example, the marketing department might capture the number of mailings or social media comments made. Sales may record the number of prospective client calls, and so on.
  • Measures that capture the output of each department. I.e. the results the workload is hoping to achieve. Where activities are linked, the output of one activity is likely to form the input to the activity that follows.
These two sets of measures help management to gauge the effectiveness of each department in relation to workload, resources and outputs. As mentioned in the last blog, the forecast process then captures the likely results should things stay as they are ('business as usual'). Where there is a significant difference, then it is obvious that something needs to change of the original budget goals are to be met.  This is where we create a second layer to the budget that contains changes to 'business as usual'.
By separating out these adjustments to the budget, we can build up a picture along with reasons why they were necessary.  In Financial Driver this is accomplished by using the additional dimension. Here you will see that the original budget is assigned to member 'N/A'.  We can create additional members here which can be labelled in terms of the change we want to make. For example we may want to launch a new marketing campaign to cross-sell some new products that have just been acquired.  The cost of doing this could be through diverting previously assigned resources away from Customer Service and into the Marketing budget. We can now make and track the budget adjustment by selecting the new member in the data entry screen,  subtracting data from where the resources are to come from, and adding them into the department that is to receive them. Within Financial Driver this will have the impact of creating a budget that shows the original numbers, the adjustments for specific projects,  and the total revised budget.  This segregation can be done multiple times - in fact there isn't a limit, with each layer telling a story of the change being made. Now we have a method for making and tracking adjustments to the budget that is also linked to workload and outcomes, there is no reason why this can't be done on a continuous basis.