Fixed amounts - i.e. those costs/revenues that can be predicted with some degree of certainty years out. For example rents, overheads and other such items that are predictable because, as their name implies, they are fixed. This is because they are set by agreement and are very unlikely to change. These items should be entered as far into the future as possible, which may well be for a number of years.
Variable amounts - these items are typically dependent on volume. For example, raw materials used in production are dependent on sales actually made. These variable amounts can often be associated with driver based planning, where entering a few driver values can generate values for all related measures. See our article on driver-based budgeting for more details. There is no reason why these cannot be updated on a regular, eg quarterly, based on a good understanding of the latest internal and external market forecasts.
Strategic initiatives - these items are those assigned to specific strategic projects designed to improve forecast performance. See our article on linking budgets to strategy for more details. These can be collected and made ‘live’ at anytime throughout the year depending on results being forecast.
Other amounts - these are items not included in the other three categories. This could include things like dividend payments, interest received/paid, and other non-operational items. These are set as often as required.The above split can be accomplished by using the optional dimension within Financial Driver and by setting up different schedules that represent each area. The budget process is then managed by Financial Driver by allowing administrators to collect each area depending on the results being received. For example, an analysis of actual results may reveal that new targets should be set. To achieve them, administrators can adjust drivers in the variable costs and/or make changes to the strategic initiatives. Financial Driver can then accumulate all areas and provide management with the total budget required by the organisation. As initiatives are implemented, management can review their impact and decide if further changes are required to keep the plan on track. By budgeting in this way, the process can become continuous and is able to respond to unpredictable events. It is still able to provide an ‘annual view’ simply by looking at the next 12 months, but it eradicates the large amount of time wasted each year trying to predict areas of the budget that are impossible to view until much nearer the time.