New budget approaches
The final aim and target of the new methods of budgeting are to simplify and optimize the existing process improving precision, reducing time-consuming tasks and avoiding bottlenecks that may occur in the performance management & control offices. Unlike the traditional approaches, the beyond budget allows a real-time valuation and company perspective overview being characterized by a flexible timeframe without time constraints, actual auto-update (daily/monthly) and targeted planning. Following a lean and scalable principle, the process could be described in five main stages as shown in the image below.
1. Load Actual
The data are loaded from accounting with the possibility to schedule an upload on a daily or monthly basis. The actual value loaded will overwrite a potential pre-existed planned value on the live version in order to have a punctual overview of the past performance. However, given the possibility of storing past versions, it is still possible to compare past effective performance with forecast corresponding to the same period (Act vs Frc).
This phase defines ad hoc parameters and assumptions used to set the first planning version (i.e. revenues calculated as a moving average based on past “X” months or seasons). In addition, the process could require the setting of drivers for the allocation of values planned on a higher level of detail suitably designed to allow a faster process. The planning horizon is driven only by the definition of the planning period producing Pre-Closing, Annual/Multi-Year Plan and Medium-Long Term Plans with the same effort and process.
The first version of the plan is modeled computing information available at the last closed month together with parameters identified in the previous phase. The model is able to replicate the same process for each period thus offering from the beginning a starting Live Forecast/Budget version.
The model as a whole is based on the incremental approach. Unlike the more traditional planning processes, the values planned are defined only as the difference from the previous version and could be modified directly by the interested parties (i.e. area managers for the commercial planning). In this way, the efficiency is increased by dividing the total effort involving several corporate responsibility centers, multi-user and following a multi-function approach (development of internal synergies between different functions).
The model allows a real-time analysis of the deltas between the live version and past forecast, budget, version or scenarios in order always ensure a complete overview through comparison.