Challenges in Budget Management and Forecasting
Budgeting, planning, forecasting, reporting and risk management are becoming increasingly complex. Understanding these issues against your company’s circumstances will help you in choosing a suitable budget management solution.
Here are the four most common challenges with traditional budgeting with some recommended budget methodologies and best practice solutions:
Budget Process Challenge 1
Traditional budgeting does not adequately link financial investments to results, limiting the ability for understanding of the real ROI for the business.
Performance-based framework allocates resources to specific objectives. This framework provides increased visibility into how financial decisions translate into results.
Budget Process Challenge 2
Traditional budgets are created based on requests from competing stakeholders, typically based on their departmental needs rather than the overall goals of the organization.
Priority-based evaluation framework helps establish concrete targets and priorities based on this year’s strategic goals. The targets are then communicated to all stakeholders involved in the budget process, leading to faster decisions and minimizing budget negotiation issues.
Budget Process Challenge 3
Static budgets and multi-year financial plans produce high level financial targets. However when changes occur during the year, they can paralyze an organization that does not have an efficient process for evaluating the causes of these changes and adjusting the budgets and plans accordingly.
To be successful, budgets and plans should have an efficient means to be updated as and when needed to reflect frequent economic and organizational changes.
Budget Process Challenge 4
In an unstable marketplace, drastic changes in resource levels, budget constraints, and strategies are inevitable. Rapid decisions are often required in such situations.
Performance under alternative or “what-if” scenario. A budget that takes into account performance under alternative (what-if) scenarios will serve your organization better than one that ignores the future and risks, and focus too much on what happened in the past.