Smart Planning

As business becomes more complex, the need for suitable budgeting and forecasting processes becomes critical. One of the most redeeming qualities of budgeting is that it forces the organizations leadership to establish tangible goals for the coming future. This is inherently good and gives direction to the business and aligns all of the staff from the top to the bottom. While there are many ways to approach budgeting, the resulting financial plan provides a basis by which to measure the organization’s success. Among the numerous benefits of creating a budget, perhaps one of the biggest and most beneficial is the examination of cost drivers. Understanding how costs rise with revenue and where the marginal benefit of adding resources arises is critical for smart business planning.

Diversified
scenarios

One of the things budgeting and forecasting attempt to do is provide a roadmap on how to navigate the fiscal year ahead. However, unforeseen problems often interrupt the regular business cycle—COVID-19 was a great example of that. It is important to consider multiple potentialities and run scenario analysis when preparing budgets and forecasts. Our clients after preparing a base-case budget and forecast, in which everything happens according to plan, are able to create multiple sets of potential outcomes based on very diversified scenarios. Approaching budgeting in this way provides a way to react effectively against market surprises.

Importance of milestones

The only way to be sure that the organization is moving in the direction it should is to regularly monitor its progress against the budget and larger forecast. It is a best practice to include regular milestones in your budget and forecast that, once achieved, make it obvious that the business is following the plan. Achieving these milestones indicate that the organization is aligned with the goals laid down by management and can also be used as a means of gauging staff performance. Certain instances might arise where unexpected events occur that interrupt the progress the organization has made on a budget and disrupts the initial forecast. COVID-19 was a great example of a market interruption that few businesses were adequately prepared for.

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