Lack of any one of these elements will result in an ineffective budget.
There are four critical elements that make the budgeting process easier, more effective, and less time consuming.
The overall system is your process for budgeting. Does your system produce cooperation, sharing communication, and an honest, realistic budget that people use to make business decisions? Read about what accounting system you should purchase here.
The mechanics include realistic assumptions, building realistic models, defining relationships among revenues and expenses, performing “what-if calculations, and inputting the most realistic figures into the final product.
The environment is the second most overlooked piece of every flawed budgeting process. The environment is your culture. The firm’s culture has a huge impact on the quality of the budget.
Leadership actions and attitudes that support a realistic budget. The culture must incorporate, accountability, controllability, communications, continuous improvement, empowerment, training and trust.
So what’s the mechanism for change?
The mechanism for change is the most overlooked element of a flawed budget process. Budgeting is no longer an annual activity. Budgeting has become a 365/day/year management process. Every decision-making process – including the budget – must be designed with agility in mind. The following items allow organizations to instill flexibility and be proactive – not reactive. Visionary leadership, a clearly defined mission, risk assessment, management of change, and a focus on priorities and material items.