Using a 12 month Dynamic Budget to Improve Co. Performance
Technology today makes it easier than ever to integrate accounting systems, financial forecasting systems and dashboards used to measure key performance indicators (KPIs).
At the same time, the uncertainty of the economic recovery and poor historical data for many companies during the past 2 and a half years has made it difficult for sales, operations and financial managers to forecast budgets on a calendar year basis.
Because of these two factors, and because many managers have found that using a rolling 12 month budget is provides a more accurate end result, there is an increasing trend toward using the dynamic budgeting process.
Implementing a dynamic budgeting process can have some surprising benefits that you may not recognize.
High quality dynamic budgeting is a process that must involve many people in your company. Since the budgeting process is always ongoing, each department manager involved will likely become better at creating their input to the budget.
Having monthly or quarterly budget reviews helps keep managers constantly thinking through what operational activity they need to be concerned with to make their cost and income goals. It helps keep everyone focused on those operational activities that help lead to the successful attainment of corporate goals.
Dynamic budgeting can help your company become more flexible in analyzing your company’s position in its market and as importantly changing course when it is necessary because of some inside or external force pushing against you.
A dynamic budget doesn’t have to have many items; in fact, according to a study conducted by The Hackett Group, an Ohio based consulting organization, the highest 25% of performing companies measured in their studies contained 70 budget line items or less.
The key to making the change from an annual budgeting process to a dynamic budget may require some re-education of many people in the company but for many organizations during the last few years, the change has made a significant difference in the overall performance of a company.
Sam Thacker is a partner in Austin Texas based Business Finance Solutions.
You may contact Sam directly at: sam@lesliethacker.com
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