After a budget has been written and approved, the task of monitoring the budget begins. Inevitably, actual events will produce results that vary from the budget. These are recommended steps to monitor the results.
1. SET A TIME PERIOD
With an annual budget, you will have to wait a couple of months after the end of the yar. However, most budgets allow for quarterly, if not monthly, observations based on monthly projections.
2. REGISTER ACTUAL RESULTS
The first step is to write down the results achieved by the company and compare them with projections. Any discrepancies are typically called variances. When the variances are over 10 percent, it is worth looking into the reasons.
3. CATEGORISE VARIANCES
It is easier to assess the variances that concern you by categorizing them into price, volume and timing.
4. ANALYSE VARIANCES
With each variance, ask what could have led to the miscalculation. The causes are usuallly budget errors, the result of poor preparation, or changes that result from external factors such as economic change.
5. TAKE CAUTIOUS ACTION
Sometimes it's better not to take swift action. Blaming staff for not forecasting an event, when in reality they had a few ways of predicting a result, can damage morale. Be cautious. If you can make amends, look at the expense and find out if there are ways of reducing overhead.
6. REVIEW TARGETS
Some variances may be the result of overly optimistic revenue projections. Were the sales targets unattainable? Study performance of competitors and analyze whether targets were realistic.
7. REVIEW PROCESS
You should review the way the budget was put together. Were the objectives set by top management in a top-down fashion? Were middle and lower ranking directors encouraged to provide their opinions on the company goals?
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