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Budgeting and Control

I am assigned to implement budgeting system in a bank. The goal is to prepare annual budget per department, such as Marketing, IT, administration, HR, etc. after preparing them, the actuals should be checked versus the budgeted amounts and the favorable/(unfavorable) deviations should be explained by the respective department seniors. The questions are: 1) what are the specifics that should be considered when preparing the banking sector budget; 2) are there any templates available for budgeting the departments in a Bank; 3) what are the control mechanisms used for actual vs budget comparison. How they can be matched -by the same accounts?, standard titles? or.. ? what's the common and effective way to do this. Thanks

Answers

Anonymous
(CFO) |

The absolute best thing you can do is design a system that involves the department managers. i.e. one that is built from the ground up. Then, you have their buy in. Which allows you to hold them responsible and accountable for meeting their budgetary targets.

It also makes your variance analysis easier during the year because, when you see a material variance from plan, you can ask the responsible manager - the front line person - why it is occurring and what can be done about it.

EMERSON GALFO
Title: CFO
Company: C-Suite Services
LinkedIn Profile
(CFO, C-Suite Services) |

What system do you have? Most banking systems have budgeting modules. Depending on system implementation, the modules are "passable". It can be used as a starting point and you can improve from there. The good thing about this is that your COA is already mapped out.

I prefer the sandwich approach where top numbers are in accordance with strategic plans and work with managers on what resources are needed to achieve those plans/goals in accordance with the parameters set by the plans/goals..

Topic Expert
Alan Hart
Title: Consultant
Company: Pacific Shine Group
(Consultant, Pacific Shine Group) |

A proper budget should be prepared according to strategic and operating plan guidelines. Ideally, the software you choose should allow you to use drivers and have built-in business rules and pre-defined system calculations. This will prevent errors and omissions common with spreadsheets and spreadsheet-like systems where users are required to spend a significant amount of time on building the model with their own supplied formulas, functions and links, and a greater amount of time on troubleshooting the model.

In addition to the traditional revenue and expenses as presented in an Income Statement, you should make an effort to forecast your organization’s Balance Sheet but you must use a system that will act as an extension of your actual accounting system with mirrored GL accounts and the ability to update all forecasted balance sheet account balances automatically and in response to all budget lines’ activities and their assumptions. With a complete balance sheet you can arrive at not only forecasted account balances but also forecasted financial ratios, etc.

Lastly, you should employ a system where periodic (monthly) analysis of your actual results can be performed as soon as your accounting periods are closed. This is accomplished by having a tight integration between your budgeting software and the accounting GL. The information obtained from this almost real time analysis will allow management to see and understand the results and assist them in making informed decisions.

I realize that it takes a fair amount of discipline and commitment to set up a useful planning, budgeting and analysis system but the results will more than justify the effort.

Amr Mulla
Title: Finance Manager
Company: ALJ Toyota-Distributor Co.
(Finance Manager, ALJ Toyota-Distributor Co.) |

I totally agree with what the consultant Mr. Alan Hart mentioned. In addition to what have been mentioned in last posts, it is a vital thing to coordinate with each head of department (HOD) and establish budget team. This will help you in utilize your time and efforts effectively and efficiently instead putting everything only on your shoulders.

I could answer some of your questions from my experience:

The idea starts with establishing formats for all financial statements along with some analysis to be filled for last year actual, Current year forecast, and the next year BUDGET.

2) are there any templates available for budgeting the departments in a Bank

The templates are available everywhere in the web but I believe you should make a customized one that fits with your business/corporation.

You have to make excel sheets formats and then send them to your IT department so they could add some macros that allow you to upload them to your Budget Module in your ERP system after finalizing everything. Those formats mainly will be for monthly P&L for each department (included all items in details of income statement line by line items).

3) what are the control mechanisms used for actual vs budget comparison? How they can be matched -by the same accounts?, standard titles? or.. ? what's the common and effective way to do this?

As mentioned earlier, having a good ERP system that integrates the most important modules (GL, FA, BUDGET, AP, AR, etc..) will help you in doing your variance analysis.

For P&L, you have to send the formats to each departments and receiving the complete package from them along with analysis for each major item (i.e revenues, manpower cost, depreciation, business trips, entertainment, rent, etc..) then after the final approval upload them to the ERP.

For BS and CF, you have to apply the strategic objectives and link all items from other spreadsheets of other financial reports.

It is also good to make a presentation that summarizes everything and especially the results and the major items (high level). Net Revenues,Gross Profit, OPEX,Operating Profit,Non-OPEX, and Net Profit.

OPEX, CAPEX and Head Count should have separate analysis in details.(You could create a format for that and send them along with the P&L format to each HOD).

Finally financial ratios are very important metrics (KPIs) to be used by higher management in evaluating the business performance, they should be embedded everywhere in all budget reports.

Have a great one

Ron Dimon
Title: Director, Analytics + Information Manage..
Company: Deloitte
LinkedIn Profile
(Director, Analytics + Information Management, Deloitte) |

Great responses in here so far. I would add to the advice: do not underestimate the amount of 'change management' required to successfully implement a budgeting and control system and process. Many business managers that are not used to a data-driven level of accountability and transparency have some resistance to being measured and scrutinized. As Anonymous (CFO) said, involve the business managers in understanding their requirements as well as "selling" the new process and system benefits -- how will planning and forecasting improve their lives? Also align what you budget (and forecast) with your overall company strategic objectives. If "profitable revenue growth of 5% YOY" is your stated goal, make sure the budget tracks the most material parts of the P&L and Balance Sheet that contribute to that goal.

Anonymous
(Controller) |

Thanks all of you for such a great responses and advices. They are more than helpful

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