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Budgeting Process Beginning Assumptions

 

"Should the first step in the budgeting process be the discussion and agreement on operational (Revenue growth, market share, etc) and economic assumptions (pricing, local inflation, devaluation rate, gdp growth)?"

This question was asked at a recent webinar, now available on-demand:

"Budgeting Best Practices"

Please add your thoughts about it below. Thanks!

Answers

Gene Siciliano
Title: President
Company: Western Management Associates
LinkedIn Profile
(President, Western Management Associates) |

Absolutely. That’s what the operating plan is about, which precedes the budget. The operating plan is the discussed and agreed document outlining what the organization plans to do in the next year, and that is followed by the budget allocating the resources to carry out the operating plan.

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

Experience shows that a budget prepared without an operating plan is of little use, as it will not be based on an agreed upon and approved strategic plan. When you put together your operating plan you will define your assumptions, including drivers, KPIs and other business rules you will use in the actual budget preparation process.

Using a purpose built planning, budgeting and analysis software, the budget numbers will follow the logic set out in the plan and as you monitor actual results vs. the budget you will be able to better understand any variances and their root causes.

Just as it is important to have a plan in place prior to working on the budget, it is important to periodically (monthly if you have an automated system that generates budget period financial statements) analyze your actual accounting data against your budget data.

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