Make Budgets a small part of Management Information

There is a move to integrate planning and forecasting into core business reporting so that it becomes possible to examine results in conjunction with non-financial information as well as external information about the markets and competitor performance.

There is an increasing demand to provide a complete view of the past and future performance of the whole business. Not only does this allow for better control over key business decisions, both financial and non-financial, but it also allows companies to use external data to improve the quality of internal decision-making, whilst identifying better value drivers on which to measure and improve business performance.

This ultimately will lead to increased accuracy in the forecasting process because by being aware of trends in the market place and adding key business value drivers, companies can prepare themselves for the year ahead and ultimately shape their future.

Best practice suggests that budgets should be integrated with strategic plans but should only be one small component of the overall performance management framework. They would be linked to external indicators and non-financial drivers such that the overall planning process from a regular strategic review would derive a full balanced scorecard of metrics for each area of the organisation which can be revised at least once each quarter.

Budgets would be prepared annually as a result of the planning process and may be for a 12, 18 or 24 month period.  Forecasts would probably be prepared quarterly on a rolling basis and be updated during the budgetary periods.

The figures from budgets would form the targets in the financial quadrant of the scorecards and as actual results and forecasts deviate from the targets throughout the scorecard, intiatives would be put in place to bring the performance back in line with plans and budgets.

Management reporting would include actual performance against targets for financial and non-financial targets and information about the underlying drivers (both internal and external). Forecasts would also be reported regularly, with forecast against budgets would be a secondary type of information.

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