The market volatility and growing business problems complexity have dramatically changed the roles and expectations of key decision makers to the finance department. There has been significant time and energy allotted to ensuring that budgeting and financial management techniques used in the organization are sound and up to date with the most recent trends.
Many organizations that are continuously optimizing their processes have also placed increased pressure in making sure the budgeting process output is relevant and insightful in the decision making process.
It was not so long ago when budgeting and financial management was the sole responsibility of the finance department. Today, many organizations have slowly distributed the weight of this responsibility to many levels below and above the CFO. Budgeting has become a task that pierces through all areas of the business and a task that requires deep internal collaboration between the finance department and other business areas in the organization.
Successful Budgeting and Financial Management Practices for Best-in-Class Companies
Regardless of the manner in which the budgeting process is conducted, the goal remains the same: Enhance Control and facilitate value creation because these are necessary in propelling the company upwards.
So just how does budgeting look like for best-in-class companies?
Best-in-class companies control operations through its budgeting and reporting system. Best-in-class organizations control every area of the business by means of planning and reporting by responsibility area. They also put realistic measures for all the business units and the results of operations are collated and reported in all levels.
For many best-in-class companies, sales and profit contributions are always compared with historical figures and previous plans which makes it easier to see if original plans were higher or lower than planned results.
For these companies, sales expenses are controlled by budgeting, forecasting, tracking, and reporting by the very people responsible for these sales expenses. This simple way of doing it ensures a more realistic and effective way to control income.
When it comes to production, costs are measured through control over material, labor, and overhead costs. When talking about material costs, these are controlled by standards set internally by the company. In addition, price variation and materials utilization are monitored and spoilage alongside variable budget allowances are reported to the corresponding departments responsible. Variances are also reported to the person assigned to look at variances in production.
When it comes to manufacturing overhead expenses, control is exercised by means of reporting actual expenditures compared with the fixed budget of the individual who participated in the budget setting and with the individual who is responsible for making the expenditures.
Control over general overhead expenses is controlled by comparing costs with previously set and approved expenditures for the specific service level and/or project.
As can be noted, best-in-class companies put emphasis in responsibility when it comes to budget preparation and cost control. There must always be responsibility at all levels and there must be integration of standard cost reporting with the organization’s budget control mechanisms.
It is worth noting that reporting systems in best-in-class companies are always done in all levels as well from the bottom going up to the CEO. The reporting system must be a tool that can be used by all levels especially the front liners as they attempt to curb costs in their operations. All reports and plans must always be in concrete, easy to execute forms for it to be relevant and useful.
Adopting a successful budgeting and financial management solution
The best-in-class companies succeed in their budgeting and financial management practices because these companies are not scared to invest in new technology that can aid them in streamlining and automating their processes.
What once were labor intensive tasks for them are now automated saving them hundreds if not thousands of work hours.
Adopting a successful budgeting and financial management solution like Performance Canvas Financials by DSPanel not only ensures that your company enforces best practices in budgeting, planning, and reporting, it also streamlines the way your finance department works and it automates majority of the tasks so that finance personnel can focus on more value-creating tasks.
When adopting a new technology to aid in your budgeting and financial management process, make sure that the system supports responsibility accounting and reporting. It must force different business areas to collaborate and work together as well as generate outputs that can be easily understood and executed by all levels.
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