Implementation of budgeting methodology for a company

Budgeting is the business management tools for all company levels; it ensures the achievement of strategic goals based on KPI and with the help of budgets. The budgeting process is complicated by the fact that the strategic decision making faces the necessity to forecast future events. The less the external environment is defined the more complex is the forecasting and the more valuable is the planning.

The major budgeting purpose as a management technology is to delegate the rights and responsibilities to the lower management level while preserving the control over the entire company. According to expert estimations only 30% of Russian companies possess an efficient budgeting system. Deviation between planned and actual values can be regarded as the efficiency criterion. This deviation should not exceed a certain limit (e.g. 15 – 20 %). The higher deviation value makes the budgeting system senseless.

While defining the budgeting system the company management must answer a number of important questions:

• What is “good”? What are the measurable goals that the company wants to achieve? Without understanding of the end goal the choice of a direction for future development will become random. At the end it will result in the devaluation of the basic budgeting purpose, i.e. management.
• Who will be responsible? Before implementing a budgeting system it is necessary to describe the core business processes, to develop the company organizational and financial structure and to define the responsibility centers.
• Upwards or downwards? The “downwards” budgeting is only possible for the companies with the strict line of command. The “upwards” variant is more natural, but it may result in the exceeding of expense budgets, which is not efficient in the modern conditions. The both variants have their benefits and drawbacks; that is why the majority of financial experts vote for an intermediate variant.
• Where to get the data? To make this tool functional an actual data accounting system for all budget articles is necessary. The impossibility to compare actual and scheduled data denominates the budgeting idea itself.
• Where is the personal interest? To regulate tasks is not enough; it is necessary to provide the fulfillment of these regulations. Since people are the basis for any management system, its efficiency depends directly on the staff motivation system.

Based on our experience in the budgeting area NaviCon Group Company offers Russian enterprises our services in developing the methodology of budget management and in budgeting automation.

NaviCon Group customers get:

• Budget management regulations, that include:

o financial organizational structure;

o responsibility allocation between the subjects of the financial structure;

o a portfolio of standard budget forms;

o process description for budget planning and approval;

o procedure descriptions to control the budget execution;

o budget amendments.

• Automated budget management system based on business performance management (BPM) software that allows:

o to work with the budgeting model that entirely corresponds to the unique company specifics;

o to get the mutually approved plans that correspond to the company strategy;

o to do budgeting with the high participation level of responsibility centers independently on their number or location;

o to support “upwards”, “downwards” and “opposite” budgeting;

o to estimate the intensity of the plans;

o to make forecasts and to perform “what-if” analysis;

o to approve and confirm budgets in an automated mode;

o to confirm budgets for various scenarios;

o to automatically retrieve data from accounting and other systems, to perform plan\actual analysis;

o to develop the automated budgeting model together with the business development and without any programmers or developers.