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Integrated business planning is another key trend, and it helps to tie the long-term financial plans to the operating model, so businesses can bring the capital, operational, and functional planning together. Rolling forecasts are also rising in popularity, as they provide a more agile method of budgeting that can be modified as circumstances change. There has definitely been an increase in the number of businesses leveraging technology to improve their planning and forecasting. According to panelist Sherri Liao , Senior Director at The Hackett Group, the cloud has been a tremendous help in increasing user adoption of financial technologies.

There are a variety of tools that can help to address cost and time to deploy, as well as tools to improve scenario modeling. The other beneficial aspect of financial technology is its ability to improve the visualization of data, which promotes accurate analysis and gives businesses a clearer view of their finances. There are a lot of warning signs that can help businesses identify when their budgeting process is no longer working.

According to Howell, one of the key warning signs to identify is the time that the budget cycle is taking. Liao says that target setting can be a key indicator. It can change the process of how budgets are carried out. By looking at the target setting to see how clear the objective is, it can help to manage the efficiency of the budget. Feingold says that it helps to take a top-down and bottom-up approach, where the CFO analyzes the numbers from previous years and conducts a top-down analysis based on major assumptions from the previous year.

Then, the CFO should conduct a bottom-up analysis to see if there is a good alignment between the two. Data quality plays a major role in successful budgeting, and businesses need to ensure high data quality to gain the most accurate results. Untimely data can also impact successful budgeting. By the time the budget is completed, some data may already be out of date. Collaboration between the finance team and business leaders is essential for successful budgeting, but it can be a difficult process to achieve.

Howell suggests that the CFO help to drive the corporate strategic planning process. Implementing a year-round ownership of budgets can be helpful, as it creates an organization-wide schedule to hold team members accountable.

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Howell notes that many businesses use top-down high-level forecasting, as well as zero-based budgeting, which can help to gain a fresh perspective on the business budget. However, an interesting and helpful trend has been scenario planning , which can help businesses to understand the potential aftermath of a variety of business circumstances, so they can be more prepared for the future.

CFOs need to be thinking of strategies to improve the budgeting process. Feingold recommends that businesses keep the budget on their mind consistently throughout the year. This can be accomplished by putting together a weekly scorecard that every management meeting starts with. Soila Sariola Auel, Jean M.

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Process Improvement for Effective Budgeting and Financial Reporting

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Top 8 Budgeting Problems Companies Face in Fiscal Planning

McGrath, Alister E. Michelin michelin. Moby moby. It is referred to as the "historical" approach because administrators and chief executives often base their expenditure requests on historical expenditure and revenue data. One important aspect of line-item budgeting is that it offers flexibility in the amount of control established over the use of resources, depending on the level of expenditure detail e. The line-item budget approach has several advantages that account for its wide use.

Top 8 Budgeting Problems Companies Face in Fiscal Planning

It offers simplicity and ease of preparation. It is a familiar approach to those involved in the budget development process. This method budgets by organizational unit and object and is consistent with the lines of authority and responsibility in organizational units. As a result, this approach enhances organizational control and allows the accumulation of expenditure data at each functional level.

Finally, line-item budgeting allows the accumulation of expenditure data by organizational unit for use in trend or historical analysis. Although this approach offers substantial advantages, critics have identified several shortcomings that may make it inappropriate for certain organizational environments. The most severe criticism is that it presents little useful information to decisionmakers on the functions and activities of organizational units.

How to use process improvement in finance

Since this budget presents proposed expenditure amounts only by category, the justifications for such expenditures are not explicit and are often unintuitive. In addition, it may invite micro-management by administrators and governing boards as they attempt to manage operations with little or no performance information. However, to overcome its limitations, the line-item budget can be augmented with supplemental program and performance information. Performance Budgeting A different focus is seen in performance budgeting models. In a strict performance budgeting environment, budgeted expenditures are based on a standard cost of inputs multiplied by the number of units of an activity to be provided in that time period.


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The total budget for an organization is the sum of all the standard unit costs multiplied by the units expected to be provided. Although this strict approach may be useful for certain types of operations, many organizations require a more flexible performance approach. For example, expenditures may be based simply on the activities or levels of service to be provided and a comparison of budgeted and historical expenditure levels.

The performance approach is generally considered superior to the line-item approach because it provides more useful information for legislative consideration and for evaluation by administrators. Further, performance budgeting includes narrative descriptions of each program or activity-that is, it organizes the budget into quantitative estimates of costs and accomplishments and focuses on measuring and evaluating outcomes.

Finally, the performance approach eases legislative budget revisions because program activities and levels of service may be budgeted on the basis of standard cost inputs. However, performance budgeting has limitations owing to the lack of reliable standard cost information inherent in governmental organizations. Further, the performance approach does not necessarily evaluate the appropriateness of program activities in relation to reaching an organization's goals or the quality of services or outputs produced.

Consequently, the performance approach has become most useful for activities that are routine in nature and discretely measurable such as vehicle maintenance and accounts payable processing -activities that make up only a relatively modest part of the total educational enterprise.


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  8. But in sum, performance budgeting may offer considerable enhancement to the line-item budget when appropriately applied. Program and Planning Programming Budgeting PPB Program budgeting refers to a variety of different budgeting systems that base expenditures primarily on programs of work and secondarily on objects. It is considered a transitional form between traditional line-item and performance approaches, and it may be called modified program budgeting.

    In contrast to other approaches, a full program budget bases expenditures solely on programs of work regardless of objects or organizational units.


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    As these two variations attest, program budgeting is flexible enough to be applied in a variety of ways, depending on organizational needs and administrative capabilities. Program budgeting differs from approaches previously discussed because it is much less control- and evaluation-oriented. Budget requests and reports are summarized in terms of a few broad programs rather than in the great detail of line-item expenditures or organizational units. PPB systems place a great deal of emphasis on identifying the fundamental objectives of a governmental entity and on relating all program expenditures to these activities.

    This conceptual framework includes the practices of explicitly projecting long-term costs of programs and the evaluation of different program alternatives that may be used to reach long-term goals and objectives. The focus on long-range planning is the major advantage of this approach, and advocates believe that organizations are more likely to reach their stated goals and objectives if this approach is used. However, several limitations exist in the actual implementation of this approach, including changes in long-term goals, lack of consensus regarding the fundamental objectives of the organization, lack of adequate program and cost data, and the difficulty of administering programs that involve several organizational units.

    As with performance budgeting, PPB information may be used to supplement and support traditional budgets in order to increase their informational value. Zero-Based Budgeting The basic tenet of zero-based budgeting ZBB is that program activities and services must be justified annually during the budget development process. The budget is prepared by dividing all of a government's operations into decision units at relatively low levels of the organization. Individual decision units are then aggregated into decision packages on the basis of program activities, program goals, organizational units, and so forth.

    Costs of goods or services are attached to each decision package on the basis of the level of production or service to be provided to produce defined outputs or outcomes. Decision units are then ranked by their importance in reaching organizational goals and objectives. Therefore, when the proposed budget is presented, it contains a series of budget decisions that are tied to the attainment of the entity's goals and objectives.