How to control a budget
- 1 Make sure the budget you have prepared includes all the key indicators you wish to control.
- 2 Give responsibility for budget items only to individuals with the authority to control the outcome.
- 3 Schedule regular reviews of budget performance.
- 4 Review budgeted figures to identify cashflow or other problems which can be anticipated and tackled in advance.
- 5 Compare margins, working capital and other key ratios with historical figures to identify how performance is expected to improve or deteriorate.
- 6 Carry out a sensitivity analysis to see what effect different outcomes could have on performance.
- 7 Focus on controlling items which could have a significant effect on overall business performance.
- 8 As figures become available, compare actual sales to budget and identify reasons for this sales variance.
- 9 Determine how fixed costs differed from budget and whether any changes are likely to be permanent.
- 10 Analyse the extent to which variances in variable costs reflect sales variances, or whether prices or efficiency have changed.
- 11 Identify to what extent variances in income or expenditure reflect differences in timing rather than performance.
- 12 Take action to sort out underperformance which can be controlled.
- 13 Capitalise on unexpected favourable changes.
- 14 Revise future budgets in the light of the information you now have.
- focus on key indicators which have a significant effect on performance
- use budgets to anticipate problems
- regularly review performance and find reasons for variances
- use budget control as a prompt to action
- revise budgets as more up-to-date information becomes available
confuse changes in timing with permanent changes to the levels of income or expenditure
- ignore favourable variances without finding an explanation