{"id":24979,"date":"2023-05-26T12:45:59","date_gmt":"2023-05-26T17:45:59","guid":{"rendered":"https:\/\/pdv-a.com\/?p=24979"},"modified":"2023-05-26T13:42:41","modified_gmt":"2023-05-26T18:42:41","slug":"como-mejorar-los-procesos-del-presupuesto","status":"publish","type":"post","link":"https:\/\/pdv-a.com\/en\/2023\/como-mejorar-los-procesos-del-presupuesto\/","title":{"rendered":"How to Improve the Budgeting Process"},"content":{"rendered":"

The process of developing our budget is a laborious and intricate procedure that involves the participation of stakeholders from various departments, who contribute to, validate, and approve the budget.<\/em><\/p>\n

Without clear communication and effective collaboration, there is a risk of having too many participants involved. Consequently, the likelihood of making errors increases, leading to a lengthy and inefficient budgeting process.<\/p>\n

A recent study conducted by Gartner revealed that 72% of financial leaders are focused on enhancing the flexibility of budgets and projections for the respective fiscal year. Gartner<\/a> revel\u00f3 que el 72% de los l\u00edderes financieros est\u00e1n enfocados en mejorar la flexibilidad de los presupuestos y las proyecciones para el a\u00f1o fiscal respectivo.<\/p>\n

This clearly indicates that more and more financial directors are weary of outdated methods and are focused on improving the flexibility of the budget and the overall process.<\/p>\n

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Chief Financial Officers (CFOs) are tired of outdated methods and are focused on enhancing budget flexibility and the overall process.<\/em><\/strong><\/p>\n<\/blockquote>\n

.In this dynamic environment, your organization cannot afford to lag behind. Fortunately, technological advancements have given rise to the emergence of financial planning and analysis tools that are revolutionizing the landscape. herramientas de planificaci\u00f3n y an\u00e1lisis financiero que est\u00e1n revolucionando el panorama<\/u>.<\/strong><\/p>\n

In this article, we will focus on the benefits of having a streamlined budgeting process, uncover common weaknesses, and discuss how to optimize your company's budgeting process.<\/p>\n

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What is the Budgeting Process?<\/strong><\/h4>\n

The budgeting process is a project management process that involves assessing and analyzing a company's financial position. <\/em><\/p>\n

The budgeting process is a continuous cycle of planning, preparation, implementation, and control of an organization's budget, with the aim of optimizing resource allocation and achieving strategic and operational objectives.<\/p>\n

It entails planning and controlling the expenditure of funds over a specified period and forecasting the resources needed for different projects based on the overall strategic goals of the company.<\/em><\/p>\n

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Why is the Budgeting Process Important?<\/strong><\/h4>\n

The budgeting process contributes to aligning an organization's goals and objectives with the projected revenues and costs to cover its operations.<\/em><\/p>\n

This provides a more strategic perspective on financial matters, placing the organization in a stronger position to build a robust financial foundation. Additionally, the organization remains flexible and adapts to changing market conditions.<\/p>\n

Moreover, your organization identifies and prioritizes its financial needs, which helps determine whether additional funding from banks and investors is required to meet its obligations.<\/p>\n

The budgeting process enables each department to be aware of the availability of monetary resources over a specified period. This guides project prioritization, ensuring alignment with the organization's overall strategic objectives.<\/p>\n

Furthermore, the budgeting process allows the finance department to stay informed about activities in each department. It collects data and monitors expenses to identify different needs in each area. This allows adjustments to be made based on requirements for the upcoming fiscal year.<\/p>\n

Budgeting is a complex process by default. It involves people, data, and processes at various stages, and each of these stages requires significant time and resources.<\/p>\n

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Common Errors Impacting the Budgeting Process<\/strong><\/h4>\n

Outdated Models<\/u><\/strong><\/p>\n

Outdated models result in passive participation in the budgeting process, causing teams to underutilize available data and make meaningful contributions. For instance, many companies start budgeting at least six months before the start of the next fiscal year.<\/p>\n

One example of an outdated model is the top-down budgeting approach. Here's how it typically unfolds:<\/p>\n

The vice president of sales instructs the sales team to initiate the budgeting process.<\/p>\n

The sales team gets to work, identifying and forecasting their revenue goals and how they will manage expenses based on available data.<\/p>\n

The sales department sends the budget to the sales executive for approval.<\/p>\n

Unfortunately, the executive team returns the budget with figures that the team is expected to achieve, nullifying their plans, assumptions, and forecasts.<\/p>\n

This poses a problem as it misaligns the team with the budget and exposes them to potential market deviations that could hinder the new figures provided by the executive team.<\/p>\n

Poor Planning<\/strong><\/p>\n

If you find yourself starting from scratch every time you create a budget, it indicates poor planning.<\/p>\n

During a specific financial period, numerous events occur. If you haven't been collecting data over time, you'll be in a situation where you have to begin the planning process from square one. Moreover, suppose you don't have enough time to research and consult with all the individuals who need to contribute to the budget. In that case, you'll overlook crucial information that is essential for making your budget more effective.<\/p>\n

Poor planning is not limited to starting from scratch on every occasion; it also extends to inefficient workflows.<\/p>\n

Inefficient workflows fail to clarify the duties and responsibilities of each stakeholder in the budgeting process, resulting in a lack of clarity and conflicts that hinder effective collaboration.<\/p>\n

Lack of perspective and agenda cost.<\/strong><\/p>\n

The amount of analysis and level of detail involved in the budgeting process require bi-directional communication among various individuals and departments.<\/em><\/p>\n

These negotiations open the door for politics and team members to focus more on what needs to be done rather than why it's being done, which is detrimental to both the company and its clients.<\/p>\n

For example, a mid-level manager whose incentives are tied to revenue targets is likely to underestimate revenue projections, thereby facilitating the achievement of those targets. This affects the company's performance in the next financial period.<\/p>\n

In other cases, departments vying to outshine one another withhold information. This fosters a compartmentalization mindset, implying that the data in the final budget will not be comprehensive at all.<\/p>\n

The budget does not reflect the company's strategy and objectives.<\/strong><\/p>\n

When top and lower-level managers set divergent goals, budgets are created that do not align with the company's strategy and purposes. For instance, if performance evaluations for lower-level managers are based on achieving revenue goals, budgets will be created to maximize profits and return on investment.<\/p>\n

In general, this may not necessarily be harmful. However, if the company's goal is to ensure the marketing of high-quality products, then a budget solely focused on revenue and profits will lack alignment with overall objectives, negatively impacting the company's overall performance<\/p>\n

Steps to Optimize the Budgeting Process<\/strong><\/h4>\n

Optimizing the budgeting process goes beyond merely completing the budget quickly. It also involves ensuring the availability of accurate and flexible data to adapt to changing market conditions throughout the year.<\/p>\n

This perspective positions you favorably to improve revenue operations, cash flow, and the organization's competitiveness. An optimized budgeting process provides an opportunity to enhance existing workflows and make more informed financial and business decisions overall.<\/p>\n

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  1. Agree on objectives and goals <\/strong><\/li>\n<\/ol>\n

    The overall goals and objectives of your organization will be crucial in shaping the final budget you will implement.<\/em><\/p>\n

    Before embarking on the budgeting process, it is important to agree on the company's goals and objectives. Then, ensure that all stakeholders involved in the budgeting process understand how the budget will contribute to achieving those goals.<\/p>\n

    Start by assessing what worked and what did not in the previous fiscal year, as well as the lessons you intend to apply in the future. Reviewing your existing financial information will raise questions such as:<\/p>\n