It’s Budget season and for many this means wading through huge spreadsheets, chasing down contributors and trying to avoid that nightmare that kept you in the office until midnight last time.

The great thing about Excel is that you are up and running immediately and straight into the figures, this later on turns out to be the not so great thing about Excel as trying to apply a change proportionally against the monster you have built requires much validation with that supporting device that preceded Excel, the calculator.

This year try a more structured approach, ideally use a planning tool that facilitates this and is to Excel what Excel is to the calculator. If a better tool is not an option then take the logic of a tool and apply it to your Budget, this will give you some immediate benefits and if at a later point you can progress it will make for an easy transition.

Here are some guidelines for building a Budgeting model that we find very helpful and hope they bring some benefit to you.

1. Design it before building, sounds like a pretty obvious order of events, well maybe for a house but Budget models generally start out as a couple of sheets and lets just say people get inspired. Each organisation has a few key areas whether it’s Sales, Personnel, Capital or Maintenance.  Get in front of a whiteboard and draw how the figures will flow; its much easier to see problems here before they happen.
2. Use Drivers and Assumptions and keep theses in an area of their own, go through the Budget and for each line on the P&L ask what drives this assign a driver to it and from there on change only the driver or activity rate. Use assumptions to run your scenarios eg Sales increase of 10% etc.
3. Use colour, Blue for input, Black for calculated etc so you know quickly what’s an input area and where to make a change.
4. Materiality, formulas are like crosswords; very satisfying when they work out but bear in mind that the hour you spent on correlating the subscription cost to the number of salaried staff would have been better spend building scenario five on Sales.
5. Make your formulas easier to work with; if you are using Excel put a space between the formula parts, it will still work but its easy to read. Use range names rather than cell references; a column range space row range will give you the intersecting value. (eg. June Sales). If you are using a model you have more power but don’t feel you have to use it, justify why each dimension exists (do I need product category or Sales Rep here), if in doubt take it out.
6. Version control, have a process for this. The quick phone call that just wants to see the effect of a change by 3% may be the version that the board are now interrogating. Realistically running Scenarios can be very straight forward as long as you have structured it correctly.
7. Responsibility, Budgets have little hope of achieving anything unless they originate from those who are going to be measured on them. This may require a shift in thinking but if there was every a good time for collaboration on a budget and making a breakthrough it’s in the middle of a recession.

Finally, do you really need a budget? Could you move to a rolling forecast; many organisations are moving to rolling forecasts as technology now enables us to collect actuals automatically, use drivers that we can update and build assumptions so we can produce many forecasts with little effort. Often the Budget is carried for a few years and then fades into the background, a bit like the calculator.

Teddy Murphy is the founder of MIAGEN and develops Budgeting and Forecasting models for some of Ireland and UKs largest companies. They are running a complimentary breakfast seminar on Adaptive Planning at the Westin Hotel, Dublin on September 17th. Click here to register or contact info@miagen.com