Budget monitoring and control

One of the most effective tools for managing the finances of business activity is controlling the annual budget. The elaboration of the budget and the control of its fulfillment and deviations contribute to setting the economic objectives (as regards income, expenses, and investments) and monitoring that the actions destined for its realization are adequate to achieve it.

In this way, we consider budget as the anticipated calculation of income and expenses of economic activity during a period, generally one year. It is an action plan aimed at meeting a planned goal within approximately one year.

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The preparation of the budget forces us to set the objectives and allocate the resources available to the organization to achieve them. By gathering data from previous activities, the budgeting process is usually relatively simple depending on whether you choose to follow a linear path or decide to change the direction of the organization.

Budget control

Once the budget is fixed and begins to be applied, the activity must be controlled and its results verified to detect the degree to which expectations are being met. For this, we must be aware of what information we need to analyze to carry out these controls and how often we must apply them.

Through budget control, we can discover what is being done (actual data), compare it with what we wanted to do (budgeted data), and verify achievements, as well as correct differences. This process requires a tool that allows deviations to be detected in time to be able to make the right decisions that correct the direction of the company's plan and is also capable of:

• Integrate actual data and budgets in the same database.

• Correct budget based on variance analysis using forecast calculations.

• Design interactive and intuitive reports.

• Visualize monthly and annual analysis.
• Generate early alerts of deviations through notifications.

Another important aspect is to establish the key activities that are especially relevant to achieving these objectives, that is, those that are more sensitive to deviations or even because other activities depend on their execution.

As expected, the controls of these activities must be carried out more rigorously and the deviations detected in them are of greater importance, which is why we must pay special attention to them.

Because we understand that it is impossible for planning to be 100% effective, deviations are inevitable, but detecting them in time will allow us to manage our resources more effectively and be more efficient.

These deviations can be both positive and negative for the activity and we must be able to redirect these resources to transfer them from those activities where the deviations are in our favor to those in which deficiencies are detected.

Importance and usefulness of controlling the annual budget.

Creating an action plan based on the various available research, studies, and statistics is one of the most important uses of budgets. Each of the areas of a company will define certain objectives that must be aligned with those of said company. This will allow you to check which objectives were met and which were not.

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Through the budget, the activities of a business can be related, facilitating decision-making that determines the path to follow. Likewise, it will favor the increase in productivity, it will provide sufficient analysis to determine if it is necessary to implement changes in the management of the annual budget or not.

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In addition, thanks to the control of the annual budget, excess expenses are avoided, and thus companies save money instead of losing it.

If every year we have budget surpluses (unused funds), we should ask ourselves if the methodology that we are applying is the appropriate one: the calculations and assumptions used must be reviewed since the function of the budget is to control resources.

In short, let's not lose sight of the fact that controlling the annual budget is a way of developing a strategic plan for our activity for that period. For this reason, it is important to identify where this planning is fulfilled and where it is not, detecting possible deviations, with the ultimate goal of achieving the balance that serves to achieve the proposed goals.