Budget control, in which issues are identified based on the difference between target and actual figures, and solutions are devised and implemented, is a must for all companies.
On the other hand, many companies may be struggling to implement effective measures due to unclear differences between budget and actual results caused by ineffective budget control.
In this issue, we will focus on the overview, procedures, and four key points of budget control for below people.
- “Increasing the speed of decision making in sales activities through efficient budget control to analyze forecasting and actual result.”
- “We want to understand the process in advance because we are considering improving the efficiency of budget control.”
- “We want to understand the points to keep in mind so that different employees do not have different perceptions of budget management.”
If you are in charge of such a situation, this article will help you deepen your understanding of budget control and give you hints on how to efficiently achieve your company’s goals.
Contents
- 1 What is the need for budget control?
- 2 Specific procedures for budget control
- 3 4 points in budget control
- 4 3 typical methods used for budget control
- 5 The best IT tools for efficient budget control
- 6 What are the most common mistakes that can occur in budget control?
- 7 Summary of budget control process and key points
What is the need for budget control?
Budget control refers to the management of the difference between budget and actual results in order to achieve business goals, and is essential for better sales activities.
Accurate forecasting enables quantitative evaluation of how well the company or team is achieving its goals at this point in time by comparing the actual results with the budget that was set in advance.
It is also necessary for discovering important stepping stones, such as analyzing the causes and devising solutions when actual performance does not keep pace with goals. On the other hand, if the actual performance is better than the target, it is also useful for analyzing specific success factors.
In this way, budget control is a “meaningful” management technique that improves the efficiency of management activities by comparing budget and actual results.
Specific procedures for budget control
Below we will explain the specific procedures for budget management. The following flow is essential for efficient sales activities.
(1) Clarify the budget
First, determine the budget for your company or team.
In order to bring the company’s or team’s performance closer to the target, it is necessary to clarify the budget that will be used as a benchmark in forecasting.
When determining the budget, set goals that are achievable and that
is prerequisite for growth of the company or team. If you set goals that are too difficult to achieve, you will not be able to keep your employees motivated, which will in turn cause performance to deteriorate.
Therefore, when setting a budget, set goals that are slightly higher than the current level. It is also important to estimate the budget by comparing past results and the busy and quiet periods of company.
(2) Set goal on a monthly basis
After the budget is set, set goal and close the accounts on a monthly basis.
Since the difference between the budget and actual results is always changing, it is necessary to close the accounts monthly to check whether “we are not far from the goal” and whether “any action is needed at this time”. It is recommended to manage the project so that you can see the progress against the project budget (goal).
In addition, it is important to share monthly closing information with employees. Sharing financial information with members of the team will help them understand the project process and associated effort goals. They can then apply the monthly challenges and successes to the next step.
(3) Comparative analysis of budget and actual results
Once you have identified the “actual performance against budget” set for each company or team, do a comparative analysis of the budget and actual performance.
For example, in management, the budget and actual results are compared for each category such as sales, cost of sales, SG&A, and non-operating income/loss. If there is a large discrepancy between the budget and actual results, find the cause and devise a solution.
After comparing the budget and actual results, determine “whose” and “which operations” are behind schedule and which are making progress. Then, measures such as changing assignments are required so that the project “as a whole” can achieve the budget.
(4) Execution of improvement measures
Once the budget and actual results are compared and improvement measures are clarified, put them into action.
The key is to implement the improvement measures “immediately”. If you delay the implementation of improvement measures because the actual results are not keeping pace with the goals, you will never achieve the goals.
On the other hand, if there are many issues that need to be resolved, it is necessary to consider the high risk of each issue and determine the order of priority to approach. In addition, measures taken by teams and individuals must be verified for effectiveness, and the PDCA cycle must be continued to bring the team closer to achieving its goals.
4 points in budget control
Here we introduce four important points for budget control
If the following points are not grasped, budget control will be based on qualitative judgments only, and accurate measures will not be possible. Therefore, refer to the following to confirm that your company is properly managing the budget.
(1) Set an appropriate budget
The budget for forecasting should be set within an appropriate range that is neither too high nor too low.
If the target is set too high, the gap between the target and the current situation will be too large, and employee motivation will decline. On the other hand, if the target is set too low, employees will be able to achieve their goals without making any effort, so there will be no growth potential for employees or the company as a whole, and no challenges will be found.
Therefore, budgets for forecasting should be set at target figures that can be achieved by individuals and teams through hard work.
(2) Periodic comparison of budget and actual results
Budget control requires periodic comparison of budgeted and actual results to keep abreast of the latest figures.
This is because if there is a significant change in the current figures, it will not be possible to respond immediately if the figures are not managed. Also, if a project is running behind schedule, the possibility of a problem becoming serious can be reduced if the problem is identified quickly.
Thus, a speedy response avoids the risk of both “human resources” and “financial costs”. Another key point is to have a system in place to respond immediately to problems as they arise, while properly comparing and managing budgets and actual results.
(3) Strive to determine the cause when a problem occurs
When a problem occurs, make every effort to determine the cause.
Budget control is not only a comparison of budget and actual results; it is also an important process to clarify issues that need to be resolved in the course of business. The 3 steps of “analysis”, “hypothesis”, and “verification” are indispensable for this purpose.
By repeating the cycle of “analysis, hypothesis, and verification” for issues discovered when comparing budget and actual results, it is possible to accurately and speedily resolve issues.
(4) Introduce a budget control system
The introduction of a budget control system also contributes to the analysis of issues.
There are several ways to manage forecasting, such as writing it down on paper or using Excel. However, the time and cost required for inputting data and the risk of human error can easily occur, and many teams are not successfully managing budget using analog methods.
On the other hand, teams that use a budget control such as Stock are able to share their budget plan with the entire company and keep the data necessary for recording and analyzing their progress toward their goals as an “information asset”.
3 typical methods used for budget control
Here we introduce 3 typical methods used for budget control. The following will help you find the best method of forecasting for your company.
Excel and Google Sheets
Excel and Google Sheets are one of the most common methods used in forecasting.
Excel and Google Sheets have the advantage of lower training costs, since most companies have implemented Excel and Google Sheets and many employees have experience using them. And because they are free to use, they lower the hurdle for forecast management.
On the other hand, if you want to share the Excel or Google Sheets you have created, you must use another tool, such as e-mail. It also has the issue that information is not updated in real time, which causes a time lag in information for different people.
SFA tools
SFA tools that streamline case and customer management are another method used in forecasting.
SFA tools are mainly used to centrally manage information related to sales activities, such as case management and lead (potential customer) acquisition, which can easily become personalized. Also, unlike Excel, SFA tools can be used with a minimum of cumbersome input, which significantly reduces the man-hours required for conventional input.
On the other hand, SFA tools often require a certain level of IT literacy. Therefore, teams with many employees who are not familiar with IT may not be able to use them intuitively, and as a result, budget control may not work well.
Information sharing tools
Tools for efficient information sharing and management, which are essential for budget control, are also effective methods.
In forecast management, it is necessary to clarify the budget and regularly compare whether there is a gap between the budget and actual results. On the other hand, when analyzing issues and implementing improvement measures, smooth information sharing across the entire company and team is essential.
For example, an information sharing tool such as Stock, which can compile Excel and Google Sheets forecasting charts in notebook units, allows easy sharing of Excel information and reduces time lags. As a result, efficient budget control can be realized.
The best IT tools for efficient budget control
The following is a list of the best tools for budget control that can be used by non-IT companies.
Teams that manage forecasting accurately are able to quickly identify and solve problems to achieve their goals based on quantitative evidence. However, with analog budget control using Excel and paper, even if management itself is possible, man-hours are wasted in sharing target figures and countermeasures.
As a result, it becomes “just giving out numerical values, but it takes time to solve fundamental issues” in budget control. Therefore, budget control should be made more efficient with IT tools.
However, SFA tools and multifunctional IT tools should be avoided because they have a negative impact not only on budget control but also on normal business operations. In conclusion, to improve the efficiency of budget control, you should use Stock, an information management and sharing tool that any member can use immediately.
“Note” of Stock make it easy to keep track of budget planning and problem solving, and are shared in real time with any employee. In addition, “Message” tied to the notes allow for communication without mixing topics, a feature not found in other tools.
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Stock is the simplest tool to stock information. Stock solves the problem, "there is no easy way to stock information within the company".
With Stock, anyone can easily store all kinds of information, including text information such as requirements, images, and files, using the Note feature.
In addition, by using the "Task" and "Message" functions, you can communicate with each topic described in the Note, so that information is not dispersed here and there and work can always be carried out in an organized manner.
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- A tool for companies that are not familiar with ITYou don't need to have any IT expertise to get started.
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What are the most common mistakes that can occur in budget control?
Finally, here are some examples of failures that can easily occur in budget control. If any of the following are true, there is a high possibility that forecasting will not work well.
The means to the end of budget control becomes the goal
The first example of a failure that can easily occur in budget control is when the means become the end.
The original purpose of budget control is to compare budget and actual results to improve sales activities. On the other hand, if the means of budget control becomes the objective, the company will be satisfied with merely analyzing the numbers, and the discovery of issues that need to be resolved will be delayed.
Therefore, in the process of budget control, it is important not only to examine whether the budget and actual results are far from each other, but also to clarify the causes of the differences, identify issues, and implement corrective measures.
Too sticking to the budget
Another typical example of failure is too sticking to the budget.
Often, as a result of being too fixated on the budget you want your team to achieve, you set a budget that you do not expect to achieve. This does not keep employees motivated and does not improve work efficiency.
Therefore, the key to setting a budget is whether each employee and team can set goals that are achievable through hard work. Avoid setting unattainable goals because you are so fixated on the budget.
Do not extract KSFs
Failure to extract KSFs is another cause of budget control failure.
Key Success Factors (KSFs) are critical success factors that are essential to achieving goals. Teams that successfully manage their budget control activities understand “why they succeeded and what the most important points are” in their sales activities.
On the other hand, teams that are not in the habit of extracting KSFs, do not understand the factors of success or failure and cannot share their reflections on “what went well and what went poorly”. As a result, they are unable to apply the KSFs to the next project, repeat the same mistakes, or work in a more efficient manner.
Summary of budget control process and key points
We have focused on the overview, process, and 4 key points of budget control.
Budget control is a management method that compares target and actual results to check the degree to which the company or project has achieved its goals. If smooth budget control is achieved, the PDCA cycle, which identifies and resolves management issues based on “budget” and “actual performance,” can be constantly implemented.
On the other hand, company-wide and team-based budget control requires the habit of “sharing” appropriate targets and analysis, which makes analog management methods inefficient. So, it is important to use “information management tools that anyone can use” to achieve accurate budget control.
Therefore, using the information sharing tool “Stock,” even non-IT companies can simply manage and share budget and actual data without burden. In fact, more than 200,000 companies, mainly non-IT companies, have solved the burden of information management as well as budget control.
It only takes 1 minute to register for free, so using Stock to achieve efficient forecast management.
