Business intelligence blog

    What is variance? Plus other budgeting tips


    Month-end close is a high-stress, intense time for your finance team. Each month they face a different challenge — whether it’s dealing with actual expenditures exceeding the budget or scrambling to gather the correct data from other departments in time. Despite your best efforts, errors can slip through. More than 90% of spreadsheets contain serious errors, while more than 90% of spreadsheet users believe their work is free of mistakes, according to the Association of Chartered Certified Accountants.

    If you’re working primarily with a legacy system or Excel, you might be surprised to learn that many of these pitfalls and discrepancies can be solved simply by switching to a modern company-wide budgeting and forecasting, analysis and financial statement reporting software. Here are some budgeting tips that can help you navigate common finance frustrations and break free of spreadsheet anxiety.

    1. Dealing with variances

    A budget variance occurs when the amount you budgeted for is higher or lower than the actual expenditure. For example, if you budgeted $20,000 for tools and the actual amount spent is $24,000, the variance is $4,000. A variance can be positive or negative but generally indicates inaccurate or assumption-based budgeting.

    Variances are common in Excel spreadsheets. Traditionally, you’d have to wait to review monthly or quarterly reports to catch them. When you use a cloud-based dynamic budgeting tool, you can use a “variance mode” budgeting process at any time to quickly compare expenses and determine areas where the organization is overspending.


    2. Empower employees to stay in control of performance 

    Budgeting can be a great opportunity to empower your employees, particularly your salespeople, to track their goals and meet targets. A modern budgeting process allows you to include sales data into the budget numbers so you have a clear picture of overall sales targets and  the sales team have ownership of the numbers. You can also use the budget stream to keep up to date with how the sales team is performing against the budget.

    Running a live budget in a data analytics environment allows you to drill down into factors such as territory, sales rep or customer type. From there, you can see which sales reps are performing well and which might need some extra help. If you choose to, you can share the report with the sales rep and start a conversation about the data in real time. Use the data as an additional motivation for them to meet a team or individual goal.

    3. Pay attention to specific categories

    When it comes to accurate budgeting, it pays to be as detailed and specific as possible. That way, you can more easily figure out the source of variances if they do occur. For sales, you can drill down into specific categories such as a salesperson, product group or SKU level to determine where a positive or negative variance might be occurring.

    Budgeting at the employee level can help separate by types of benefits such as health insurance, retirement benefits and vacation time.

    4. Leverage dynamic insights

    While you can spot trends and patterns, planning for possible future scenarios can be more difficult. With the help of a software solution, you can model different scenarios and the impact on the budget in each one. This can enable you to decide whether to budget for contingencies as well as the best way to factor in these unknown elements.

    Although the element of the unknown can unravel the best-laid budget plans, you can regain some control by using this budgeting tool to understand the potential financial impact and set-up different scenarios such as a stretch budget, a business-as-usual budget and a pandemic budget.

    5. Take advantage of budgeting workflows

    Your colleagues outside of finance might view budgeting as tedious and beyond their control. Since traditional budgeting systems don’t typically take their input into account, you could be missing out on some very valuable data and insights.

    A digital budgeting tool includes built-in workflows and drivers, allowing you to share certain tasks with employees, such as requesting the cost of cell phones for employees across a year . An audit trail helps you see how your colleagues responded as well as their rationale.

    You can set up permissions so that only certain people can view the information that’s relevant to their work. Involving the entire organization in the budgeting process can increase buy-in and improve communication and transparency.

    Overcoming budgeting errors such as variances can put you back in control of your organization’s spending. A modern budgeting tool offers a more user-friendly and intuitive interface that enables you to reduce errors, increase accuracy and gain valuable insights from throughout the organization.

    A more modern budgeting approach can free up your team to spend more time on strategic, financial analysis-based work. If you choose to use a financial statements solution in tandem with your budget process, such as Phocas Financial Statements, you’ll be able to integrate the software with top ERP systems such as Infor, Epicor, Microsoft, MYOB, Oracle and SAP.

    To learn more about the new budgeting and forecasting tool and how it works alongside Financial Statements, watch this on-demand webinar. It consists of a further explanation from Dan Harrison, chartered accountant and subject matter expert, a demo of the new software and comments from some of the beta customers involved in the development.


    Written by Phocas Software
    Successful Business Intelligence - Phocas Software
    Successful Business Intelligence - Phocas Software
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