(This video chapter begins at 11:01 and ends at 12:30. Click on the blue dot at the 11:01 timestamp to play the video for this module.)

Managing the Budget

Once the budget is determined, it is essential to manage it to ensure that the organization or department is adhering to the allotted costs. Sometimes things may happen that could cause necessary changes to the budget. In any case, knowing how to monitor the budget and make approved changes is essential in managing the budget.

Our focus quote for this module:

“Business, that’s easily defined—it’s other people’s money.“– Peter Drucker

This module will discuss the following:

• How to tell if you’re on track
• Should your budget be updated
• Keeping a diary of lessons learned
• When to panic

Let’s see how to tell if you’re on track.

How to Tell If You’re on Track

There are specific steps you should take to determine if your budget is on track. Here are a couple of tips to making sure your budget is set up for success:

• Give other individuals responsibility over certain areas of the budget (ex. By department, business unit, project, etc.)
• Schedule regular budget review meetings

Next, here are a few quick steps to help you tell if your budget is on track:

• Collect figures as they become available
• Compare actual number with budgeted amounts
• Cite reasons for positive or negative variances

• Classify reason as a trend or unique incident

Here are some signs you are on track:

• Your variances are minor
• The reasons for any variances are already known and predicted
• Reason for a negative variance is due to a unique incident, and not a trend.

Should Your Budget be Updated?

Updating the budget requires a collaborative effort. You should seek the right people and discuss options and solutions if the budget is beginning to get off track. The TAKE process helps you approach changes to the budget systematically. Here are the steps for TAKE:

• Tell the right people about the budget problems. Go to the right people for information on how to handle the situation. They may be able to give you some advice on how to handle the situation or provide a solution. Nonetheless, telling others about your budget problem will begin dialogue that will provide more opportunities for ideas that you can act on. Here are some people you can contact for help:
  • Your direct supervisor or manager
  • Your accounting department
  • Your budgeting team
• Act and make a decision. Depending on the circumstances, you can take the following actions:
  • Do nothing when you determine that the variance will correct itself because there is not a strong trend or persistent situation.
  • Create a forecast or update your current one and analyze it against the budget.
  • Create a proposal for a change in the budget
• Keep monitoring the budget during this time of decision-making. An approval for a revised budget may take some time. Keep monitoring the budget. This way if any positive changes occur, you can hold off on any change request or corrective actions.
• Exchange information with all budget stakeholders. This is very important if you are proposing a change or revision to the budget.

When managing a budget, you will encounter issues and problems that may be useful for future budget planning.

Keeping a Diary of Lessons Learned

Lessons learned are situations that caused changes or challenges to your budget, forcing a change to take place. Keeping track of lessons you learned from your experiences provides a valuable resource when encountering a problem. A lessons learned diary or journal helps to keep pertinent information, for future use, in an existing or new budget, avoiding repeat mistakes.

Here are four Rs to taking steps when addressing an issue:

• Review your lessons learned diary or journal. Try to locate similar situations in the past to determine what was done to resolve the issue and the outcome from that solution.
• React to the issue, using a past solution if the problem is similar to one in your lessons learned diary or journal.
• Record problems you have never experienced before or are unique. Create a new entry into your diary or journal. Log the date the problem was realized. If the problem is unique, then seek out solutions by talking with your budget team, peer, manager, or expert on the subject if available. Once the problem is resolved, log the solutions used and the outcome along with the date it was implemented.

• Repository: It is a good practice to store your lessons learned electronically in a documents repository. This way other managers can access them and use them when they encounter problems. This practice could save your organization money.

When to Panic

You can avoid a panic situation by always staying on top of your budget and communicating often with the budget stakeholders. However, situations can arise that can affect your budget drastically. These situations are cause for quick corrective action.

Knowing when to take corrective action is the trick. Here are some situations that should cause you to take corrective action immediately.

• Serious situation arises within the organization. Sometimes unforeseen situations can affect the company’s income or ability to operate. Here are some situations to monitor:
  • Natural disaster
  • Strike
  • Property loss
  • Inventory shrinkage
• Accounting error made. This could be a miscalculated forecast on revenue or cost of goods needed for sales.
• Variance on the budget report shows a huge gap with no visible reasons. A timely investigation is necessary.
• External economic or regulatory situation occurs
  • Recession
  • Changes in fuel prices
  • New laws
  • Shortages

You can use the acronym SAVE from these four general categories to help remind you when to panic.

Practical Illustration

Dale had successfully created a budget that was effective, but not very flexible. In order to ensure that it was adhered to by the department, Dale gave responsibilities over certain parts of the budget to certain individuals, and scheduled regular budget meetings. To be sure it stayed on track he made sure that all figures were collected as soon as possible. This allowed him to compare the budgeted amounts with the actual amounts. He could then see the reasons behind the negative or positive variances from the original budget, and determine if it was a trend or a special occurrence.