The difference between ‘budgeting’ and ‘budget management’ \u2013 and why it matters<\/p>\n<\/p>\n
Last year, the CEO of UK retailer Timpson shot off an interesting tweet<\/a>. \u201cJust sorted next years budget (we call it a \u2018forecast\u2019 as we banned budgets\/fantasy figures years ago). Took longer than normal, 8 minutes. Promise to be quicker next year!\u201d<\/p>\n When asked how he had reeled off his forecast in such record time, James Timpson answered succinctly, \u201cBy knowing my business and keeping it simple\u201d.<\/p>\n Of course, budgeting and forecasting isn\u2019t a race and Timpson\u2019s rapidity is at the extreme end of the scale, but his off-hand tweet points at a deeper truth in business.<\/p>\n Often, it\u2019s not budgeting that\u2019s actually the hard part, it\u2019s budget management. For finance professionals, budgeting is often second nature. But budget management, the process of sharing, monitoring and controlling the budgets that have been set, is altogether trickier.<\/p>\n That\u2019s likely why many businesses don\u2019t really bother<\/a>. It\u2019s a slog to disseminate budgets to departmental heads and budget owners and maintain budgetary control over a full financial year relies too heavily on manual processes and sharing of spreadsheets.<\/p>\n As a result, managing budgets tends to be a one-off task designed to satisfy bank managers and shareholders but the budget is only dusted off 12 months later, differences explained away and excuses made.<\/p>\n Actual budget management falls to the wayside and the figures are kept locked away in a spreadsheet that\u2019s pretty much impenetrable to the rest of the business. <\/p>\n That\u2019s not to say Excel isn\u2019t effective: its popularity is down to its adaptability. But this adaptability is perhaps more of a trade-off than many finance leaders imagine. While you’re free to tinker in Excel, it does little to actually address the inaccuracy in your forecasts that requires you to tinker in the first place.<\/p>\n As Kevin Philips, CEO of IDU and AccountingWEB contributor, previously explained<\/a>, Excel is great unless you try to use it as a distributed toolset. And that\u2019s a major hurdle if you want to carry out effective budget management. As Philips put it, \u201cA budget only works if the people spending the money buy into the budget.\u201d<\/p>\n Budgets are difficult to manage manually, especially across multiple business units and departments. That\u2019s why there are often significant variances between budget and actuals, re-enforcing the perception that budget management is disconnected.<\/p>\n