Budgeting Process Steps

Question

Hi,
  As far as i can comprehend from budgeting textbooks, the few major steps involved in coming up with a detailed budget involved (regardless of software at this moment):
1) study external and internal factors,
2) C level people (CFO, CEO..) come up with corporate objectives in the form of high level numbers, i.e. gross margin, ROI, net income,
3) C level people discuss with senior management on the numbers for corporate objectives,
4) senior management will be guided by the corporate objectives created in step 2, to come up with master             financial statements, such as master PnL, master balance sheet, master cash flow
5) equipped with the master forecast financial statements, allocation is done so that certain entities have certain numbers, i.e. sales, cost... to hit
  how different is this textbook suggestion from how the real world budgeting is done? and i am a bit confused about step 5 as well, i mean if allocation is done to such a detailed level, where is the contribution from the operation level people? certainly between senior management and operation level, there must be some space that allows creativity of detailed budget creation so that challenges on the numbers can happen. or maybe my concept of allocation is wrong, since i thought everything from sales, raw material cost, sales and admin cost is allocated. it doesn't really make sense, but what number is actually allocated then?
  any input on this?
cheers

Answer 1

Hi,
In real term scenario, the budget implementation is quite similar to the one specified. However, the one specified only talks about top down approach. In reality, most of the organizations follow a Counter - Current approach (combination of both top - down and bottom - up).
The following points should be kept in mind while implementing Budgeting Process with BPC:
1. Budget approach
a. Frequency and timing
Will budget information be entered monthly, quarterly, yearly?
Will budgeting and forecasting happen at the same time or at different times?
b. Iterations
If only the current budget or forecast is required, then a single budget or forecast category is all that is needed
If multiple versions of the budget need to be saved, members such as BUDGETV1, BUDGETV2u2026will be needed
If a monthly version of the forecast needs to be saved, members such as JANFCST, FEBFCSTu2026will be needed
c. Best Practice: Multiple iterations
Create a single category that users write to (e.g. Current Budget)
When a version of the Current Budget needs to be saved, the Administrator can use a Data Manager copy package to copy that data to another category member (e.g. Budget Version 1)
2. Modeling requirements and budget method
a. Level of detail
What level is being budgeted for in every dimension?
The best practice is to budget at the base level in every dimension
b. Approaches for budgeting at a level that is higher than base:
Separate application: If you need to model at aggregated levels across most of the dimensions and detail is not important
Separate hierarchy: For example, if certain budget inputs need to occur at the total year level, set up a separate hierarchy that includes only total year members for each year
Smart input: Use the existing full hierarchy, but only input to certain members. For example, to budget for all products in a dimension with individual products at the base level, input the value that represents the total for all products into one of the base level products and let it aggregate to the total
c. Top Down
Allows for inputs that represent aggregated values to be allocated down to the base members of one or many dimensions
d. Bottom Up
Allows for inputs at the base level of every dimension. This does not require that every member in every dimension is budgeted for.
Allows budget creators to input their numbers and provide justification, rather than having a number assigned to them
e. Budgeting Tips
Auditing: in most cases, auditing is not turned on for Budget or Forecast categories
Insight: the Budget detail should be the same as the Actual detail if using Insight
Utilize optimization to improve performance
3. Seeding requirements
a. Zero base: No data seeded as a starting point
b. Prior year actual: Data manager copy package is used to copy actual data from the prior year to the budget for the current year
c. Current forecast: Data manager copy package is used to copy current forecast data to the budget for the current year
d. Percent increase or decrease of actual or forecast: Data manager copy package is used in conjunction with conversion and transformation files which define the calculation
4. Input schedules
a. Input schedules can be broken out by:
Business process
Account classification
b. How input templates are broken out typically depends on:
Budget process
Budget creators
Structure of the company
c. Functions used to send data to the database:
EVSND gives cell by cell control and is best used when you need to convert an existing schedule
EVDRE performs better and is more scalable
d. Built u2013 in modeling functions
Spread: allows you to take a value and allocate it among selected destination cells. The value may be allocated equally, or it may be weighted by an optional range of weights
Trend: takes a value and grows it by a factor among selected cells. The source value will be placed in the first cell of the destination range. Each subsequent cell in the destination will increase by the amount specified
Weight: allows you to allocate an amount by weighted factors in your spreadsheet
5. Business process flows
a. EVASV Function: status reporting
Returns the approval status codes for a given category, entity, and time member
Can also be used to return the owner and the time the status was updated
EVASV (AppName, Category, Entity, Time, Parameter)
The Parameter returns one of the following:
u2022     0 u2013 (Default) Returns the status code
u2022     1 u2013 Returns the person who updated the status code
u2022     2 u2013 Returns the time the status was updated
Budget Method:
u2022     Direct Input: the account is being populated via direct input into an input schedule that interfaces with the database
u2022     Calculated (Driver Based): the account is calculated based on another account value. One account u201Cdrivesu201D the value in the second account. An account that is a driver may drive the value of more than one target account
Hope these points help. Please award points if helpful.