Every year, your organization puts together a budget. Then what happens with it? If you’re not using your budget to manage your organization, you’re missing out on a powerful tool to help achieve your goals.
Leveraging the power of your budget starts with deciding what information to collect and track to monitor progress toward achieving specific objectives. Next, you need to make decisions about managing and reporting information, otherwise known as the financial statements.
That’s a lot of setting up and deciding to do before you’ve got a powerful management tool. So where do you start?
Manage your Organization with your Budget by performing these three actions:
- Set Performance Parameters
Establish a formal financial oversight process to stress its importance and to set clear information requirements, actions, and time frames. Ensure that all responsible parties are aware of obligations, accountabilities, expectations, and authorized activities. Define expected financial outcomes related to strategic and operational goals. Ensure that financial reports address progress toward meeting those goals.
- Identify Critical Areas
It’s not necessary to review every financial line item. Only significant items that relate to performance results should be assessed to get to the root cause of variances or unexpected results. Explaining the root cause often helps you identify the corrective action that is needed to stay on course and meet budget and operational goals. Common financial assessments include variance analysis of planned vs. actual performance for significant line items and ratio analysis to assess financial health (e.g., liquidity and debt).
- Focus on Objectives
Stay laser focused on progress in meeting your short, medium, and long term objectives. Documenting the review and resulting decisions and actions help to track progress throughout the year. Promote discussion about balancing the organization’s immediate and mid-term needs with long-term goals. Think beyond the day-to-day. Needs too large to fund from current operations require decisions about postponing or incurring debt.
Leveraging the power of your budget by performing these three actions will help you Manage your Organization, and achieve your strategic, financial and operational goals.