The accuracy of a budgeting plan is important in minimizing variances. However, managers need to understand and develop strategies that would limit the occurrence of these variances by improving the accuracy of future budgeting plans. The following four strategies could be adopted to make this happen.
Use of Historical Data: The past performance of budgeting process outcomes plays a key role in improving the accuracy of future budgeting plans. This is because historical data can show mistakes and opportunities that emerged from past processes, thereby providing a foundation for reviewing future budgeting plans. The goal here is to maximize opportunities that may emerge and minimize challenges that are associated with them. Historical data would also help to reveal patterns of budgeting processes that help managers to better plan for future occurrences.
Improving Accessibility of Information: Expanding access to information related to the budgeting process would also help to improve the accuracy of future budgeting plans when producing the annual budget for the sales division. This is because increased access to information or budgeting experts would promote accountability in the entire process, thereby improving the visibility of fundamental aspects of the firm’s performance needed to make accurate budget reports. Increased access to information would also make sure that the information presented in budget reports is used in a timely manner, such that the influence of time gaps does not affect the accuracy of the budgeting process.
It is vital to highlight the importance of this activity in the budgeting process because pieces of information used in practice may become irrelevant due to time-lapses. For example, information relating to the company’s sales division in 2019 could be irrelevant in 2020 and beyond. Furthermore, even if updated information is available, but there is limited access to it, the same outcome could be realized. Therefore, there is a need to improve access to information as a strategy for improving the accuracy of future budget reports. Furthermore, whenever a sales division is given unlimited access to information, it will be in a position to make timely decisions, which are critical in developing accurate budgetary plans.
Create Alignment between Budgeting and Forecasting: Creating an alignment between the budgeting and forecasting processes of the organization is also another alternative strategy that would contribute to improving the accuracy of future budgeting processes. The main goal of doing so is to make sure that the budgeting process reflects the underlying methodology governing the way a business operates. However, as Sandström points out, this process needs to be accompanied by additional considerations about the impact that external factors, such as the seasonality of sales, legislative changes, and organizational culture, would have on the budgeting process.
Simplifying Wherever Possible: Part of the process involved in creating a succinct and accurate budget is to simplify all relevant factors impacting the process before it even begins. This step should be completed after evaluating the entire budgeting plan and identifying opportunities that may exist in it to maximize sales. Several tools could be used to facilitate the implementation of this strategy, including integrating automated techniques in data integration and analysis processes to enhance the efficiency of the budgeting plan. Doing so could help minimize mistakes in the budgeting process that are linked to human error.
Global drivers and formulas for budgeting processes could also be used to reduce the complexity of the budgeting process, thereby making it easier for the process to be collected without much hassle. Inaccuracies that are linked to budget variances could also be minimized in the same manner through simplification to reduce budget line items, thereby only leaving those that can be easily managed. Overall, this process can improve the accuracy of the budgeting process by making it easier for planners to focus on line items that are integral to the firm’s overall sales and marketing plan.