Master the Art of Budget Projection

Make assumptions that pay off

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in HR Management,Human Resources,Leaders & Managers,Management Training

The way you prepare a budget for your department reveals much about both your work habits and outlook. By tracking variables with care and making sound assumptions, you can impress higher-ups with your number-crunching prowess. But if you allocate resources poorly or permit too much flab, you can lose credibility.

Unless your company says so, your budget shouldn’t be a secret. Teach employees what the numbers mean and why you chose them. Take these steps to ensure your budget makes sense:

Leave wiggle room. Resist the temptation to let feel-good numbers dictate your decisions. Rosy projections with little basis in reality will come back to haunt you.

“Try to budget conservative for income and liberal for expenses,” says Bill Powell, CEO of Progress Industries in Newton, Iowa. That way, you’ll look like a hero if you contain costs and generate more revenue than you thought.

Research the competition. Never set a budget in a vacuum. Do fact-finding to determine how your competitors at other companies arrive at their numbers. Example: At an industry conference or trade association meeting, ask managers in your position what kind of annual adjustments they’re making for inflation.

“My managers who submit the best budgets show comparisons to the competition and explain to me how they can outperform and why,” says Phil Joffe, chief operating officer of CalFarm Insurance Co.

Embrace reality. Take a hard, cold look at the facts. Factor in the last few years’ experience, and then ask yourself what sets this fiscal year apart. Take a historical perspective in arriving at the right numbers for any given month or quarter.

In some labor-driven industries, for example, attrition is unavoidable—especially during certain seasons. Your budget can crumble if you do not allow for at least some employee turnover and the resulting loss in workable days.

Keep score. Your budget should show that you’re earning the kind of margins that your senior management wants from the business that you get. Beware of dwelling on the wrong numbers, such as volume alone. Consider your ROI (return on investment) for every expenditure.

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