Module Eight: Managing the Budget

Once the budget is determined, it is essential to manage it to ensure that the organization or department is adhering to the allotted costs. Sometimes things may happen that could cause necessary changes to the budget. In any case, knowing how to monitor the budget and make approved changes is essential in managing the budget.

This module will discuss the following:

• How to tell if you're on track
• Should your budget be updated
• Keeping a diary of lessons learned
• When to panic

Let's see how to tell if you're on track.  

How to Tell If You're on Track

You should take specific steps to determine if your budget is on track. Here are a couple of tips for making sure your budget is set up for success:

• Give other individuals responsibility over certain budget areas (ex., By department, business unit, project, etc.)
• Schedule regular budget review meetings

Next, here are a few quick steps to help you tell if your budget is on track:

• Collect figures as they become available
• Compare the actual number with the budgeted amounts
• Cite reasons for positive or negative variances
• Classify the reason as a trend or unique incident

Here are some signs you are on track:

• Your variances are minor
• The reasons for any variances are already known and predicted
• An unfavorable variance is due to a unique incident and not a trend.

Should Your Budget be Updated

Updating the budget requires a collaborative effort. You should seek the right people and discuss options and solutions if the budget is beginning to get off track. The TAKE process helps you approach changes to the budget systematically. Here are the steps to take:

• Tell the right people about the budget problems. Go to the right people for information on how to handle the situation. They may be able to give you some advice on how to handle the situation or provide a solution. Nonetheless, telling others about your budget problem will begin a dialogue that will provide more opportunities for ideas you can act on. Here are some people you can contact for help:
• Your direct supervisor or manager
• Your accounting department
• Your budgeting team
• Act and make a decision. Then, depending on the circumstances, you can take the following actions:
• Do nothing when you determine that the variance will correct itself because there is no strong trend or persistent situation.
• Create a forecast or update your current one and analyze it against the budget.
• Create a proposal for a change in the budget
• Keep monitoring the budget during this time of decision-making. Approval for a revised budget may take some time. Keep monitoring the budget. You can hold off on any change request or corrective actions if any positive changes occur.
• Exchange information with all budget stakeholders. This exchange is significant if you propose a budget change or revision. 

When managing a budget, you will encounter issues and problems that may be useful for future budget planning. 

Keeping a Diary of Lessons Learned

Lessons learned are situations that caused changes or challenges to your budget, forcing a change to occur. Keeping track of lessons you learned from your experiences provides a valuable resource when encountering a problem. In addition, lessons learned diary or journal helps to keep pertinent information for future use in an existing or new budget, avoiding repeat mistakes. 

Here are four Rs to taking steps when addressing an issue:

• Review your lessons learned diary or journal. Try to locate similar situations in the past to determine what was done to resolve the issue and the outcome of that solution. 
• React to the issue, using a past solution if the problem is similar to one in your lessons learned diary or journal. 
• Record problems you have never experienced before or are unique. Create a new entry in your diary or journal. Log the date the problem was realized. If the problem is unique, seek solutions by talking with your budget team, peer, manager, or expert on the subject if available. Once the problem is resolved, log the solutions, the outcome, and the date it was implemented. 
• Repository: It is a good practice to store your lessons learned electronically in a document repository. This way, other managers can access them and use them when they encounter problems. In addition, this practice could save your organization money.    

When to Panic

You can avoid a panic situation by always keeping on top of your budget and often communicating with the budget stakeholders. However, situations can arise that can affect your budget drastically. These situations are cause for concrete corrective action.

Knowing when to take decisive corrective action is the trick. Here are some situations that should cause you to take decisive corrective action immediately. 

• A problematic situation arises within the organization. Sometimes unforeseen situations could affect the company's income or ability to operate. Here are some situations to monitor:
• Natural disaster
• Strike
• Property loss
• Inventory shrinkage
• Accounting errors made could be a miscalculated forecast of revenue or the cost of goods needed for sales. 
• Variance in the budget report shows a massive gap without any visible reasons. Therefore, a timely investigation is necessary. 
• The external economic or regulatory situation occurs
• Recession
• Changes in fuel prices
• New laws
• Shortages

You can use the acronym SAVE from these four general categories to help remind you when to panic.

Lesson Summary

Managing a budget is crucial to a business or department's success, but it requires ongoing maintenance to ensure continued compliance to the allotted costs. This module provides guidance around how to monitor the budget, when to update the budget, and when to take action if a problem arises.

• How to tell if you're on track - Give individuals responsibility over budget areas, schedule regular review meetings, compare actual numbers with budgeted amounts, classify any variances as a trend or unique incident.
• Should your budget be updated - Dialog with right people and use TAKE process to approach changes, make decisions depending on circumstances, exchange information with budget stakeholders.
• Keeping a diary of lessons learned - Review lessons learned diary/journal, react to issue if necessary, record new entries when problem is unique, store entries in a document repository.
• When to panic - Monitor natural disasters, strikes, property loss, inventory shrinkage, accounting errors, significant variances, external economics/regulations, and use SAVE acronym.