Budgeting: How accurate were your figures?

A budget is a financial plan that covers a specified period (usually one year). It identifies the financial resources allocated to products, services, departments or divisions of an organization.

A budget indicates planned future actions and the funding levels required for their completion. We will be entering the third month of our yearly budget. Every budget should provide for a periodic comparison of actual results and established goals. The budget is used to control expenses. This control activity is called variance analyses. This is the matching of appropriations and expenditures. Variances are analyzed and reasons for deviations are identified. This is where you need to do your homework. The “I think” does not work. You need specific information and a plan for corrective action.

In the old days top management provided the budget and the department heads were required to work within the limitations of their budget. Many department heads were paid incentives when operating within the budget. Today, although forecasts maybe provided by top management, finance or marketing, it is generally agreed that the actual budget requests are best developed at the level where implementation will take place, usually at the department level or lower. This approach tends to work best because those responsible for implementation are in the best position to identify their own needs and they will be motivated if they have had input into the decision making process.

This approach seems to be carried over in to Six Sigma projects. Projects are drawing members in the company and setting up cross-functional teams. How many times have you seen a Six Sigma project implemented that creates a problem? It affects a department that was not considered in the transition and set up.

Top management is finally reaching down to the workers for input. They used to say, “Until you actually do something, you just think you know how to do it.” Manufacturers claim many great ideas have come off the shop floor. The pyramid levels of employees are slowly overlapping.