Making the Shift: Four Secrets Behind Great Budgeting and Planning

In our eBook: “Making the Shift: Four Secrets Behind Great Budgeting and Planning”. we explain the increasingly popular approach to variance reporting ““flexible budget variance”  -  this blog gives you a two minute bite-size overview.

Adapting to changing conditions with “flexible budget variance”

“Flexible budget variance” isn’t yet the fastest trending phrase in finance, but it is increasingly used by budgeting pros as it’s an essential tool for modern FP&A teams.

Flexible budgeting enables you to stay prepared for unexpected changes, challenges and opportunities throughout the year. By updating budgets to reflect those changes, you can start improving efficiency and enhancing performance.

While flexible budgeting variance requires more time than simply establishing the once-a-year static budget, new software solutions offer significant time savings with intuitive dashboard capabilities, whilst serving as a powerful tool in calculating, analysing, and then clearly communicating budget variances and their implications.

What is a flexible budget variance?

A flexible budget variance is the difference between the results generated by a flexible budget model and actual results. Because flexible budgets use the actual results, they are not prepared until the end of the accounting period. At that point, flexible budget variances can be useful in identifying any shortcomings or deviations in actual performance during the budget period, which can be used for future planning.

Flexible budget variance is also beneficial during the planning stage of the accounting period. It allows for easy-to-use forecasting and planning for different activity levels, which creates data, helping finance anticipate the effect of changes in revenues and costs. Ultimately, this helps you make more informed decisions if adjustments are needed.

However, traditional static budgeting does not become redundant and is still important for the implementation of a flexible budget approach. In fact, the static budget process is crucial for establishing a baseline on which performance and results are measured, and ultimately for calculating the discrepancies that occur throughout the year.

Technology dashboards fuel flexible budgeting

An important part of flexible budgeting is realising that not all line items will be flexible. Most often, companies have expenses that are likely to be fixed for the entire year, such as rent or contractual obligations.

Other expenses have considerable chance of varying to one degree or another. Expenses such as staffing projections may be dependent on an expected long-term contract being finalised—or unexpected market conditions may result in a spike in sales.

With traditional static budgets, your company would most likely not have the ability to adjust and manage the budget when significant changes occur. Your company may be able to respond as needed to these changes, however at the end of the year, there would be large budget discrepancies resulting in a lack of analytical value for better planning for the year ahead. With our BI software our dashboards offers visual analytics and data visualisation easily portraying variances in a waterfall chart.

Gain meaningful business insights

Flexible budget variance analysis offers the ability to derive meaningful insights throughout the year, allowing for improved planning and budgeting for the future. The power and potential of flexible budgets are further fuelled by technology platforms such as those offered by Clear Plan,  a dedicated partner of Adaptive Insights in UK. We provide drill-down capabilities that can quickly identify, analyse and report variances. Users have the ability to create a variance report that highlights the changes in dashboards, offering a range of options for displaying the numbers into different contexts, allowing users to make better informed business decisions.

Relying on more timely and relevant budget numbers enables you to use flexible budgets to provide senior executives and business managers with dynamic guidance on spending, investments, or cost controls that might be necessary based on changing situations in the business. It is an innovative way to look at your business budgeting, reporting and planning processes.

Learn more in our eBook: “Making the Shift: Four Secrets Behind Great Budgeting and Planning”.