Budgeting Season is Coming Up

[The picture looks more suitable for a topic on biology and genetics, but I flat out couldn’t think of anything to draw. Finance/math topics are not easy topics to generate pictures – the topic tend to be on the dry side.]

The past week has been relatively busy so I haven’t written much. It’s going to be like that with work during the day and practice sessions in evenings – there is not much time left to write.

Today’s topic is budgeting which is coming up in July, so we are preparing for that season, while we work with the vendor to resolve software issues. In my mind, budgeting is very similar to forecasting but the goal and intent is different. It’s the same set of skill sets and you set up spreadsheet very similarly but under budgeting, you try to predict what your revenue will be and then try to budget your expenses so that you maintain an acceptable profit. There can be a lot of back and forth negotiations and capital budgeting may be part of the picture as managers try to make investments for the future.

Under forecasting, you are again predicting your revenue and expenses but here, at least in the outsourcing/consulting IT industry that I came from, the negotiations are with the clients and not so much with internal management. The contract is the contract and there is not much you can do about it. In those kinds of situations, budgeting may have gone out the door and instead, a rolling forecast may have been implemented. Project managers or consultants will give out forecasts for the next 18 months (as an example) on how they think the business with the client will trend, and then every quarter, an update will be done to cover for any impending changes in the client’s world. Each quarterly update will forecast out the next 18 months, which means an additional 3 months are added, hence the rolling aspect of the forecast. The theory behind the rolling forecast is that business changes too quickly and we can’t spend a lot of time negotiating when in 3 months everything could change dramatically, so just do rolling forecasts and adjust your spending to the forecast rather than to a static budget (which may be out of date within 3 months). That theory makes a lot of sense for the industry that I’ve been in for at least 10 years.

This new industry that I’m in today may not be facing such drastic changes as IT and the way business works is very different, so budgeting may still be suitable.

I’ve spent the last week looking at the budget spreadsheets and will continue to do so this week. My boss has already automated a lot of calculations to make life easier for the managers – the same kind of thing I try to do when setting up spreadsheets: what can I automate to make things easier and enable managers to focus on the big things? This week I’ll do more of the same. I would like to get as much done this week so that my boss will have everything ready before July 21st. Yes, I’m pushing an aggressive schedule but she is going on a 3 week vacation starting July 1st and I would like to make sure she can go with peace in her mind that most of the work has been done.