5 Essential Tips for Effective Budget Management

1 - Be clear on your objectives

To make sound financial decisions you need to be very clear on what you are trying to achieve. This clarity will guide your decision making, especially when you need to prioritise where to ‘spend’ your budget.

Always remember the reason you have a budget is to achieve your objectives.

2 - Understand key financial policies and procedures

Every organisation will have a set of financial policies and procedures which are often mandatory for you to follow. This will include delegations of authority which will identify the approvals required for various decisions in the organisation.

It is important you are aware of these policies and procedures as they will guide your approach. Commonly errors are made due to a lack of awareness of these key policies.

3 - Understand core financial terminology

Being aware of core financial terminology will allow you to understand your financial reports and make appropriate decisions. Understanding accrual accounting and how that affects your financials is a key start. Being clear on the difference between capital and operating expenditure is important if you manage capital budgets.

Finally understanding core terminology used by your organisation, which may include Cost of Sales, Employee Related Expense, EBIT, Net Cost of Service or Net Result.

4 - Understand key focus areas and activity drivers

When you are managing a budget there are usually a few key line items that will materially affect your outcomes. These will also be key to deliver your objectives. Examples include staff costs, major projects or different income sources.

Understanding these key line items and what activities lead to a change in them (drivers) allows you to focus your attention on the areas that will make a difference.

5 - Articulate the story and make decisions

The real purpose of budgetary management is to use the operational and financial information to make better decisions.This means you need to be able to explain the numbers with your operational story (what is happening) and then forecast where you realistically expect to end up.

If this is not where you want to be, what decisions can you make to get back on track?

Note: Be careful not to over-optimistic in your forecast, if you do not identify the problem you will not try to fix it.

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If you need assistance developing your capability in financial management, please have a look at our mentoring and training options or alternatively contact us.