In this podcast episode, we discuss a number of ways to improve the budget model. Key points made are:
It can be difficult to create a valid budget model with achievable target numbers.
The assumed employee turnover rate has to be realistic.
The cost of maintenance increases as you approach a 100% utilization level in manufacturing.
May need more working capital, which requires additional financing; include a working capital calculation in the budget model.
Reduce the number of accounts being budgeted, to simplify the model.
Lock down accounts that involve fixed payment amounts, so that they are not accidentally altered.
Place all cost drivers in a single place in the model, to make them more accessible.
Have the budget analyst load most budget items on behalf of the manager, since most of them will carry forward from the prior year.
Integrate budget model results into the purchasing module, so that excess purchases are flagged.
Link the budget model results to the company’s compensation plans, so that employees are rewarded for adhering to it.