BUDGET, budgets,  n.n. Balance sheet of revenues and expenditures of a state, of an enterprise etc. for a specific period of time. All the provisions of income and expenses of a family or an individual for a certain period of time.

For an effective management of costs and revenues it is primarily required to keep track of them in a transparent manner, which means a procedure through which to make the allocation, a person responsible for it and then a software tool to support the process.

After this system will provide information in a (quasi)real time about the expenditure and income at the level of cost/profit centers, the next natural step is to have the ability to predict them, to plan, and to keep track of the deviations from the initial planning, which basically means to make a budget management. 

The planning must be completed before the start of the budget execution and will include the detailed forecasted costs/revenues for each month and for each cost/profit center. As the costs/revenues are recorded in accounting, the planning will be the mirror where the results will be reported and the deviations will be assessed. Monitoring these differences is essential to support managerial decision making. The causes for biases may be different, as well as the corrective measures:  

• Wrong estimation of costs - will require an adjustment to the initial planning.

• Changes that occur in business – likewise, the planning should be adapted to take into account these changes

• Uncontrolled expenses – it is probably necessary to control the procurement policy to avoid future similar situations

Some tips for an effective budget planning:

• The corrections should not affect the initial planning, track of changes should be kept

• The budgeting can be done by several persons, the ones in charge of the groups of profit centers. The tracking will be unified, consolidated.

• The projected costs can be calculated in several ways, the most common being: The first budget has to be planned after one exercise was run (one year) with the procedure and cost center structure described in the beginning. As such the change will be easier to adopt and the chances of success will be real.

  • From scratch, starting from the objectives and calculating the requirements to achieve them
  • Starting from the previous budget (planned) and adjusting by a percentage according to the current budget trend (increase/decrease)
  • Starting from the previous execution and adjusting by a percentage according to the current budget trend (increase/decrease)

Also, this planning must be supported by the same software tool. We recommend you to investigate when implementing the solution:

• How easily a budget of expenses for one year on all cost centers can be introduced? As a term for comparison, measure how much time you would need to put it into Excel. If in ERP it lasts much longer, it may not be reasonable. Some systems accept the direct import from Excel, which significantly simplifies the process.

• How can you operate rectifications? Are there an historic and traceability of changes?

• How can you visualize budgeted versus achieved? How can you copy amounts from one budget into another? Can you simultaneously work with multiple planning scenarios?

In conclusion, budgets management is a complex and recurrent project that involves the participation of the whole structure of the company and that can provide powerful tools for decision making.

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