The value of Budgets, Forecasts and Dashboards is dependent upon how well they’re designed and utilized. Below are some thought on how to maximize their value within your business. The importance of understanding these three reports was evidenced to me in two separate encounters with business CEO’s.

Budgets Forecastst Dashboards

In one case, I was speaking with the CEO about their growth and consumption of capital. When I asked if they had prepared a budget for the upcoming year, she mentioned that she hated budgets. When I asked why, she responded, “Because they’re never accurate.” I went on to explain that budgets aren’t accurate by virtue of their very definition. Budgets are a projection and are intended to be directional in nature. Sure, some of the projected numbers may come in at or near the projection, but in all likelihood none of them will occur exactly as planned.

In another encounter, the CEO requested that I assist him with converting his company’s Strategic Plan into reality. It seems that, while the company was diligent about creating a Strategic Plan on an annual basis, they seldom used it to guide their day to day activities. This caused all the intended accomplishments to get lost throughout the year. There is a lot that makes this conversion successful, but suffice it to say that identifying financial and performance impacts that come out of the Strategic Plan, assigning accountability for the Objectives, Goals and Strategies, and incorporating them into your Budget, Forecast and Dashboard process is key to successfully achieving intended results.

So, let’s take a closer look at these three critical reporting documents.

Budgets, as mentioned above are projections of the company Revenues, Expenses and resulting profitability. These are generally developed on a monthly basis for a 12 month period. Many times, you will see businesses take their budget and augment it with actual monthly numbers as each month progresses throughout the year. Unfortunately, this is where my first CEO became frustrated. You see, this comparison only tells you how good you were at projecting the future and the further away you get from initial month, the greater the variance become; essentially rendering the information to a less than valuable state.

Forecasts are meant to assist in resolving the budget problem referenced above. All forecasts start with the budget. As each month or quarter passes the remaining months are re-forecasted (re-budgeted) based upon current information and environment. It essentially trues up the perspective of management as the year progresses. This allows the budget and forecast information to remain relevant to current circumstances. Course corrections and adjustments become much more realistic.

Now, what’s all this noise about Dashboards? Once you’ve completed your Strategic Plan and Budget determine what key metrics will let you know if you’re on course to achieve your goals. Pick at least 1 for each strategy, but no more than 2 or 3. Dashboards should be designed such that they provide the CEO and or accountable manager to identify progress and/or problems at a glance. Typically, these should be on no more than one page.

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