FMVA™ Certification

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 Budgeting & Forecasting

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Course learning objectives

01. 02. 03. 04. 05.

Identify good ways Identify the Identify the steps that Identify the traits of Categorize expenses
for managers to components of a must be taken before incremental budgeting into the four different
use a budget master budget preparing a budget types of costs

06. 07. 08. 09. 10.

Identify the advantages Identify causes of Calculate variance Identify the goals of a Know when to use
of performing multiple favorable and unfavorable percentage change variance dashboard Solver and Goal Seek
regression analysis variances in profit in Excel

11.
Identify reasons to use
dedicated budgeting tools

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CFI’s mission

We design all our courses with the following goals:

Teach you how finance Give you a solid understanding

01. professionals carry out
their jobs in the real world
02. of key concepts, methods,
approaches

Teach you to
03. perform world class
financial analysis
04. Advance your career

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CFI Instructors

Meet the global team of CFI instructors

Tim Vipond Justin Sanders Scott Powell

CEO & Instructor Instructor Director & Instructor
Vancouver London Vancouver

Lisa Dorian Ryan Spendelow

Director & Instructor Instructor
New York Hong Kong

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 01.

Budgeting Within
A Strategic Framework

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Learning objectives

Explain how budgeting fits into Describe the purposes and Create a process for setting key
the overall framework of decision- uses of budgets in performance indicators (KPIs) that
making, planning and control organizations are both financial and non-
financial which drive the
budgeting process

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Strategic budgeting

Consider the following question:

What is the most significant barrier to improving your budgeting process?

Organizational There are no

Inflexible IT Controlled by
attitudes toward Time Cost significant
budgeting systems another group
barriers

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Barriers to strategy execution

Only 10% of organizations execute their strategy. The main barriers to strategy execution are:

Vision barrier People barrier Management barrier Resource barrier

Only 5% of the Only 25% of managers 85% of executive 60% of organizations

workforce have incentives linked teams spend less don’t link budgets to
understands strategy to strategy than 1 hour / month strategy
talking about strategy

Source: Adapted from material developed by Kaplan and Norton

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The importance of budgets

Budgets must link strategies to objectives; it is the tactical implementation of the business plan.

Strategic plan
Business plan

Now 5 year
objectives

Where we
are Where we
Budget want to be

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Translating strategy into targets and budgets

Translating high level strategy (mission, vision, goals, etc.) requires you to consider four distinct but
related dimensions:

OBJECTIVES STRATEGIES MEASURES TARGETS

What are you trying How are you going to What are output measures? Quantifiable
to achieve? achieve it? What must you What are input measures? Time-based
do to support the strategy?
01. Increase spend per 01. Average weekly spend per 01. $increase
customer customer 02. Volume increase
01. Expand product offering
02. Spend by product type 03. %staff trained in new
02. Source new suppliers
03. Average price changes products
03. Promotion and marketing
04. Pricing

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Kaplan and Norton’s balanced scorecard

Business performance should be measured from the perspective of strategy implementation rather
than relying simply on financial results.

Organizations need a balanced set of financial and non-financial performance measures and targets.

A balanced set of performance measures will ensure that the entire organization participates
in strategy implementation and should include:

Financial Customer Process Learning and

measures measures measures growth measures

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Scorecard perspectives

FINANCIAL
To succeed financially,
how should we appear
to our shareholders?

PEOPLE CUSTOMERS
MISSION
To achieve our vision, To achieve our vision,
AND
what capabilities must how should we appear
STRATEGY
our people have? to our customers?

OPERATIONS
To satisfy customers,
what operational
processes must we
excel at?

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Example scorecard measures

FINANCIAL
• Sales growth
• Operating margin
• EPS
• ROA/ROE

PEOPLE CUSTOMERS
• Qualified staff availability MISSION • Loyalty levels
• Retention levels AND • Brand image
• Performance levels STRATEGY • Customer satisfaction
• Employee satisfaction • Customer spend

OPERATIONS
• Inventory availability
• Productivity measures
• % orders on time/in full
• % IT budget on R&D

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What are our budgeting goals?

To aid the planning of actual operations:

• By getting managers to consider how conditions might

change and what steps they would take
• By encouraging managers to consider problems before
they arise

To co-ordinate the activities of the organization:

• By encouraging managers to examine relationships between

their own operation and those of other departments

To communicate plans to various managers:

• Everyone in the organization should have a clear understanding of

the part they are expected to play in achieving the annual budget
• By ensuring appropriate individuals are made accountable for
implementing the budget

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What are our budgeting goals?

To motivate managers to strive to achieve the budget goals:

• By focusing on participation
• By providing a challenge/target

To control activities:

• By comparison of actual with budget (attention

directing/management by exception)

To evaluate the performance of managers:

• By providing a means of informing managers of how well they are

performing in meeting targets they have previously set

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What to watch out for

The main criticism of planning and budgeting include:

Budgets can become Budgets are rarely Budgets encourage Budgets are based Budgets may
a major barrier to strategically focused “gaming” on unsupported make people feel
responsiveness assumptions undervalued

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 02.

Building a Robust
Budgeting Process

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Learning objectives

Build a robust budgeting Identify critical roles within the Appreciate the psychological
framework budgeting process aspects of budgets

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Building a robust budgeting framework

A robust budgeting framework is built around a master budget consisting of:

Operating
budgets
When combined, these budgets
generate a budgeted income
statement, a balance sheet
and a cash flow statment.

Capital
Cash
expenditure
budgets
budgets

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Types of budgets

OPERATING BUDGETS CAPITAL BUDGETS CASH BUDGETS

Revenues and expenses Requests for large assets An estimation of the cash
for the various budget which create major inflows and outflows for
centers within an demands on an entity’s a specific period of time
organization cash flow
Used to assess whether
Budgeted amounts Buildings, renovations, the entity has sufficient
divided into major automobiles, software cash to fulfill regular
categories such as systems, furniture operations
revenues, salaries,
benefits, and non-salary Purpose to allocate Identifies whether too
expenses funds, control risks in much cash is being left in
decision making, and set unproductive capacities
Encompasses supporting priorities
info such as head counts

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Master budget for
a manufacturer
Sales budget

Production budget

Direct materials
Direct labor budget Overhead budget
purchases budget
Operating
budgets
Cost of goods
manufactured budget

Selling and admin Cost of goods sold

expense budget budget

Budgeted
income statement

Cash budget
Budgeted Financial
Balance sheet
budgets

Capital
budget

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Master budget
for a retailer

Sales budget

Operating
Purchases budget
budgets

Selling and admin Cost of goods sold

expense budget budget

Budgeted
income statement

Budgeted Financial
Cash budget
Balance sheet budgets

Capital
budget

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Master budget for
a service provider

Revenue budget

Operating
Labor budget
Selling and admin
Overhead budget
budgets
expense budget

Budgeted
income statement

Budgeted Financial
Cash budget
Balance sheet budgets

Capital
budget

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Operating budgets – where to start

Before anything else, you first must:

Establish budget centers Create a clearly defined

budget organization chart

Prepare a budget manual Form a budget committee

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A budgeting process

Most larger companies start their budgeting process four to six months before the start of the financial year. Most
organization set budgets and undertake variance analysis on a monthly basis.

Establish objectives
Planning Communication
& targets

Budget committee Compilation and Develop detailed

review & approval revision budget

Implementation and
Board approval
management

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Budget psychology

Behavioral and social aspects are an integral part of the budgeting process and should not be
divorced from the technical side.

Budgets may motivate or de-motivate managers depending on:

• Where the target is set

• The level of controllability
• The level of involvement in budget setting

Budgets should not be used to pinpoint blame

Budgets should be linked to other performance measures

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The effect of budget target difficulty on performance

Expectations Optimal
budget Performance
budget
Budget
Performance

Adverse budget variance

Personal goal

Actual
performance

Easy Difficult
Budget target difficulty

Source: Adapted from Otley, 1977

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Who should be involved?

Obtaining goal congruence is essentially a behavioral issue. Involvement in the budgeting process is of significant
importance in motivating managers.

Imposed Negotiated Participative

budgeting budgeting budgeting

Top down Top down Recommend

targets for
activity and
Shared costs
responsibility
for budget
Impose budget preparation
targets for
activity and
costs Bottom up Bottom up

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One word of warning regarding participation

Studies have shown that participation in the budgeting process was

most critical when job difficulty was high and there was an uncertain
environment.

Although participation leads to greater budget acceptance and desirable

behavioural responses the cost factor may far outweigh the benefits
received since some managers may seize the opportunity to bias
estimates or inflate the importance of their department in competing for
resources.

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 03.

A Practical Guide To
Developing Budgets

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Learning objectives

Apply different best practice Explain the “beyond budgeting”

approaches to budgeting alternative to traditional
including: budgeting
• Incremental budgeting
• Value proposition budgeting
• Output/input budgeting
• Zero based budgeting

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Developing the budget

There are 4 common approaches to developing a budget:

Value
Incremental
proposition
budgeting
budgeting

Activity–based Zero-based
budgeting budgeting

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Incremental budgeting

Incremental budgeting is a very simple method that looks at what was spent last year and then
adds or subtracts a percentage.

+x%
Last year’s Basis for this
actual figures year’s budget

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Incremental budgeting

This is still the most common way used to produce budgeted figures and it may be
appropriate if cost drivers do not change from year to year. However, it is:

Likely to perpetuate inefficiencies

Likely to result in budgetary slack

Likely to ignore external drivers of activity and performance

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Output/input or activity based budgeting

Inputs are determined by outputs, not the other way around. Avoid starting by assessing the
resources you have and then trying to assess what is achievable.

The activities I
Output need to undertake
Input to achieve my
business aim

The cost
expectation of
delivering
these activities

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Value proposition budgeting

For each budget item/amount, ask:

Why is this amount included in my budget? Has a need for this item been demonstrated?

Does the item create value for customers, staff, or other stakeholders?

Does the value of this item outweigh its cost? If not, is there another
reason why this cost is justified?

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Zero-based budgeting

Zero-based budgeting starts with the assumption that all department budgets are zero. Managers are
required to build their budgets from the ground up, justifying every penny they wish to spend.

Bottom-up budgeting can be a highly effective way to “shake things up”. It is most effective when there is an
urgent need for cost containment. However it is:

Best suited for discretionary costs (not essential operating costs)

Extremely time consuming

Most effective when only used occasionally

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Beyond budgeting

“The budget is the bane of corporate America. It never should have existed.” - Jack Welch, ex-CEO, General Electric.

“Beyond Budgeting” argues that firms today need to be more flexible and responsive to deal
with unpredictable change, hyper competition and increasingly fickle customers.

The “Beyond Budgeting” movement has developed 12 principles to replace traditional

budgeting approaches.

In essence, Beyond Budgeting entails a shift from a performance emphasis on numbers to one
based on people and institutional arrangements.

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Beyond budgeting principles

Values Governance Transparency

Bind people to a Govern through shared Make information open

common cause not a values and sound and transparent; don’t
central plan judgement; not detailed restrict and control it
rules and regulations

Teams Trust Accountability

Organize around a Trust teams to regulate Base accountability on

seamless network of their performance; don’t holistic criteria and peer
accountable teams; not micro-manage them reviews; not on
centralized functions hierarchical relationships

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Beyond budgeting principles

Goals Rewards Planning

Set ambitious medium Base rewards on relative Make planning a

term goals; not short- performance; not on continuous and inclusive
term fixed targets meeting fixed targets process; not a top-down
annual event

Coordination Resources Controls

Coordinate interactions Make resources Base controls on fast,

dynamically; not through available just-in-time; frequent feedback; not
annual budgets not just-in-case budget variances

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 04.

Forecasting Techniques

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Learning objectives

Better analyze costs for Effectively forecast revenues Use tools such as PEST
improved forecasting and expenditures using analysis and Porter’s 5 forces
quantitative techniques to aid qualitative forecasting

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Types of cost behaviour

Fixed cost Variable cost Semi-variable cost

Cost Cost Cost

Volume of output Volume of output Volume of output

What are the key fixed costs in your organization?

What are the key variable costs in your organization?

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Types of modified cost behaviour

Stepped fixed cost Variable cost with Variable cost with

economies of scale diseconomies of
scale
Cost
Cost
Cost

Volume of output
Volume of output
Volume of output

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Cost structures and earnings volatility

Fixed cost Variable costs

$ $
Revenues Revenues

Costs
Costs

Time Time

High fixed cost organizations have volatile earnings: small volume changes have material impact on profits

Organizations with low fixed costs have to generate large increases in revenues for modest increases in profits

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Cost structures and flexibility

Analyzing costs into fixed and variable highlights factors affecting the level and volatility of profits:

Example Service A Service B

$ % $ %
Sales
100,000 100 100,000 100
Variable labour costs
40,000 40 60,000 60
(overtime, casual, temps)

Gross contribution 60,000 60 40,000 40

Fixed labour costs 40,000 40 20,000 20

(full time staff salaries)

Net profit 20,000 20 20,000 20

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Cost structures and flexibility

Example Service A Service B

What is the breakeven point?
Fixed costs
Contribution margin

What is the margin of safety?

Sales – Breakeven sales
X 100%
Sales

What will the profit be if volumes

fall by 50%?

What sales are needed to

produce $50,000 profit?

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Cost structures and flexibility

Example Service A Service B

What is the breakeven point?
Fixed costs 40,000 20,000
= $66,667 = $50,000
Contribution margin 60% 40%

What is the margin of safety?

Sales – Breakeven sales 33,333 50,000
X 100% = 33% = 50%
Sales 100,000 100,000

What will the profit be if volumes

fall by 50%?
= $10,000 loss = $0

What sales are needed to 90,000 = $150,000 70,000 = $175,000

produce $50,000 profit? 60% 40%

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Cost control matrix

Analyzing costs into fixed and variable highlights

factors affecting the level and volatility of profits: Cost control potential
High Medium Low

Prioritize costs according to their budget significance

High
and cost control potential. Start your cost analysis
with the budget items with the highest cost priority.

Cost significance
Medium
Don’t overlook small cost management opportunities.
These opportunities, if managed across an
organization, could be significant.

Low
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Quantitative forecasting methods

There are a range of widely used quantitative budget forecasting tools including:

Technique Use Math involved Data needed

Moving averages Repeated forecasts Minimum level Historic data

Comparing one
Simple linear Statistical knowledge A sample of relevant
independent with one
regression required observations
dependent variable

Compare more than one

Multiple linear Statistical knowledge A sample of relevant
independent variable with
regression required observations
one dependent variable

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Moving averages

Moving averages is a smoothing technique that looks at the underlying pattern of a set of data to establish
an estimate of future values.

Last 12 3 month 5 month

months MA MA
5 Revenues
8 10.00

7 6.7 8.00

8 7.7 6.00

8 7.7 7.2 4.00

9 8.3 8.0 2.00
7 8.0 7.8 -
9 8.3 8.2 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

5 7.0 7.6 Revenues 3 month MA 5 month MA

7 7.0 7.4
5 5.7 6.6
8 6.7 6.8

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Simple linear regression

Regression analysis is a widely used tool for analyzing the relationship between variables for prediction
purposes.

Month Radio Revenues

ads
Ads vs Revenue
Jan 21 8,350 $30,000.0
Feb 180 22,755
$25,000.0
Mar 50 13,455
Apr 195 21,100 $20,000.0

Revenues
May 96 15,000
$15,000.0
Jun 44 12,500 y = 78.075x + 7930.4
$10,000.0 R² = 0.9327
Jul 171 20,700
Aug 135 19,722 $5,000.0

Sep 120 16,115

$0.0
Oct 75 13,100 0 50 100 150 200

Nov 106 15,670 Number of radio ads

Dec 198 25,300

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Multiple linear regression

When 2 or more independent variables are required for a prediction the analysis is referred to as multiple
linear regression.

Month Promotion Advertising Revenue Multiple linear regression is available in

(X1) (X2) (Y) Excel via the “Analysis ToolPak” add-in:
Jan 63 123 900
Feb 117 234 1,000
Mar 161 321 1,200
Apr 117 234 1,050
May 116 231 876
Jun 117 432 778
Jul 216 234 1,550
Aug 117 333 777
Sep 167 234 678
Oct 117 333 876
Nov 216 123 1,075
Dec 63 234 925

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Multiple linear regression using Excel

Here the independent (X) variables are “Promotion” and “Advertising” while the dependent (Y) variable is
“Revenue”.

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Multiple linear regression results using Excel

Here are the summary outputs and how to use them…

If we expect:

Forecast “Promotion” to be 125 and

Forecast “Advertising” to be 250…

Note: X Variable 1 is “Promotion”

Note: X Variable 2 is “Advertising”

Revenues = 763.10 + (2.46 x 125) + (-0.45 x 250) = 958.10

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Qualitative forecasting tools

PEST is a useful framework for building expectations about the future and its impact on the budget:

Political forecasting Economic forecasting

and trends and trends

Social forecasting Technological forecasting

and trends and trends

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PEST analysis overview

Political Economic
forecasting forecasting

Identify
Anticipate Opportunities React
And threats

Social Technological
forecasting forecasting

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PEST analysis checklist

Political Economic Social Technological

forecasting forecasting forecasting forecasting

• Legislation • Economic cycle • Demographics • Leading edge

• Taxation • Interest rates • Lifestyles developments
• Regulations • Consumer spending • Attitudes • Own R&D
• Gov’t/business • Government • Needs and desires • Competitors’ R&D
relations spending
• New competition • Business investment
• Exchange rates

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Budgeting using Porter’s 5 forces

Porter’s 5 forces is a powerful tool for assessing industry dynamics and how industry dynamics may
impact budgets. Michael Porter identified FIVE forces driving industry competition:

Potential new
entrants and
barriers to entry

Suppliers and their Rivalry amongst Buyers and their

bargaining power firms in industry bargaining power

Threat of
substitutes

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 05.

Tracking Budget Performance

With Variance Analysis

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Learning objectives

Outline how variances are Calculate variances and Build a variance dashboard
used to monitor and control interpret results report
a business

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What is variance analysis all about?

Variance
The difference between budgeted/expected cost
and actual cost; and similarly for revenue

Variance Analysis
The process of examining in detail each variance
between actual and budgeted/expected costs to
determine the reasons why budgeted results were not
met (material costs too high, sales prices too low, etc.)

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What is variance analysis all about?

Calculating Variances

Variances Budget
Sales Volume 100
Sales Value $1000
Variable Costs (500)
Fixed Costs (200)
Profit 300

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Who’s to blame – breaking down variances

Calculating Variances

Variances Budget Actual

Sales Volume 100 90
Sales Value $1000 $990
Variable Costs (500) (495)
Fixed Costs (200) (210)
Profit 300 285

Variance = (15)

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Sales volume variance

Flexing the budget – sales volume variance

Variances Original Budget Revised Budget Actual Variances

Sales Volume 100 90 90
Sales Value $1000 $900 $990 90
Variable Costs (500) (450) (495) (45)
Fixed Costs (200) (200) (210) (10)
Profit 300 250 285 35

Variance = (50)

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Sales price variance

Flexing the budget – sales prices variance

Variances Original Budget Revised Budget Actual Variances

Sales Volume 100 90 90
Sales Value $1000 $900 $990 90
Variable Costs (500) (450) (495) (45)
Fixed Costs (200) (200) (210) (10)
Profit 300 250 285 35

Variance = 90

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Variable cost variance

Flexing the budget – variable cost variance

Variances Original Budget Revised Budget Actual Variances

Sales Volume 100 90 90
Sales Value $1000 $900 $990 90
Variable Costs (500) (450) (495) (45)
Fixed Costs (200) (200) (210) (10)
Profit 300 250 285 35

Variance = (45)

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Variable cost variance

Original variable 2.5m of material for each sales unit at a price of $2/m
cost budget 100units x 2.5m x $2 = $500

2.0m of material for each sales unit at a price of $2.75/m

Actual Result 90units x 2.0m x $2.75 = $495

Compare this result with the flexed budget

90units x 2.5m x $2 = $450

What caused the ($45) or U45 variance?

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Variable cost variance

Total variance = (135) + 90 = (45)

Price We expected to pay $2/m. We did pay $2.75

180m purchased x (2.75-2.00) = (135)

Materials price variance ($135) or U135

Usage We expected to use 225m to make 90 units

and actually used 180m

At budgeted price ($2/m) we saved

2.0 x (225-180) = 90

Materials usage variance $90 or F90

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Fixed cost variance

Flexing the budget – fixed cost variance

Variances Original Budget Revised Budget Actual Variances

Sales Volume 100 90 90
Sales Value $1000 $900 $990 90
Variable Costs (500) (450) (495) (45)
Fixed Costs (200) (200) (210) (10)
Profit 300 250 285 35

Variance = (10)

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Summarizing variances

Variances

Sales volume (50)

Sales price 90

Materials price (135)

Materials usage 90

Fixed costs (10)

Sum of variances (15)

The sum of the variances equals the difference between the

actual profit of $285 and the budget of $300.

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Investigating a variance – labour cost

Imagine you work at ACME Ltd. and the actual labour costs this month to produce
7,000 widgets are $84,000 over budget. Without breaking down this variance into
its core drivers, it is virtually impossible to get answers to the following questions:

What are the root causes?

Who is accountable?

What action(s) if any can be taken?

Breaking down variances unlocks the root causes of organizational

performance and enables appropriate correction action to be taken.

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Investigating a variance – macro to micro

Total labour
variance
$84,000

Labour price Labour hours

variance variance
$42,000 F $126,000 U

What could be some of the possible causes of the:

Favourable labour price variance?

Unfavourable labour hours variance?

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Investigating a variance – root causes

Labour price variance Labour quantity variance

01. Use of junior versus senior workers 01. Poor supervision

02. Use of workers commanding lower hourly rates 02. Improperly trained workers
03. Use of unskilled workers paid lower rates 03. Machine breakdowns
04. Use of unskilled workers
05. Use of more workers

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Presenting variance analysis to management

Leading edge organizations are increasingly developing “information dashboards”

that summarize key messages coming out of variance analysis with the goal of:

Conveying a lot of information as quickly as possible

Presenting several different types of information all one screen

Using graphs in place of tables where appropriate

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13 common dashboard mistakes

01. 02. 03. 04. 05.

Exceeding the Supplying inadequate Displaying excessive Choosing a deficient Choosing
boundaries of a context for the data detail or precision measure inappropriate
single screen display media

06. 07. 08. 09. 10.

Introducing Using poorly designed Encoding quantitative Arranging data poorly Highlighting important
meaningless variety display media data inaccurately data ineffectively or
not at all

11. 12. 13.

Cluttering the display Misusing or Designing an unattractive
with useless decoration overusing colour visual display
Source: Jonathan Teller, “Gorgeous Dashboards”,
Finance & Management, June 2010 ICAEW

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Sample budget dashboard

Source: CFI’s Dashboards & Data Visualization Course

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 06.

Applied Budgeting Tools

And Techniques

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Learning objectives

Apply useful Excel Outline the pros and cons of linking Identify when to use
functions and tools when workbooks in building a budgeting dedicated budgeting tools
budgeting process

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Reporting results using pivot tables

Pivot tables are tools for dynamically summarizing, analyzing and reporting data. They allow us to rotate
(pivot) a summary data table so it can be viewed from different angles.

Sum of Shipping Cost Column Labels

Row Labels 2018-01-01 2018-01-02 2018-01-03 2018-01-04 2018-01-05 2018-01-06 2018-01-07 Grand Total
Hat -2 -2 -10 -2 -8 -2 -10 -36
Pants -10 -10 -5 -5 -25 -20 -5 -80
Shorts -6 -9 -6 -6 -21 -9 -6 -63
T-shirt -15 -5 -10 -15 -15 -10 -10 -80
Grand Total -33 -26 -31 -28 -69 -41 -31 -259

Row Labels Sum of Revenue

Hat 450
Pants 1,200
Shorts 735
T-shirt 720
Grand Total 3,105

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Creating a pivot table

• Ensure data is in columns

• Row 1 should contain the field name
• Data can be numerical values, text or formulas
• Excel 2007 & later versions create a pivot table by choosing Insert / Tables /
PivotTable
• Excel 2003 & prior versions create a pivot table by choosing Data / PivotTables
and PivotChart Report

Excel 2007 & later versions

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Are you building a budgeting house of cards?

Are you building a budgeting house of cards made up of numerous Excel spreadsheets?

If so, it may be time to move to a dedicated budgeting tool that:

Provides an Provides for a Provides two Provides drill Produces user-

automatic distributed way down and roll friendly and
process of process integration up flexible
data with the capabilities budget
accumulation general ledger reporting

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 07.

Conclusion

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Course learning objectives

01. 02. 03. 04.

Learn how budgeting Understand how to Understand practical Learn how to use
fits within a business’ design a robust ways of building a various forecasting
strategic framework budgeting process budget techniques

05. 06.
Understand how to Learn about practical
track a budget’s applications of
performance with budgeting tools and
variance analysis techniques

corporatefinanceinstitute.com
1. Learn how budgeting fits within a business’ strategic framework

Strategic plan
Business plan

Now 5 year
objectives

Where we
are Where we
Budget want to be

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2. Understand how to design a robust budgeting process

Operating
budgets

Capital
Cash
expenditure
budgets
budgets

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3. Understand practical ways of building a budget

There are 4 common approaches to developing a budget:

Value
Incremental
proposition
budgeting
budgeting

Activity–based Zero-based
budgeting budgeting

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4. Learn how to use various forecasting techniques

Technique Use Math involved Data needed

Moving averages Repeated forecasts Minimum level Historic data

Comparing one
Simple linear Statistical knowledge A sample of relevant
independent with one
regression required observations
dependent variable

Compare more than one

Multiple linear Statistical knowledge A sample of relevant
independent variable with
regression required observations
one dependent variable

corporatefinanceinstitute.com
5. Understanding how to track a budget’s performance with variance analysis

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6. Learn about practical applications of budgeting tools and techniques

Sum of Shipping Cost Column Labels

Row Labels 2018-01-01 2018-01-02 2018-01-03 2018-01-04 2018-01-05 2018-01-06 2018-01-07 Grand Total
Hat -2 -2 -10 -2 -8 -2 -10 -36
Pants -10 -10 -5 -5 -25 -20 -5 -80
Shorts -6 -9 -6 -6 -21 -9 -6 -63
T-shirt -15 -5 -10 -15 -15 -10 -10 -80
Grand Total -33 -26 -31 -28 -69 -41 -31 -259

Row Labels Sum of Revenue

Hat 450
Pants 1,200
Shorts 735
T-shirt 720
Grand Total 3,105

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