Today, budget management is a necessary process for the efficient administration of an organisation, and an essential lever in defining strategies and guiding decision-making.
The principles governing budget management are defined as the guidelines that apply to economic/financial management and business analytics. Specifically, they are focused on:
Budget management is therefore about establishing mechanisms to:
Budget management models are different in the public and private sectors.
In the public sector, the expenditure ceiling is directly related to revenue forecasts. While the possibility of running a structural deficit exists (the maximums of which are regulated at both state and regional levels), public bodies are subject to the principle of budgetary stability.
In the private sector, budget management is considered an action plan established to achieve a goal or series of goals. Specific costs that can have a significant effect on a company’s operations are usually excluded from the budget control. For example, plant and machinery maintenance can be estimated, but not planned.
Budget monitoring, control and evaluation essentially work the same way regardless of the organisation or technology used. However, different planning strategies exist, each with its advantages and drawbacks:
The table below analyses the advantages and drawbacks of each budgeting model:
These strategies are not mutually exclusive—rather, they are complementary. Multiple models can be used depending on the type of budget and budgeting environment.
Latest market trends show that organisations are turning to zero-based or results-based budgeting strategies. This is a result of the advantages of these models, which include:
However, how exhaustively a budget will be monitored and controlled not only depends on the budgeting strategy, but also on the complexity of the model and size of the teams involved.
In other words, a model’s success depends on the balance achieved between the degree of control and effort involved. The search for efficiency has led organisations to implement hybrid models that combine different budgeting strategies, as well as to draw additional support from predictive models (such as machine learning, artificial intelligence, etc.).
In forthcoming articles, we’ll take a closer look at strategies for addressing different budgeting models.
As experts in budget management and SAP technologies, at NTT DATA we offer consulting services that adapt the strategy to the individual client, identifying the most suitable solution for any given scenario. We provide global services covering the entire value chain, from defining strategies to implementing and maintaining solutions, tailoring our services to best meet the needs of each of our clients.
Boletín oficial del estado BOE-112_Control_del_Gasto_de_la_Administracion_del_Estado.pdf
Author: Marc Labrude
As a Spain-based SAP consultant and budget management expert with more than 15 years of experience, Marc has been involved in migration projects, rollouts and providing maintenance services in the public and private sectors, both in Spain and internationally.