Budget Variance Analysis

𝐑𝐞𝐯𝐢𝐞𝐰𝐢𝐧𝐠 𝐛𝐮𝐝𝐠𝐞𝐭𝐬 𝐥𝐢𝐤𝐞 𝐚𝐧 𝐅𝐏&𝐀/𝐅𝐁𝐏 𝐞𝐱𝐩𝐞𝐫𝐭 Oya, Oya, before I come into your feed like an FP&A ghost, let me apologize for going quiet for weeks. Juggling work and showing up here has been real. I am sorry, okay? I am no soothsayer but if you started your budget process in time (like I told you to), you should be deep in budget consolidation/review. Still explaining your template to departments? Meet me at 12pm at ANY location of your choice so we square off! Budget reviews can be messy, but I’ve refined a sustainable, foolproof approach. Here’s how I tackle mine: 1. Start with the story not the spreadsheet Ask: “What’s the story this budget is trying to tell?” Your budget should show: >> What’s driving growth next year? >> What changed vs. last year? >> What’s the business betting on? If the narrative doesn’t line up with the numbers, pause first. 2. Benchmark against reality Compare submissions against: >> Last year actuals (and YTD run-rate). >> Targets in the strategic plan. >> Peer business units or competitors. Patterns expose stories or lies instantly. Sudden jumps should have reasonable drivers. I often highlight top 10 movements (positive or negative) and ask for a 2-line explanation. 3. Challenge the logic ALWAYS Solid FP&A persons review operating drivers before the numbers Ask these: “What volume growth are you assuming?” “What’s the price per unit or per customer?” “How does this compare to actual trends?” “What happens if conversion or retention drops by 5%?” 4. Review headcount! Check for: >> Alignment with HR’s manpower plan. >> Realistic hiring timelines (people assume January start; in reality, it’s April). >> Salary inflation and grade structure accuracy. >> Fringe benefits, taxes, pensions. People forget these. 5. Validate cost drivers Every line item must have a driver or owner. If someone can’t explain what drives the cost, it’s suspect. Ask: >> “What activity drives this spend?” >> “What KPI does this expense support?” >> “If volume doesn’t happen, will this cost still be incurred?” 6. Run ratio checks: Ratios catch what Excel hides. Key ones: >> Staff cost / Total Opex → sudden jumps = check payroll or hiring plan. >> Cost of Sales / Revenue → margin control. >> CapEx / Revenue growth → are we investing enough to justify growth? If ratios move dramatically year-to-year, you either discovered an opportunity or a problem. 7. Challenge the Timing of Spend Budgets assume linearity but life doesn’t. Ask: >> “When will this project start?” >> “When will spend hit?” >> “When does benefit start showing up?” “Q1 spend for Q4 results,” is not a budget; that’s wishful thinking. 8. Look for duplication and missing costs Cross-functional teams often double-budget: >> IT & Product: cloud costs >> Marketing & Brand: campaigns >> HR & Admin: training Scan for similar descriptions, vendors, GL codes, and check for missing costs (shared services, depreciation, licenses). Hope this helps!

Bad FP&A: The variance report shows we're 12% over budget. I'll send out the standard email asking departments to cut spending. Great FP&A: I noticed the spending increase and mapped it against our growth initiatives. Here’s what I found: 80% of the overages are tied to high-ROI projects driving revenue. I’ve identified areas where we can optimize without cutting key investments. Let’s review this with the business partners and adjust our forecast. One reports numbers. The other tells the story behind them. FP&A can become the trusted advisor everyone turns to. Your job isn't to be the budget police. It's turning numbers into winning decisions. Reports don't drive success. Impact does.

𝗛𝗲𝗿𝗲 𝗮𝗿𝗲 𝗲𝗶𝗴𝗵𝘁 𝘀𝗶𝗺𝗽𝗹𝗲 𝘀𝘁𝗲𝗽𝘀 𝗳𝗼𝗿 𝗖𝗙𝗢𝘀 𝘁𝗼 𝗺𝗼𝗻𝗶𝘁𝗼𝗿 𝗮𝗻𝗱 𝗮𝗻𝗮𝗹𝘆𝘇𝗲 𝘁𝗵𝗲 𝗳𝗶𝗻𝗮𝗻𝗰𝗶𝗮𝗹𝘀... You need to know your numbers. No one else will. But how can you best monitor and analyze the financials? First an overview of the eight steps to improve... 1. Establish KPIs 2. Financial reporting 3. Variance analysis 4. Financial ratios 5. Forecasting 6. Financial planning 7. Technology and Analytics 8. Financial reviews ---------- 1️⃣ Establish KPIs Identify and track key financial metrics that are relevant to the organization. These may include revenue growth, profitability margins, cash flow, ROI, and working capital ratios. Establish benchmarks and targets to assess performance. 2️⃣ Financial reporting Implement a robust financial reporting system that provides timely and accurate financial information. Regularly create financial statements, including income, balance sheets, and cash flow statements. 3️⃣ Variance analysis Perform variance analysis to compare financial results against budgets, forecasts, and prior periods. Identify and analyze the reasons for significant variances. Use variance analysis to identify trends, opportunities, and potential risks. 4️⃣ Financial ratios Utilize financial ratios and KPIs to assess financial health and performance. These may include liquidity ratios, profitability ratios, efficiency ratios, and leverage ratios. Monitor changes in these ratios over time and benchmark them. 5️⃣ Forecasting Develop financial forecasting models and conduct scenario analysis to project future financial performance. Assess the impact of different scenarios on financials, like market fluctuations, pricing changes, and legal shifts. 6️⃣ Financial planning Collaborate with the executive team on the development of long-term financial plans, budgeting processes, and resource allocation. Provide financial insights and analysis for strategic initiatives, investment decisions, and growth strategies. 7️⃣ Technology and Analytics Use financial technologies and analytics tools to enhance financial monitoring and analysis. Implement data visualization tools to present financial information. Explore advanced analytics techniques, such as predictive modeling and data mining. 8️⃣ Financial reviews Schedule regular financial reviews with the executive team and relevant stakeholders. Present financial performance reports, discuss key findings and address any questions or concerns. Provide financial insights and highlight risks and opportunities. ---------- I have used these steps many times with success to create tangible results and business leaders are eager for you to step in and get it done. Are you currently following these eight steps? Anything you'd add or change? #finance #cfo #accountingandaccountants #analytics 🎧 Listen to our #FinanceMaster Podcast here: https://bit.ly/3NLSt73 🧑🎓 Learn how we can help your finance team here: https://bit.ly/3prsWXH

"We don't have a marketing budget - we're open to your ideas!" Often, this statement translates to, "I don't know how to value our goals, so I'm unsure about what to spend to achieve them." Yet, 99% of agencies respond with, "No worries! We'll draft a proposal with various cost options." This approach is as ineffective as a chocolate fireguard. Instead, here's a more productive approach: ask the right questions upfront. When a brand says they don't have a budget, you might respond with: "Could you share the results you're aiming for?" They might say: "My boss wants us to gain 15,000 new customers in the next 12 months. Our average order value is about £90." You can then say: "Great! So, £90 x 15,000 new customers equals £1.35M in additional revenue. What do you think would be a realistic spend to achieve this in the next 12 months? Typically, investing 10-15% of the desired outcome is a good benchmark. So, a budget of £135,000 - £200,000 should give us a strong chance of hitting your targets. Does that sound fair?" If they reply: "That's more than we're willing to spend right now," You might respond with: "Our priority is your success. Would you be open to adjusting your targets? Spending 10-15% of the desired outcome is a realistic approach for potential returns." They might say: "I can get approval for £100,000, but I'll need to discuss lowering our target with my boss." And voilà! You've established a marketing budget. It might not be the ideal budget for the desired outcome, but at least you've had a mature discussion about expectations versus budget. Now, you can decide whether to work within that budget or help them understand the need for a larger investment. If you can't align, it's okay to walk away. But if they're open to discussing budget and setting achievable KPIs, proceed. This process doesn’t have to be complicated. Keep it simple and straightforward.

Budgeting in EPC (Engineering, Procurement, and Construction) Projects: *Budgeting Process:* 1. Define project scope and objectives 2. Identify cost elements (labor, materials, equipment, services) 3. Estimate costs using historical data, industry benchmarks, or expert judgment 4. Develop a detailed budget breakdown (WBS - Work Breakdown Structure) 5. Establish budget contingencies for risks and uncertainties 6. Review and approve budget with stakeholders *Budget Components:* 1. Engineering costs (design, drafting, engineering services) 2. Procurement costs (equipment, materials, services) 3. Construction costs (labor, equipment, materials) 4. Project management costs (PMO, coordination, oversight) 5. Quality control and assurance costs 6. Safety and environmental costs 7. Commissioning and startup costs 8. Contingency funds (unexpected expenses) *Budgeting Methods:* 1. Bottom-up estimating (detailed estimates for each activity) 2. Top-down estimating (high-level estimates based on similar projects) 3. Parametric estimating (using historical data and statistical models) 4. Analogous estimating (comparing to similar projects) 5. Expert judgment (using experienced professionals' opinions) *Budgeting Tools:* 1. Spreadsheets (e.g., Microsoft Excel) 2. Project management software (e.g., Primavera, MS Project) 3. Cost estimation software (e.g., CostOS, Esticom) 4. Earned Value Management (EVM) systems *Budget Monitoring and Control:* 1. Regular budget reviews and updates 2. Variance analysis (identifying deviations from budget) 3. Cost reporting and tracking 4. Change management (approving and documenting changes) 5. Forecasting and re-estimation *Challenges in Budgeting:* 1. Uncertainty and risks 2. Complexity and scope changes 3. Inaccurate estimating 4. Inflation and currency fluctuations 5. Stakeholder expectations and communication *Best Practices:* 1. Develop a comprehensive budget plan 2. Use multiple estimating methods 3. Establish clear budget responsibilities 4. Monitor and control costs regularly 5. Communicate budget changes and variances to stakeholders By following these guidelines and best practices, EPC project teams can develop accurate and comprehensive budgets, ensuring successful project delivery.

"It looked good on paper. But on site, it cost us £5,000 an hour." On a recent OLE rail project, the team planned an 8-hour overnight shift to install cantilevers. Each hour was priced at £5,000, expensive but carefully budgeted. Then reality hit. The possession began at 10 pm, but essential equipment didn't arrive on site until midnight. Two critical hours were lost immediately, costing £10,000 before anyone even started. At 3 am, a key machine broke down, forcing the team to wait another hour for a fitter to arrive. Another £5,000 quietly slipped away. By shift end, only half the planned work was complete. £15,000 of productivity vanished, unnoticed until days later.  AND they would still have to go back and complete the remaining cantilevers on another shift, doubling exposure to cost and risk. But here’s the real issue: Everyone knows they've lost productivity, but few see the immediate financial impact. If you could see costs escalating in real time, not days or weeks later, you could act decisively, minimise loss, and avoid repeating costly mistakes. Clear visibility of the true cost as it happens transforms your decision-making from reactive to proactive. That doesn’t just protect your margins, it protects your entire project's success. Here's a thought: Should we be writing the actual cost of each shift directly onto every shift record?

Do you want to start using Machine Learning and Python for Budgeting? This is what I'd recommend: First, what is Machine Learning? Think of it as a way for computers to learn from data without needing to be told exactly what to do. Instead of following a strict set of rules, the computer looks at lots of information (data), finds patterns, and uses that to make decisions or predictions. As FP&A and #finance professionals, you don’t need to be a data scientist to use its power—you just need the right tips and tools to get started with Python and #AI ! If you are a beginner with Python, start here: https://lnkd.in/eNZqsHvi ✅ Automated Data Processing One key tip for this is to use Python’s pandas library for automating data collection and processing. You can quickly clean, sort, and organize large datasets without worrying about manual errors. This automation saves time, speeds up the budgeting process, and ensures data consistency. You can even ask ChatGPT for sample code on how to automate data imports! ✅ Trend Analysis I recommend using the matplotlib and seaborn libraries to visualize trends and patterns in historical financial data. Just ask ChatGPT for guidance on how to create visuals in Python. ✅Anomaly Detection A great way to detect anomalies in your financial data is by using the scikit-learn library. Start with unsupervised learning algorithms like Isolation Forest or clustering methods (e.g., DBSCAN) to spot unusual patterns or potential errors in your data. These models can help you identify fraud or prevent budgeting errors before they escalate. ✅Predictive Modeling Predictive modeling is easier than you might think. By leveraging machine learning algorithms such as Linear Regression or Decision Trees (available through scikit-learn), you can forecast future financial performance based on historical data. Once set up, these models will improve your budgeting forecasts' accuracy over time. ✅ Dynamic Budgeting Machine learning allows your budgets to be flexible. I recommend using real-time data adjustments with Python, updating your budgets automatically using tools like statsmodels or prophet. Read this to learn more about Prophet: https://lnkd.in/eB8Qm3EY ✴ Remember: Python is beginner-friendly, and many of the libraries I mentioned are easy to learn with some practice. Whenever you’re stuck or need help with code, you can ask ChatGPT for assistance! If you want to leverage GenAI and ChatGPT for Finance, Nicolas Boucher and I are having our 9th cohort of this training: Use this link to get a discount: https://lnkd.in/e4FugWeY

The budgeting process is currently underway, and it's essential to ensure that every step is carefully executed for optimal results. Here are 7 key steps to streamline and enhance your budgeting operations: 1. Define Timelines, Roles, and Deliverables: Start by setting clear goals, assigning responsibilities, and establishing a timeline with critical milestones to ensure the process stays on track. 2. Review Historical Performance: Dive into past financial data to identify trends and patterns that will inform and improve this year’s budgeting decisions. 3. Forecast Future Trends: Project future revenues and expenses while taking into account external factors such as market conditions, competition, and technology shifts. 4. Set Financial Targets: Translate strategic goals into measurable financial targets for each department, aligning objectives across the business. 5. Develop Departmental Action Plans: Ensure each department develops a comprehensive action plan detailing how they will meet their financial targets. 6. Create Department Budget Projections: Estimate the costs and revenues for each department, which will contribute to drafting the overall budget. 7. Consolidate and Finalise the Budget: Bring together all departmental budgets, review them thoroughly, and refine them for approval by senior management. By following these steps, your budgeting process will remain structured, efficient, and aligned with your strategic goals.

Measuring your SME financial health with Free Cash Flow metrics 🎯 As an experience finance professional, I always consider good cash flow management as crucial in maintaining company’s financial health. Cash is the lifeblood of any kind of business in my opinion. So, it is very important that SME business owner to take a good care of their business cash flow management💸. One way for a business owner to assess the health of their company’s cash flow management is by selecting the right metric and consistently monitoring it. Free cash flow (FCF) is one of the metrics that can be used to measure your company financial health. It indicates how much cash a company can produce after taking cash outflows for operations and assets purchase into consideration. Normally you calculate FCF by subtracting capital expenditures from your operating cash flow. In another word, it is actually a measure of profitability that excludes the non-cash expenses of the income statement and includes cash outflow on equipment and assets purchase as well as changes in working capital from the balance sheet. Here are some key benefits in monitoring your business FCF: 1️⃣ Cash flow management: By monitoring FCF helps SME owners to ensure that they have enough liquidity to cover day-to-day operations, pay debts, and pay capital expenditures. 2️⃣ Decision to expand the business: Understanding FCF allows business owners to know the ability of their business to expand or grow, such as by expanding distribution assets, adding production line, or pursuing opportunities to acquire other business without compromising financial stability. 3️⃣ Debt management: By monitoring FCF, SME owners can assess their ability to service existing debt and at the same time evaluate the feasibility of taking on new debt to support the business growth. 4️⃣ Better financial forecast: Regularly tracking FCF enables SME owners to make more reliable financial forecasts, anticipate future cash needs, and plan accordingly. Such forecast could help to identify potential cash flow gap early and prepare relevant mitigation. 🤔 How do you monitor your business cash flow management? Please share your insight and experience in the comment section. 🙏 If you're gearing up to scale your SME or early-stage business to new heights, let's connect. Together, we can explore strategies to optimize your business cash flow and strengthening your financial foundation. #CashFlowManagement #BusinessOptimization #BusinessTransformation

𝐁𝐮𝐝𝐠𝐞𝐭𝐢𝐧𝐠 𝐈𝐬𝐧’𝐭 𝐚 𝐌𝐚𝐭𝐡 𝐏𝐫𝐨𝐛𝐥𝐞𝐦. 𝐈𝐭’𝐬 𝐚 𝐌𝐚𝐫𝐤𝐞𝐭𝐢𝐧𝐠 𝐌𝐢𝐧𝐝𝐬𝐞𝐭. For this #MarketerinTech: 𝑼𝒏𝒔𝒄𝒓𝒊𝒑𝒕𝒆𝒅 episode, I wanted to tackle a topic that’s rarely glamorous but always crucial—𝐛𝐮𝐝𝐠𝐞𝐭𝐢𝐧𝐠. Every planning cycle, we talk about ambitions—growth, retention, customer love. But where the rubber hits the road is budget. If your marketing dollars don’t reflect your strategy, then you don’t have a strategy. As a B2B marketer, I look at allocations through three lenses— 1. 𝐀𝐰𝐚𝐫𝐞𝐧𝐞𝐬𝐬  is about brand, trust, and mindshare. 2. 𝐕𝐨𝐥𝐮𝐦𝐞 is about generating more clients—even if they’re smaller ticket—to create consistent pipeline. 3. 𝐕𝐚𝐥𝐮𝐞 is focused on large clients and complex deals where trust, customization, and long-cycle engagement matter. Each annual planning cycle, plan against these three pillars, commit budget % accordingly, and pressure-test it against business goals. The trick is to revisit and refine quarterly—because any changes you make today will likely only show up 3–6 months later. You need clarity, not panic. And what about experimentation? I recommend reserving 10–15% for bold bets—AI pilots, creative formats, unconventional channels. These aren't wildcards; they're structured experiments that we measure, learn from, and scale if they work. But none of this sticks unless you have full alignment with sales and business stakeholders. Transparency and joint ownership turn budget from a cost to a growth engine. ----------------#𝑴𝒂𝒓𝒌𝒆𝒕𝒆𝒓𝒊𝒏𝑻𝒆𝒄𝒉: 𝑼𝒏𝒔𝒄𝒓𝒊𝒑𝒕𝒆𝒅 𝑺𝒏𝒂𝒄𝒌𝒑𝒂𝒄𝒌------------- ✅ Anchor budgets in 3 pillars: Awareness, Volume, and Value ✅ Commit upfront, but revisit quarterly with a realistic lens ✅ Ringfence 10–15% for experiments—but measure, don’t guess #B2BMarketing #MarketingPlanning #MarketingROI #BudgetPlanning #MarketingBudgets #GrowthMarketing #PerformanceMarketing