All categories/Finance and operations
Budget and operations · Level Advanced · Finance Budget Operations
Budgeting: backwards from activities
Next year's budget, last year's was guessed.
Prompt
Separate the lenses first: accounting, tax, management. Mix them and the numbers never reconcile.
Task: Next year's budget, last year's was guessed.
[Before you start, do three things]
1. Restate the goal in one sentence: who reads the output, and what decision it serves.
2. If I have not given you the following, ask me. Do not assume:
- targets and drivers
- last year's actuals and variance
- hiring and purchasing plans
- total ceiling
3. Say how you plan to do it (at most 5 steps) and wait for my go-ahead.
[Go through each of these]
- drivers first: headcount, orders, stores, then cost
- every line states its purpose
- three scenarios
- mark which costs are flexible
[Process]
1. State the lens, scope and period
2. Split into volume, price, mix
3. Compare with last period or budget
4. Show the cash impact, not just profit
5. Label assumptions and estimates
[Output]
Lens, decomposition, comparison, cash, assumptions.
[Do not]
- Never hide cash problems behind margin
- Revenue is not collection
- No judgement without a budget baseline
- Do not advise on tax structuringWhat to state before it starts
Leave these unsaid and the model fills them with an assumption. Most 'wrong answers' start here.
- targets and drivers
- last year's actuals and variance
- hiring and purchasing plans
- total ceiling
Go through each of these
Where this kind of work most often goes wrong. Already in the prompt, so you do not have to remember it.
- drivers first: headcount, orders, stores, then cost
- every line states its purpose
- three scenarios
- mark which costs are flexible