Page 70 - Budgeting for Managers

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Gathering Production Figures
Thinking About Ranges
Income and costs go up and down. If you have two or more
past periods to look at, you should figure that the next period
will be between the highest and lowest past periods, unless you
have a good reason to think otherwise. We can think of the low-
est past figure as our minimum estimate, the highest as the
maximum, and the difference between them as the range of
variation.
Thinking About Trends
If you have several past periods, you can look for trends. For
example, you might see that a line item has gone up almost
every quarter for the past two years. It would be a good first
guess to think that it will keep going up and at about the same
rate. However, you should test this thinking before you finish
estimating. Why are costs going up? Are you buying more of
something? Is the price per item increasing? Why is income
going up? Do you have more new customers? Are your old cus-
tomers buying more? Are you raising your prices? Get a sense
of what is happening and make your estimates based on busi-
ness processes and actual costs and transactions; don’t base
future numbers simply on past numbers.
Trends don’t only go up or down. For example, if you
looked at a history of 10 years of expenses for the sports gog-
gle marketing shown in Figure 2-4, you would see an up-and-
down cycle every four years. But you would know it was tied to
the Olympics only if someone told you the reason behind the
spending decisions.

Manager’s Checklist for Chapter 3
❏ Numbers don’t create numbers; they report business deci-
sions, conditions, and actions—facts that you can study to
generate numbers.
❏ Analyzing relationships and trends can help you make
future estimates.