Page 191 - Finance for Non-Financial Managers

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Finance for Non-Financial Managers
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❏ The budget preparation process is a trial-and-error
process, because we’re bringing together information from
diverse sources to work toward a company goal. The
chances of hitting that target on the first try are slim, so
managers should simply expect to rework the budget at
least once and accept the frustration of repeating their
efforts, because a good budget is worth the work.
❏ Flexible budgets are an excellent tool for organizations
with outcomes and costs that can vary widely. They are
used when management wants to create a budget that
does not reward the underspending that typically accom-
panies underproduction. A flexible budget enables adjust-
ment of cost budgets to the level that would be expected
at various levels of productivity, thus permitting measure-
ment of efficiency at the actual level of activity.
❏ Remember the three magic questions for getting the most
benefit from budget variance reports:
• Why did it happen?
• What immediate action should we take?
• What are we learning that will make the next budget a
better management tool?