Aspirational Versus Realistic
Aspirational, to me, is the hope of achieving something but not always with the substance behind it to reach the goal. Realistic, to me, is really trying to understand the best information available to try to make an effective decision. Sometimes we forget to put the substance behind a stated budget goal. Sometimes a managing partner says, “We are going to double our revenue,” but doesn’t have a real plan or isn’t going to do anything differently or specific to achieve this goal. There are always tactics we can employ to be more on target with stated goals that allow us to be more accurate as to what the actual outcomes will be. For instance, we can forecast, looking at trends, and understand, if things stay relatively stable and constant, what the end result might be. We can adjust our forecast to address foreseeable changes in the marketplace that potentially impact us.
We all understand fundamental trends. For example, you are probably able to easily identify the next number in this sequence: 25, 50, 75. It’s rather obvious: It should be 100. But forecasting isn’t nearly as simple when the numbers aren’t at regular intervals or in easily identifiable patterns. If we have three years of data—Year 1 = $7,529, Year 2 = $1,019 and Year 3 = $2,792—it really isn’t likely that we can look at this and identify what the trend is for Year 4. But thanks to numerous spreadsheet products and business intelligence software we can, within seconds, identify that the Year 4 trend is ($957).
Moving Forward and Back
It’s important to look back to effectively navigate forward. We should also keep in mind that as we move through a budget year, we need to actively monitor our performance. We want to look at the budget data in as near real-time as our financial and accounting systems allow. Are we where we expected to be with our objectives, or is something off that we can address? How can we use all the data points to make better decisions? Talking openly and transparently during all aspects of the budgeting process and execution of the budget is critical. Finance can be exhilarating when budgets are executed effectively and your stated goals are realized.