The Division Manager looked at me. “Don’t ask me why we didn’t meet budget. Those budget numbers aren’t mine. They’re way too high. I never agreed to that.” If you are a financial analyst, that quote might be very familiar to you. It should be so simple, right? The division budgeted $X million in sales. The year is half over, so they should have reached 50% of $X million, but they’re actually less than that. All you want is a reasonable explanation. Instead, you get an argument about the budget.
Sometimes, it’s a stalling tactic, but sometimes the person really doesn’t remember or doesn’t know where the budget numbers came from. Budgeting is more of an art than a science. In theory it’s easy. Every division does some crystal ball gazing and submits their best forecast for the coming year. The numbers are assembled for the whole company and after a negotiation about who gets what share of the available resources, the budget is set.
In reality, it can get a lot more complicated. The negotiations can go back and forth. Numbers get adjusted. To understand the final number, you have to understand the history. The problem with spreadsheets is that when you change a cell, whatever was there before is lost. So there may be nothing to tell you that the final sales number was increased due to a sales promotion that actually never happened.
Some budgeting systems solve this by allowing you to enter a series of budget adjustments instead of changing the cells directly, but if you’re like most of us, still using spreadsheets, having a system that locks in previous versions of a spreadsheet can save you a lot of hassle later on. If you have locked in versions of the budget, not only will you understand what’s in the numbers, you’ll be able to prove it.