Smart in "60 seconds" Today: the budget

A new contribution to the series in "The Agency bloggers". Practical explanations for important terms related to agency controlling are given here regularly. Today: the budget

Each department of an agency needs specific resources (manpower, money, etc.), to complete its work satisfactorily. Data collected as part of budget planning includes the resources that are required and the period during which they are needed. The percentage of the total budget allocated to each department is then determined. Determining and monitoring of the budget is the central element in agency controlling.

The terms "budgeting" and "budget" must be differentiated first. Budgeting describes the process of creating, agreeing, implementing and controlling the budget. The budget is the result of the budgeting process, which could be designed for different periods of time:

  • Operative budgeting is created for the short-term (usually up to one year). It includes the expected and planned targets within a reasonable period.
  • Strategic budgeting is oriented towards the long-term, mostly to secure the continuing existence of the company. At the end of the process, the planned objectives for the next two, five or ten years should be shown in terms of specific values.

Regardless of the period that the budgeting aims to cover, the process can be roughly divided into three phases: pre-planning, budgeting and control. Initially, during the pre-planning phase, general corporate objectives are pre-formulated based on empirical values and the valid forecasts: for instance, sales figures, profit or profitability. A final budget is then created using these projections as the basis. In this second phase, the measures and financial resources both for the overall budget, as well as for partial budgets are drawn up and allocated. For budget planning, all revenue and expenditure calculated by the agency for a definite period are compared.

In the control phase, the projected figures and the actual figures are compared all the time. If the two values deviate too much from each other, adjustments to the budget may be necessary.

On the one hand, an agency software helps to maintain an overview of the current status of all budget segments and the budget status of individual jobs, while on the other hand, it enables you to respond quickly and flexibly whenever there are deviations from the target status.