ACCENTURE

Accenture project

BUDGETING APPROACHES

START

SOFIA BELLUCCI, VIKTORIIA CHINKOVA, CAROLINA CAPPIOLI, KELVEN IYOYOJIE, KODJO MERIADEC

Index

INTRODUCTION

ZERO-BASED

ACTIVITY-BASED

INCREMENTAL-BASED

DRIVER-BASED

CROSS-MATCH

INTRODUCTION

ZERO-BASED

ACTIVITY-BASED

INCREMENTAL

driver-based

Why is budgeting important?

cROSS-mATCH

In today's dynamic business landscape, effective budgeting is essential for organizations to allocate resources efficiently and achieve strategic objectives. Different budgeting approaches have emerged over time, each offering unique benefits and considerations. In this presentation, we will explore four prominent budgeting approaches: zero-based, activity-based, incremental-based, and driver-based. By understanding the principles and applications of these approaches, organizations can make informed decisions to optimize their financial planning and performance. At the end we will have a cross match between the different approaches.

INTRODUCTION

ZERO-BASED

ACTIVITY-BASED

INCREMENTAL

driver-based

cROSS-mATCH

ZERO-BASED

Zero-Based, is a budgeting approach in which, instead of relying on the previous year's budget, it Requires to evaluate and justify every expenses from the ground up, justifying its necessity and the allineman with the strategic goals . These approach ensures that every piece of your budget fits together harmonious need to create a clear and purposeful financial picture. The aim is to optimize resource allocation by ensuring funds align with strategic objectives and generate the highest value.

Disadvantages

Advantages

- COST SAVINGS - ENHANCED EFFICIENCY - INCREASED ACCOUNTABILITY - FLEXIBILITY - COST CONSCIOUS CULTURE

TIME AND EFFORT- CHANGE MANAGEMENT - COMPLEXITY - RESOURCE ALLOCATION CHALLENGES - INITIAL DISRUPTION

INTRODUCTION

ZERO-based

ACTIVITY-BASED

INCREMENTAL

driver-based

cROSS-mATCH

ACTIVITY-BASED

Activity based budgeting is a system that records, researches, and analyzes activities that lead to cost for a company. Every activity in an organization that incurs a cost is scrutinazed for potentialways to create efficiences. Budgets are then developed on these results.

disadvantages vs advaNtages

steps

Identify relevant activities

Determine the number of units related to each activity

Delineate the cost per unit and multiply it by the activity level

It allows to see what are the associated costs for each operational activity. differently from other methods it looks at outputs that drive cost.

The disavantage is that is more costly and time-consuming than other methods.

cons

pros

INTRODUCTION

ZERO-BASED

ACTIVITY-BASED

INCREMENTAL

driver-based

cROSS-mATCH

INCREMENTAL-BASED

Incremental budgeting is a financial planning method that uses the previous period’s budget as a base, making only minor adjustments for the new period based on expected increases or decreases. This approach is known for its simplicity, stability, and predictability. It assumes that future expenses will be somewhat similar to past ones, with only incremental changes.

PROCESS:

Advantages:

Challenges:

Simplifies planning, utilizes historical data, and ensures accountability.

Can be inflexible, risk of budgetary slack, and may hinder innovation.

Review and adjust line items based on inflation, sales, costs, etc., then forecast new expenses.

Technologies Utilized:

Suitable For:

Enterprises with stable operations, seeking simplicity, valuing consistency, with long-term projects, and avoiding internal rivalry.

Advanced software for data analysis and forecasting, automation tools for budgeting tasks, and security measures for financial data protection.

driver-based

INTRODUCTION

ZERO-BASED

ACTIVITY-BASED

INCREMENTAL

driver-based

cROSS-mATCH

DRIVER-BASED

This type of budgeting takes into consideration a few business drivers and creates a model around those. Business drivers create a dynamic and more accurate budget and forecast models. This also allows to make better informed decisions and to be more flexible to the changing conditions and data.

approach:

particular benefits:

Identify the key drivers, that are specifically important and impactful for a company and its financial performance.

Incorporate analyzed business drivers into the budgeting planning creation process.

• reduce the focus solely to the data that is essential to a more efficient performance;
• defined drivers allow to create a budget forecast that is better performing in the long-run;
• the data taken into consideration has been filtered, thus has more integrity and is more reliable;
• it takes into consideration only key indicators from each department, meaning that there is operational alignment;
• business is able to quickly respond to the changes of the data;
• potential challenges and opportunities are taken into consideration

INTRODUCTION

ZERO-BASED

ACTIVITY-BASED

INCREMENTAL

driver-based

CROSS-MATCH

cROSS-MATCH

ny

SUBTITLE

Technology applied:

Anaplan's in memory planning platform:Offers features for analyzing large-scale datasets and conducting financial planning.

Enable multi-dimensional scenario modeling with unlimited constraints. These powerful technologies allow companies to model even the most complicated scenarios to stay ahead of market changes.

Double-Edged Sword

Pros and Cons of Incremental Budgeting

The primary advantage of this method is its ease of implementation, as it doesn’t necessitate a complete overhaul of the budgeting process each year. However, it can also lead to unnecessary spending as departments tend to use all their allocated budget to secure a larger budget in the next period. Despite its potential drawbacks, incremental budgeting is a commonly used approach, particularly in stable environments where operations and costs are expected to remain largely consistent.

Techonologies

Activity-based budgeting leverages varouis techonoligies:

• Budgeting Software, it allows organizations to create, manage and anlyze more efficiently. they sometimes offer features such as customizable templates and automated calculations.
• Data Analytics and Business Intelligence Tools, it helps analyze large datasets to indentify trends, patterns and insights.
• ERP Systems integrate various business functions. ERP provide a centralized platform for managing financial data and facilitate communication among departements.

Technology

There are several technologies that can facilitate its implementation and can make the process more efficient:

• Financial analytics tool: ananalytics platform can help analysing data and UNDERSTAND where to reduce costs
• Data visualization tools: Cancan help present budgeting information and facilitating decision-making

Conclusion

"As we conclude our exploration of various budgeting approaches, it's evident that no single method fits all organizations perfectly. Each approach has its strengths and weaknesses, and the choice depends on factors such as organizational structure, industry dynamics, and strategic goals. By leveraging the principles of zero-based, activity-based, incremental-based, and driver-based budgeting, organizations can adapt to changing environments, improve resource allocation, and enhance overall financial performance. Ultimately, the key lies in selecting and implementing the approach that aligns best with the organization's unique needs and objectives."