The adjusted budget is an indispensable tool for companies that want to remain competitive in a business environment marked by volatility and rapid transformations.
Unlike traditional budgeting, it allows for continuous reassessment of financial plans based on the most recent data, ensuring that the company can react quickly to market changes, demand fluctuations and variations in operating costs.
Companies that do not adapt to the market situation end up becoming obsolete, so an adjusted budget becomes a great ally for companies.
Discover how this approach can transform your company’s budget management, minimizing risks and maximizing opportunities.
Continue reading and learn:
What is the Adjusted Budget and why is it essential?
The adjusted budget, also known as a forecast, is a crucial financial tool for companies that want to adapt to constant changes in the market.
Strategic and Operational Controllership: concepts, structure, application ”, the adjusted budget represents a modification of the original budget based on a variation in the level of activity initially planned.
This approach is applied when there is a need to adjust financial projections due to significant changes .
The objective is to offer flexibility and adapt the original budget to new scenarios , ensuring that the company can react quickly and efficiently to changes in the market.
Santos, in “ Fundamentals of Cost Accounting ”, explains that the term forecast can designate both the new budget, adjusted from the original piece, and the projection adjusted until the end of the budgeted period.
In this case , the forecast is the sum of the values already realized with the values to be realized , which gives companies greater clarity about financial performance during the period.
Advantages and disadvantages of adjusted budgeting
Keeping in mind the concept of adjusted budget, we can understand the main benefits and challenges of adjusted budgeting for financial management. Check it out!
Advantages:
The main advantage of adjusted budgeting is its flexibility . It allows companies to reassess their financial goals based on the most recent data , offering a quick and effective response to market changes.
Furthermore, this budgeting method facilitates the early identification of problems and the implementation of corrective measures, minimizing financial risks.
The changes in this type of model are less bureaucratic , which guarantees more practical solutions for the company.
Disadvantages:
Depending on the complexity of the budget, frequent reviews can generate rework and, in some situations, confusion in the established goals .
And these reworks make the model no longer interesting, as it will become more expensive, harming the internal flow of adaptability and agile changes.
Adjusted budget structure
The adjusted budget structure follows the same principles as the traditional budget , with the difference that the values are reviewed throughout the year, as actual results are compared with planned goals.
The adjusted budget comes into effect when there is a change in the volume or level of activity initially planned.
This process involves three main components :
1. Recipes
Revenue forecasts are adjusted based on actual performance, taking into account changes in market behavior and sales. This brings the numbers closer to operational reality.
2. Expenses
Expenses are recalculated to reflect actual operating costs, adjusting to new goals and objectives.
3. Profit
The impact of adjustments to revenues and expenses on profit is constantly reviewed to ensure the company remains on track to achieve its financial goals.
This flexibility provides a clear view of the company’s operations and enables quick adjustments to improve financial performance.
Adjusted Budget Examples
A clear example of the application of adjusted budgeting can be found in manufacturing industries, where unexpected increases in raw material costs can directly impact profit margins.
In this scenario, the adjusted budget allows the company to realign its revenue and expense expectations to compensate for variations in operating costs.
Another example can be seen in the retail sector, where sales can vary significantly throughout the year.
By adopting adjusted budgeting, a retail company can adjust its sales and expense goals in response to seasonal variations, such as an increase in sales during the holiday season.
All companies that depend on external raw materials also go through this. Problems in the countries of origin will force the company that depends on this to adapt quickly to maintain the operational flow.
How to make an efficient budget
To ensure that the adjusted budget is implemented efficiently, companies should follow some good practices:
- Analyze actual performance : Continually reviewing actual financial data and comparing it to established targets is crucial to identifying discrepancies and making corrective decisions quickly.
- Set realistic goals : After identifying variances, goals should be adjusted to reflect the new financial reality, ensuring that objectives are achievable and aligned with the company’s capabilities.
- Use technology tools : Automating the budgeting process, through solutions such as FP&A platforms, can help reduce the time spent reviewing data and ensure that adjustments are accurate and quick.
Conclusion
Adjusted budgeting is a powerful tool that provides flexibility and adaptability to companies facing rapid changes in their operations or the market.
Derived from flexible budgeting, it allows companies to modify their financial forecasts based on variations in the initially planned level of activity, ensuring a quick and effective response to constantly changing scenarios.
With the support of advanced technologies and a systematic approach, adjusted budgeting becomes an essential part of the financial success of any company.
The market is constantly changing and increasingly so at a fast pace. Adapting efficiently and quickly is essential for companies to remain competitive in the sector in which they operate.