Accounting Best Practices, Fifth Edition

5–8. Create a Summarized Budget Model for Use by Upper Management

The full budget model used by the accounting staff is a large one, with separate pages for the balance sheet, income statement, cash flow, capital expenditures, and each department, not to mention additional subsets of this information for each subsidiary. The full budget for a small company should run about 20 pages, while one for a multilocation corporation can easily run into the hundreds of pages. This presents a problem for senior management when it wants to conduct “what-if” analysis work with the budget. For example, the president of the company may want to know what would happen to profits if there were 1 percent less direct labor, or if materials costs changed due to an increase in inflation. Given the size of the model, a senior manager’s only way to get this information is to request that a budget analyst access the budget model, make the changes, and send the results back. This can take days for one request to be completed, which is a problem when the manager may want to model dozens of changes. Waiting for the results of all possible variations on the manager’s requests may require months. During the budget period, there is not enough time to process all of these requests, which leads to delays in completing the budget and frustration on the part of senior management.

The solution is to create a small, summarized version of the full budget model for use by the senior management team. By doing so, these ...