Plan versus actual: how to set up monthly budget evaluation

Most companies have a budget. Fewer companies regularly compare it against actual results. And only a few of them can actually read anything useful out of that comparison. The usual scenario: the budget is created in December in Excel, actual figures come from accounting in a different structure, and the controller spends the first week of the month putting them together.

Same structure for plan and actual

You can only compare what is structured in the exact same way. Therefore, do not build your plan in a different structure than the one you use to report actual results. If your management income statement divides revenue into three product lines and costs into direct and overhead, the plan must have the same rows. The same goes for cost centers and projects, see Controlling by cost centers and projects.

Monthly breakdown

An annual budget divided evenly into twelfths is the fastest path to variances that tell you nothing. Seasonality, project deadlines, annual bonuses, or insurance payments belong in the month when they actually occur. If you do not know the monthly breakdown, take the distribution from the previous year and adjust it for known changes.

Four columns you need

The last column is the most important and most frequently missing. The budget does not change in February, but the forecast does. Management cares whether the year turns out well, not whether March matched the plan.

How to work with variances

1. Set a materiality threshold, for example 10% and a fixed amount at the same time. Do not comment on variances below it.
2. For every significant variance, determine whether it is a timing shift, a one-time event, or a permanent change.
3. Reflect permanent changes in the forecast.
4. Variances are explained by the person responsible for the number, not the controller. The controller prepares the data and asks questions.
5. Have the ability to drill down to source documents for every variance. Half of all variances are badly booked invoices.

Planning across group companies

Within a group, each company has its own budget, often in a different currency. The consolidated plan must then go through the same eliminations as actual results, otherwise you are comparing apples to oranges. Piano Group used to have nine separate plans that were difficult to compare with actual results. Today, they have them in a single platform and compare the plan with actual results on an ongoing basis (Piano Group case study).

Do not forget cash flow

The income statement can be exactly on plan while cash is still missing. The income statement plan and cash flow plan should be based on the same assumptions. We describe short-term liquidity management in the article Thirteen-week cash flow forecast.

How much time it takes

If actual figures are transferred from accounting manually, comparing them with the plan takes controllers days. If data is loaded automatically and the plan shares the same structure, variances are ready right after close and time goes into explaining them. We describe how to get there in the article How to shorten monthly reporting from weeks to days.

Example: September in a manufacturing company Amounts in million CZK.

What you can read from the table in a few seconds: September was softer, but year-to-date EBITDA is 0.6 million CZK above plan because the company is holding down overhead and the margin is better than expected. However, revenue is lagging and the forecast says the year will end with revenue 3 million CZK below budget. Thanks to lower overhead, this barely impacts EBITDA yet. Personnel costs are growing faster than revenue, and that is a topic for the next management meeting.

How to write variance commentary

A good commentary has three parts: what happened, why, and what it means for the rest of the year. A bad commentary just describes numbers the reader can see in the table.

The commentary is written by the manager responsible for the number and checked by the controller. If more than three sentences are written for a single variance, it is a topic for a meeting rather than a report.

How Symfio solves it

In Symfio, you plan in the same structure in which you report actual results. The budget can be copied from Excel, forecasts and scenarios are maintained alongside it, and variances are calculated automatically, by company and for the group, with each company in its own currency. More on the Planning and Budgets page.

Rolling forecast instead of annual budget?

Some companies are completely abandoning the annual budget and replacing it with a rolling forecast. Every month or quarter, they update it for the next 12 to 18 months. The advantage is that the plan never gets outdated and management always looks a year ahead rather than just until December.

For most mid-sized companies, a combination works best: an approved annual budget as a commitment and for evaluation, alongside a forecast updated once a quarter. The key is that both must be built in the same structure and using the same data. Otherwise, time is spent reconciling versions instead of making decisions.

Frequently asked questions

Should we change the budget during the year?

Leave the budget as approved and maintain the forecast next to it. Each of the two comparisons shows something different: the budget measures performance against commitment, while the forecast shows where the year will end up.

How often to update the forecast?

Most frequently once a quarter, or monthly in fast-changing companies.

At what level of detail should we plan?

At the level management actually uses to run the business. Planning at the individual ledger account level means a lot of work and little information.

What to do if the plan was not realistic from the start?

Do not change the budget, but state it clearly in the report and fix the forecast. Next year, start building the budget from accounting history by month rather than top-down from an annual target.

Should we plan the balance sheet too?

For larger companies and groups, yes, at least working capital, debt, and cash. Without that, it is impossible to connect the income statement plan with the cash flow plan.