May 09
3
• Assumption-based budgeting leads to a higher rate of approval. Budgets are also frustrating because, even with a carefully detailed budget, it might be necessary to revise the preliminary numbers several times before gaining final approval. With properly documented assumptions, you will be more likely to gain approval quickly, and with fewer revisions than before.
• With documented assumptions in hand, you have a powerful weapon to resist arbitrary changes to your budget. How often have you prepared a budget that seemed perfectly reasonable, only to have it cut without any justification? The only way to combat this problem is to present a budget that cannot be changed. If you have established complete documentation for the budget as presented, it will be impossible for anyone else to apply an across-the-board 10 percent cut. The budget simply wouldn’t work as a consequence, and your documentation proves it.
• You will spend less time during the year struggling to come up with explanations for variances. Every department manager dreads being confronted with the monthly variance report. Even if no one responds to the variance, the requirement is formidable if there is no assumption base. The problem disappears when actual expenses can be evaluated in light of the assumption base. A simple analysis shows where the budget missed the mark, or where actual expenses demand more control.
