How do you incorporate feedback and learning from flexible budgets into future planning and decision making?

1 Understand the types of variances

The first step is to understand the different types of variances that can arise from flexible budgets. There are two main categories: sales volume variances and flexible budget variances. Sales volume variances measure the difference between the actual and budgeted sales quantity, and reflect the impact of market conditions, demand, and pricing on your revenues. Flexible budget variances measure the difference between the actual and flexible budgeted costs and revenues, and reflect the efficiency and effectiveness of your operations, resources, and management.

2 Analyze the causes and effects of variances

The second step is to analyze the causes and effects of the variances that you identify from flexible budgets. You need to determine whether the variances are favorable or unfavorable, meaning whether they increase or decrease your profits. You also need to identify the factors that contribute to the variances, such as changes in input prices, output quality, productivity, or customer preferences. You can use various techniques, such as variance analysis, cost-volume-profit analysis, or break-even analysis, to help you understand the relationships and trade-offs between the variances and your cost accounting objectives.

3 Take corrective and preventive actions

The third step is to take corrective and preventive actions based on your analysis of the variances. You need to decide whether the variances are controllable or uncontrollable, meaning whether you can influence or eliminate them. You also need to prioritize the most significant and relevant variances, and allocate your resources and efforts accordingly. You can use various methods, such as benchmarking, standard costing, or activity-based costing, to help you improve your cost accounting practices and performance.

4 Communicate and collaborate with stakeholders

The fourth step is to communicate and collaborate with your stakeholders, such as managers, employees, customers, or suppliers, about the feedback and learning from flexible budgets. You need to share your findings and recommendations, and solicit their input and feedback. You also need to align your goals and expectations, and coordinate your actions and responsibilities. You can use various tools, such as dashboards, reports, or meetings, to help you communicate and collaborate effectively and efficiently.

5 Monitor and evaluate the results

The fifth step is to monitor and evaluate the results of your actions based on the feedback and learning from flexible budgets. You need to measure and compare your actual outcomes with your revised or updated budgets, and assess whether you have achieved your desired results or solved your problems. You also need to identify and acknowledge your successes and failures, and learn from your experiences. You can use various indicators, such as key performance indicators, balanced scorecards, or return on investment, to help you monitor and evaluate your results.

6 Adapt and update your budgets

The final step is to adapt and update your budgets based on the feedback and learning from flexible budgets. You need to adjust your budgeted costs and revenues to reflect the changes in your activity level, market conditions, or operational efficiency. You also need to incorporate your learning and best practices into your budgeting process, and ensure that your budgets are realistic, accurate, and relevant. You can use various approaches, such as rolling budgets, zero-based budgets, or participative budgets, to help you adapt and update your budgets.

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?