New Year, New Tips.
February is historically Plansmith’s busiest month of the year. Why? Because it’s your busiest time of the year. Not only are you closing out the previous year by preparing all the required year-end documentation, including your Annual Report, but you’re about to record the first month’s history of the new year. Why is that stressful? Because it will change everything!
You may be thinking, “my budget, after all its iterations, is finally just right, and accepted by senior management and the board, and now you’re saying all that will change?” Not really. That’s why Compass is ‘planning’ model software.
The Budget is safe and stored away within your database where it cannot be changed... remember ‘Locking the Budget’? The ‘live’ plan, or forecasted projections, is meant to do just that. January’s actual activity will overwrite the activity you predicted in your budget and will auto-adjust all future income projections, as well as yields and costs. It’s designed to be like a wave, absorbing the changes and rippling them through your financial future. The first month always feels the most dramatic, as its effects can be measured over the next 11 months and beyond.
The changes in the present forecast are meant to provide insights regarding areas that may need attention down the line. Some changes can be automatically adjusted through the use of growth rates and pricing models. Otherwise, based on the first month’s information, some clients like to tweak the data each month to align the plan going forward, while others may choose to adjust the forecast on a more formal schedule, say quarterly or semi-annually.
In all cases, I suggest using the Variance Analysis to assist in determining to what degree you should be concerned with the changes observed. A client favorite is the Simple Variance Report which provides a comparison of Month-to-Month and Year-to-Date, actual verses budget. My suggestion is to keep it simple. Try using a higher level of summary detail to focus on the big picture. You can always dig deeper if needed.
Now, try something a bit different. Run the Simple Variance report Month-to-Month and For-the-Year.
When running a Variance Report FTY (January through December), it measures the impact of the current historical data on the financials for the entire year. Then, when compared to the full Budget Targets stored within the locked budget, you can better determine the impact a single month may have on total performance. Are the changes taking place major, or are they just a small detour within your big picture targets?
President