How to Build and Maintain an Effective Budget

An accurate budget is the basis of effective financial and operational management. Learn how to build an ERP implementation budget using the decentralized process.

Table of Content

    An accurate budget is the basis of effective financial and operational management. Today, most companies prepare a financial budget. Some build budgets at an extremely high level (e.g., sales, cost of sales and expenses), others build a detailed budget (e.g., sales detail by type, expenses by department, capital spending, projects). Companies may also budget the Balance Sheet to be able to prepare budgeted cashflow statements. The level of budget detail and complexity is dependent on company size, corporate requirements or management style.

    Budget preparation ranges from the executive team determining the budget and disseminating it to the company’s team members. This is known as top down, or centralized budgeting. Budgets can also be built by the executive team providing general budget targets then letting each department manager build a budget for their area of responsibility. The department budgets are then consolidated up to the company level. This method is called decentralized budgeting.

    In addition to entering budget financial values, many ERPs offer the ability to set up “non-financial or non-posting” accounts in the general ledger.

    These accounts function only as repositories to capture non-financial information such as headcount or real estate square footage. Entries into these accounts are not subject to normal DR/CR balance requirements. This functionality can be used in the budgeting process and the values included in budget reporting as required.

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    All ERPs today offer robust budgeting functionality. Most support multiple budgets, which can be used inter-changeably in financial reporting and the ability to import budget values from a worksheet, or enter budget values directly into the ERP. A combination of both entry options can be used as needed.

    Importing the bulk of budget values from an Excel spreadsheet, and using direct entry for corrections and adjustments, is the predominant method used.

    A successful budget is one which meets four objectives:

    • Projects revenue accurately
    • Helps control expenses
    • Assists the company in maximizing profit
    • Keeps company personnel aligned with the company’s goals

    In this post, we’ll discuss how to build a budget using the decentralized process.

    Functionality, Measures, and Alerts

    Measures and alerts are meant to assist the user in keeping abreast of processing status, identifying anomalies, and ensuring that implemented process controls are being effectively employed. The information below illustrates the interaction between ERP budgeting functionality, measures and alerts.

    Functionality- ERP budgeting

    Measures and Alerts-

    Budget changes entered

    New budget related GL accounts setup

    Budget related GL accounts disabled or deleted

    Today, all ERPs support building roles and permissions to control budget transaction processing and other tasks. With proper permissions assigned, a user can enter, change, re-class or delete budget values. Budget change functionality should be tightly controlled within the accounting department. If not controlled properly, budget changes will have a negative impact on budget accuracy and if significant, can render the budget useless as an analysis tool.

    For an adequate level of control, assign budget permissions (including budget changes) to a limited number of accounting users such as a senior accountant, accounting manager or the controller. Assign one user as the primary user, and the others as backups.

    A budget related GL account is no different than any other GL account, the only difference being that the term relates to a GL account which would normally be budgeted (e.g., sales, cost of sales or expenses such as rent or office supplies).

    When setting up a new budget related GL account, the budget should be reviewed to determine if a budget adjustment, such as a budget amount re-class or additional budget entries are required.

    Changes to budget-related accounts need to be monitored so that the change can be reflected in the budget. For example, if a budget related GL account is disabled or deleted, the budget should be adjusted accordingly.

    Functionality- ERP budget import

    Measures and Alerts-

    Budget import files not processed within “x” days

    Budget import files not processed or posted within “x” days

    Many companies use a set of prepared Excel worksheet templates in preparing the company budget. This is an effective method as budgeters are familiar with Excel functionality, and by using Excel, do not need to worry about understanding ERP budget functionality.

    Additionally, using worksheets allows accounting to control budget data entry ensuring that the budget import process is accurate and efficient. For example, accounting can build and distribute budget worksheets by specific department (e.g., HR, Payroll) and non department budget types (e.g., sales, cost of sales or depreciation expense). Building the worksheets in this manner allows accounting to control the GL accounts available to the budgeter.

    By “locking” worksheet rows and columns accounting can also prevent the user from entering new accounts, which are not authorized. Since most budget import issues revolve around incorrect GL accounts, these controls can go a long way towards making the import process more efficient.

    Many budget import processes are based on a two-step approach (import processing and import posting). This approach means that when a budget file is imported into the ERP,  correct data is imported, incorrect data is rejected and identified by the import tool then displayed for the user to correct and re-process.

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    Once the imported data is correct, the user can then finalize or “post” the applicable data.

    Budgets are rarely imported in total as the resulting files will be large and unwieldy to handle. Usually, the budgets are imported by department or non department budget type. This allows accounting to more easily review the import file, identify errors and correct the issues accordingly.

    Use import functionality reporting to control the import process. By identifying budget files not yet imported (as manually compared to a budget import control worksheet) accounting can follow up with the applicable budgeters and resolve any issues.

    By identifying budget files imported but not yet posted, accounting can follow up with the applicable budgeters correct any import errors and re-process.

    Process Implementation Best Practices

    Successfully implementing a new process isn’t always easy. Consider the best practices below to streamline and control new process implementations.

    Understand the Process

    • Be sure that all accounting team members involved in the budgeting process understand the tasks that apply to the processes assigned.
    • Build and distribute a process document outlining the steps to be completed and any source document requirements.
    • Review budgeting functionality with the applicable accounting team members and assign the proper system permissions as warranted.
    • Review the budgeting process with non accounting company team members involved in the process.

    Align Resources

    • Assign budget tasks to specific accounting team members. Include coverage to support out of office situations.
    • Be sure that any company executives involved in the budget review and approval processes are aware of their responsibilities and tasks required (e.g., review, revisions and approval).
    • Be sure that non accounting budgeters are aware of the budget process timeline. Prepare and distribute budget preparation schedules and ensure that all budgeters are on-board.
    • Assign measures and alerts review tasks to the applicable accounting team members.

    Improve the Process

    • Use ERP tools, measures and alerts to assist in identifying and resolving budgeting entry and import issues. Resolve any issues identified as soon as possible.
    • If the volume warrants, use technology such as data import and budget worksheet templates to streamline the budgeting process.
    • Use additional budget worksheet tabs to allow the budgeter to include calculation descriptions and attach source document information, making the review process more efficient.

    Process Communication

    • When hiring new accounting team members, be sure to include budgeting process training as a part of their onboarding, or prior to the next budget cycle. If the accounting team member(s) are at a manager level, include any additional tasks in the process training as required. Assign a temporary mentor from accounting to ensure that training happens.
    • When hiring new team members (non-accounting team members) who will be involved in the budget process, be sure to include the applicable budget training prior to the next budget cycle. Again, assign a temporary mentor from accounting to ensure that training happens.

    Common System Permissions

    System permissions and security functionality play a vital role in any ERP process. Using these ERP tools allows the user to set up efficient and controlled processes. Common budgeting functionality, measures and alerts examples are displayed in the tables below:


    An accurate budget is the basis of effective operational management. While the budgeting method, level of budget detail and its complexity are dependent on company size or management style, it’s critical to be able to compare actual results against a known target in making informed business decisions.

    No matter which preparation method or level of detail budget you choose, remember that some type of budgeting process is an important part of a well-run company.

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    A successful budget projects revenue and expense accurately, assists the company in maximizing profit and keeps company team members aligned with the company’s goals.

    A quality budget is a very strong management tool and should not be overlooked, or the process short-cut.

    Reach out to our experts today if you are ready to start budgeting for your ERP.

    Process Flow

    GL Account Disable-Delete




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