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Inflexible budgets can lead to several negative consequences. They can cause stress and pressure on the person responsible for maintaining budget accuracy, especially if crucial forecasts cannot be adjusted. This can also lead to a lack of adaptability and responsiveness to changes in the business environment. Inflexible budgets can also hinder strategic success, as they may not allow for the reallocation of resources based on changing strategic priorities. Furthermore, they can limit innovation and risk-taking, as they often discourage deviations from the planned budget.
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Change the purpose of planning and budgeting – planning and budgeting models are designed to help senior management forecast, command and control. First, forecast precisely what the company must do to deliver stable earnings per share (EPS) trends. Then, order each business department and function to execute the plans that will add up to the targeted total. Ne monitors activities within each department to ensure the team members stick to plans and deliver desired results. Shift the focus from financial precision to strategic success - a good approach is to turn the targeted outcomes developed in step one into strategic portfolio guidelines that drive the budgeting and adaptation process, which will spark discussions that allocate resources from the strategy down, rather than from individual projects up. Plan faster and more frequently - if budgets are inflexible and a crucial forecast can't be adjusted, the person making it excessively stressed over the budget accuracy. Even small m...
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Simplify the process of budget creation with our Budgeting Model template. This template includes examples from multiple departments, as well as conso...
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