Budget Variance Analysis

𝐑𝐞𝐯𝐢𝐞𝐰𝐢𝐧𝐠 𝐛𝐮𝐝𝐠𝐞𝐭𝐬 𝐥𝐢𝐤𝐞 𝐚𝐧 𝐅𝐏&𝐀/𝐅𝐁𝐏 𝐞𝐱𝐩𝐞𝐫𝐭 Oya, Oya, before I come into your feed like an FP&A ghost, let me apologize for going quiet for weeks. Juggling work and showing up here has been real. I am sorry, okay? I am no soothsayer but if you started your budget process in time (like I told you to), you should be deep in budget consolidation/review. Still explaining your template to departments? Meet me at 12pm at ANY location of your choice so we square off! Budget reviews can be messy, but I’ve refined a sustainable, foolproof approach. Here’s how I tackle mine: 1. Start with the story not the spreadsheet Ask: “What’s the story this budget is trying to tell?” Your budget should show: >> What’s driving growth next year? >> What changed vs. last year? >> What’s the business betting on? If the narrative doesn’t line up with the numbers, pause first. 2. Benchmark against reality Compare submissions against: >> Last year actuals (and YTD run-rate). >> Targets in the strategic plan. >> Peer business units or competitors. Patterns expose stories or lies instantly. Sudden jumps should have reasonable drivers. I often highlight top 10 movements (positive or negative) and ask for a 2-line explanation. 3. Challenge the logic ALWAYS Solid FP&A persons review operating drivers before the numbers Ask these: “What volume growth are you assuming?” “What’s the price per unit or per customer?” “How does this compare to actual trends?” “What happens if conversion or retention drops by 5%?” 4. Review headcount! Check for: >> Alignment with HR’s manpower plan. >> Realistic hiring timelines (people assume January start; in reality, it’s April). >> Salary inflation and grade structure accuracy. >> Fringe benefits, taxes, pensions. People forget these. 5. Validate cost drivers Every line item must have a driver or owner. If someone can’t explain what drives the cost, it’s suspect. Ask: >> “What activity drives this spend?” >> “What KPI does this expense support?” >> “If volume doesn’t happen, will this cost still be incurred?” 6. Run ratio checks: Ratios catch what Excel hides. Key ones: >> Staff cost / Total Opex → sudden jumps = check payroll or hiring plan. >> Cost of Sales / Revenue → margin control. >> CapEx / Revenue growth → are we investing enough to justify growth? If ratios move dramatically year-to-year, you either discovered an opportunity or a problem. 7. Challenge the Timing of Spend Budgets assume linearity but life doesn’t. Ask: >> “When will this project start?” >> “When will spend hit?” >> “When does benefit start showing up?” “Q1 spend for Q4 results,” is not a budget; that’s wishful thinking. 8. Look for duplication and missing costs Cross-functional teams often double-budget: >> IT & Product: cloud costs >> Marketing & Brand: campaigns >> HR & Admin: training Scan for similar descriptions, vendors, GL codes, and check for missing costs (shared services, depreciation, licenses). Hope this helps!

Budgeting in EPC (Engineering, Procurement, and Construction) Projects: *Budgeting Process:* 1. Define project scope and objectives 2. Identify cost elements (labor, materials, equipment, services) 3. Estimate costs using historical data, industry benchmarks, or expert judgment 4. Develop a detailed budget breakdown (WBS - Work Breakdown Structure) 5. Establish budget contingencies for risks and uncertainties 6. Review and approve budget with stakeholders *Budget Components:* 1. Engineering costs (design, drafting, engineering services) 2. Procurement costs (equipment, materials, services) 3. Construction costs (labor, equipment, materials) 4. Project management costs (PMO, coordination, oversight) 5. Quality control and assurance costs 6. Safety and environmental costs 7. Commissioning and startup costs 8. Contingency funds (unexpected expenses) *Budgeting Methods:* 1. Bottom-up estimating (detailed estimates for each activity) 2. Top-down estimating (high-level estimates based on similar projects) 3. Parametric estimating (using historical data and statistical models) 4. Analogous estimating (comparing to similar projects) 5. Expert judgment (using experienced professionals' opinions) *Budgeting Tools:* 1. Spreadsheets (e.g., Microsoft Excel) 2. Project management software (e.g., Primavera, MS Project) 3. Cost estimation software (e.g., CostOS, Esticom) 4. Earned Value Management (EVM) systems *Budget Monitoring and Control:* 1. Regular budget reviews and updates 2. Variance analysis (identifying deviations from budget) 3. Cost reporting and tracking 4. Change management (approving and documenting changes) 5. Forecasting and re-estimation *Challenges in Budgeting:* 1. Uncertainty and risks 2. Complexity and scope changes 3. Inaccurate estimating 4. Inflation and currency fluctuations 5. Stakeholder expectations and communication *Best Practices:* 1. Develop a comprehensive budget plan 2. Use multiple estimating methods 3. Establish clear budget responsibilities 4. Monitor and control costs regularly 5. Communicate budget changes and variances to stakeholders By following these guidelines and best practices, EPC project teams can develop accurate and comprehensive budgets, ensuring successful project delivery.

Good Budgets, Bad Budgets. If you are in corporate, and own a budget, chances are you are about to start the 2026 budgeting cycle. After spending over a decade building them, these have been my lessons to maximize success probabilities (unfortunately s%h£#¢t still happens): 👉 1. Align with your finance partner (if you are lucky to have one) ↳ Your relationship with your finance partner needs to be based on trust and mutual fair challenge, whilst be aligned on the principles for decision making. 👉 2. Define decision-making principles ↳ Will you build a budget that aims to over-promise (at the risk of under-delivering) or do you want to make sure that the budget is met, in which case you will likely need to under-promise. Find the right balance as you don't want to come across as a sand-bagger. 👉 3. Seek early-on guidance from your manager / Board ↳ Avoid getting inside a cave with your team for a month to reach an outcome, with no set course. Understand what people expect from you in 2026. 👉 4. Build your 'do nothing scenario' ↳ Draw accurate projections of your -business as usual- figures and identify how far these are from the expectations set on #3. If your baseline projections get you there, your higher up does not understand your area or is a sand-bagger. Either way, you got lucky. 👉 5. Layer your incremental bets for the year on top of your 'do nothing scenario' ↳ Build appropriate business cases for each of them, with sound sensitivity analysis. 👉 6. Identify risks and mitigations ↳ Ensure that the risks are quantified in € value. Identify potential mitigations and understand what you can do from today to reduce their likelihood of happening to 0%. 👉 7. Identify Opportunities ↳ Opportunities are different from bets. Opportunities are positive events that may happen without your direct intervention (i.e the exit of a competitor). Don't include them in your budget, but be mindful of them. 👉 8. Identify Dependencies ↳ If your budget achievement depends on other departments (e.g tech deliverables), make sure you seek proper hand-shake from your counter-part, and document the agreements. 👉 9. Lock-in the incentives system ↳Understand the budget rewards mechanics for you and your team. Ensure that these are fair and measurable on binary outcomes. Your main goal is, at a minimum, to hit the budget and ensure your team gets rewarded. 👉 10.Monitor progress against budget (once approved) ↳ Identify the main KPIs to monitor, and establish a review cadence. 👉 11. Course correct asap if your budget is deviating ↳ Identify the main KPIs and establish a review cadence. If budget deviates and no corrective action is taken, you are in the wrong place. These have been my lessons. I am yet to discover the extent to which these apply to budgeting in the start-up space. So far #1 has not been applicable 🤣 Do these resonate with you? Anything to add/remove? #budgeting #corporate

𝗘𝗮𝗿𝗹𝘆 𝗪𝗮𝗿𝗻𝗶𝗻𝗴 𝗦𝗶𝗴𝗻𝗮𝗹𝘀: 𝗛𝗼𝘄 𝗕𝗼𝗮𝗿𝗱𝘀 𝗖𝗮𝗻 𝗗𝗲𝘁𝗲𝗰𝘁 𝗙𝗶𝗻𝗮𝗻𝗰𝗶𝗮𝗹 𝗧𝗿𝗼𝘂𝗯𝗹𝗲 𝗕𝗲𝗳𝗼𝗿𝗲 𝘁𝗵𝗲 𝗣&𝗟 𝗦𝗰𝗿𝗲𝗮𝗺𝘀 When financial distress appears in the profit and loss statement, the damage has already been done. The role of a board is not to wait for red ink. It’s to detect weak signals before they turn into systemic problems. 𝟭. 𝗧𝗵𝗲 𝗣𝗿𝗼𝗯𝗹𝗲𝗺 𝘄𝗶𝘁𝗵 𝗥𝗲𝗮𝗰𝘁𝗶𝘃𝗲 𝗚𝗼𝘃𝗲𝗿𝗻𝗮𝗻𝗰𝗲 Boards often rely on retrospective financials. But financial reporting is lagging. What boards need is foresight. True oversight means asking, “Where is the business headed—and what risks are silently gathering speed?” 𝟮. 𝗧𝗵𝗿𝗲𝗲 𝗘𝗮𝗿𝗹𝘆 𝗪𝗮𝗿𝗻𝗶𝗻𝗴 𝗦𝗶𝗴𝗻𝘀 𝗕𝗼𝗮𝗿𝗱𝘀 𝗦𝗵𝗼𝘂𝗹𝗱 𝗠𝗼𝗻𝗶𝘁𝗼𝗿 Even when the P&L looks stable, these indicators suggest underlying trouble: 𝟭. 𝗧𝗶𝗴𝗵𝘁𝗲𝗻𝗶𝗻𝗴 𝗖𝗮𝘀𝗵 𝗙𝗹𝗼𝘄 𝗧𝗶𝗺𝗶𝗻𝗴 Receivables are slowing. Payables are stretching. Suddenly, there's a scramble to make payroll—not because revenue dropped, but because timing collapsed. 𝟮. 𝗦𝗮𝗹𝗲𝘀 𝗚𝗿𝗼𝘄𝘁𝗵 𝗪𝗶𝘁𝗵𝗼𝘂𝘁 𝗠𝗮𝗿𝗴𝗶𝗻 𝗚𝗿𝗼𝘄𝘁𝗵 Top-line revenue is rising. But margins are flat or declining. That’s not momentum—it’s dilution. You’re running faster just to stay in place. 𝟯. 𝗜𝗻𝗰𝗿𝗲𝗮𝘀𝗲𝗱 𝗨𝘀𝗲 𝗼𝗳 “𝗢𝗻𝗲-𝗢𝗳𝗳” 𝗘𝘅𝗽𝗹𝗮𝗻𝗮𝘁𝗶𝗼𝗻𝘀 The more often you hear “It was a one-off,” the more you should question the pattern. Excuses mask volatility. 𝟯. 𝗪𝗵𝗮𝘁 𝗕𝗼𝗮𝗿𝗱𝘀 𝗦𝗵𝗼𝘂𝗹𝗱 𝗕𝗲 𝗔𝘀𝗸𝗶𝗻𝗴 To surface early risks, boards should ask: 1. What does our rolling 13-week cash flow show? 2. How do current margins compare to the same time last year? 3. Are there consistent variances that require structural fixes? 4. Have we benchmarked against peers or past cycles? Boards don’t need to micromanage. But they do need to ask the right questions early enough to act. 𝟰. 𝗣𝗮𝗿𝘁𝗻𝗲𝗿𝗶𝗻𝗴 𝗪𝗶𝘁𝗵 𝗬𝗼𝘂𝗿 𝗖𝗙𝗢 The best CFOs don’t just report—they interpret. They connect operational shifts with financial consequences. Boards should create a culture where the CFO is empowered to raise red flags proactively, not just explain variances after the fact. 𝗙𝗶𝗻𝗮𝗹 𝗧𝗵𝗼𝘂𝗴𝗵𝘁 Good boards review the numbers. Great boards read between them. Look for the subtle cues. That’s where tomorrow’s risks—and opportunities—live. #BoardInsights #CFOLeadership #EarlyWarning #FinancialOversight #Governance #RiskManagement #BoardOfDirectors #FinanceStrategy

Resource planning separates successful firms from those constantly scrambling to meet deadlines 📊 Most finance teams operate in reactive mode, putting out fires instead of preventing them. I've worked with dozens of clients who struggle with this exact problem. They're always stressed, always behind, and wondering why profitability suffers despite working harder than ever. ➡️ CAPACITY PLANNING FOUNDATION You know what I've learned after years of helping firms optimize their resources? It all starts with forecasting your hours correctly. See, when you can predict workload based on historical data and upcoming client needs, you avoid that feast or famine cycle that absolutely crushes profitability. Monthly recurring revenue clients need consistent attention too. Don't make the mistake I see so many firms make by forgetting about them during busy season. Client volume scaling requires a completely different approach. Growing your client base means different staffing patterns and retention strategies. Plan resources based on both current clients and realistic growth projections. ➡️ BUDGET VS ACTUALS Track your planned versus actual resource utilization religiously. Variance patterns tell you exactly where your assumptions are off. Sometimes it's scope creep eating up resources. Sometimes it's inefficient processes slowing everyone down. Sometimes it's just unrealistic estimates from the start. Your resource planning gets better when you learn from what actually happened versus what you expected. Create accountability across your team so everyone understands how their work impacts overall capacity. ➡️ TIME TRACKING Without accurate time data, resource planning becomes pure guesswork. Monitor your billable versus non-billable ratios to understand true capacity. That administrative time still consumes resources and needs planning. Track project profitability in real-time so you can course-correct before it's too late. Waiting until project completion to assess profitability costs money. Use time data to identify productivity bottlenecks. Maybe certain work takes longer than expected, or specific team members need additional training. ➡️ STANDARD OPERATING PROCEDURES Document your repeatable processes and workflows. This dramatically reduces training time for new team members. Consistent processes mean more predictable resource requirements. When everyone follows the same approach, you can actually forecast capacity accurately. ➡️ CLIENT SCOPE DEFINITION Clearly define project boundaries upfront. Scope creep destroys resource planning faster than anything else I've seen. Set realistic client expectations from the start and stick to them. When clients want additional work, have a system to price and resource it properly. === Resource planning isn't glamorous work, but it's what separates profitable firms from those working harder for less money. What's your biggest resource planning challenge?

It bears repeating: "Lack of" isn't a root cause. During a recent conversation with an executive about a vexing quality problem his operation was experiencing, the "lack of" well-defined, well-documented, and well-managed standard work came up. As did the "lack of" proper training. As we address directly with clients—and in our Mistake Proofing, Problem Solving, and Root Cause Analysis courses, there are typically TWO factors at play with quality problems: contributing factors and direct root causes. For example, let's consider quality problems in four very different types of work: 1) hemolyzed blood draws that require redrawing blood; 2) cracks in manufactured parts that have to be scrapped, 3) wrong reason codes for an outcome, which causes dirty data; 4) missing critical notations on construction blueprints, which create construction defects and increases warranty expenses. In all four cases, quality can most certainly be improved with clearer, documented standards; excellent training; and better work oversight. But true root causes (and there are often multiple root causes for a problem) rear their heads DURING THE WORK ITSELF. 🔸 Hemolyzed blood is often due to shaking the tube of blood too vigorously. 🔸 Cracks can be caused by poor equipment, improper part handling, or improper temperatures. 🔸 Wrong reason codes are often the result of too many codes to choose from, or missing prompts in software to help someone discern between two similar-sounding codes. 🔸 Missing blueprint notations can be caused by distraction, rushing, or incorrect AutoCad settings. To help people conduct more robust root cause analyses that get to the process or work system issue that creates the specific cause and effect, it's helpful to differentiate between contributing factors and true root causes. Oh and while I'm at it . . . fishbone diagrams (aka cause-and-effect and Ishikawa diagrams) are brainstorming tools. While the true root cause(s) may make their way to a fishbone diagram, you have to dig more deeply. Definitive root causes can only be discovered via data, direct observation of the work, equipment and code testing, etc. Brainstorming can be a powerful first step and great way to get a team engaged in problem solving. But it's only the first step. VALIDATION is necessary. So the next time your head (or someone else's) lands on "lack of" root causes, acknowledge them as possible "contributing factors," but dig more deeply for true root causes. Remember: they exist in the work itself. #rootcause #quality #causeandeffect

🧠 Root Cause Analysis using Fishbone Diagram – CUT INJURY CASE STUDY In workplace safety, understanding why an incident occurs is more valuable than simply knowing what happened. One of the most effective and structured tools for uncovering the root cause is the Fishbone Diagram, also known as the Ishikawa Diagram or Cause-and-Effect Diagram. ⸻ 🎯 Purpose of the Fishbone Diagram The Fishbone Diagram helps in: • Identifying all possible causes of a problem • Organizing contributing factors into logical categories • Focusing on root causes rather than surface symptoms • Encouraging teamwork and analytical thinking during investigations ⸻ 🧩 Categories of Causes A typical Fishbone Diagram for safety uses the 6M Model: 1. Man (People) 2. Machine (Equipment) 3. Method (Process) 4. Material (Tools/Substances) 5. Measurement (Inspection/Monitoring) 6. Environment (Workplace Conditions) ⸻ ⚠️ Case Study: Cut Injury at Workplace Problem Identified: Frequent cut injuries in fabrication and maintenance areas. Root Cause Exploration: 👷♂️ Man (People) • Lack of skill-based training • Ignoring safety protocols • Not wearing protective gloves • Fatigue or carelessness ⚙️ Machine (Equipment) • Faulty cutting tools or dull blades • Missing guards or improper tool design • Inadequate maintenance schedule 🧾 Method (Process) • Unsafe cutting techniques • Absence of standard operating procedures (SOPs) • Rushing work to meet production targets 🧱 Material • Sharp edges on materials • Improper storage causing unexpected cuts 📏 Measurement • No proper tracking of near-miss incidents • Lack of inspection records for tools 🌤️ Environment • Poor lighting conditions • Cluttered or slippery workspace ⸻ 🛠️ Corrective & Preventive Actions ✅ Conduct regular hands-on safety training for operators ✅ Inspect and maintain cutting tools periodically ✅ Enforce PPE usage (especially gloves and safety glasses) ✅ Implement standardized procedures and supervision ✅ Maintain proper lighting and housekeeping standards ⸻ 💡 Conclusion The Fishbone Diagram is a simple yet powerful tool that transforms incident analysis into actionable insights. By systematically identifying and addressing each possible cause, we can move from reactive correction to proactive prevention, ensuring a safer workplace for everyone. ⸻ 🔗 #SafetyFirst #RootCauseAnalysis #IshikawaDiagram #WorkplaceSafety #CutInjuryPrevention #HSE #OccupationalSafety #ContinuousImprovement #RiskManagement #SafetyCulture

The annual budgeting season is upon us, and below is a description of the typical process and how it should work, based on my experience. Phase 1: Planning & Preparation ➡ Strategic planning ➡ High-level alignment on targets for the budget process ➡ Review of models to ensure they are driver-based and templates are ready to be rolled forward ➡ Establish timing, format, deadlines, and calendars ➡ Development of templates Phase 2: Departmental/Budget Submission ➡ Share targets with budget leaders ➡ Work closely with them to understand revenue, hiring needs, operating expenses, and investment needs for the new year ➡ Consolidate the list of key risks and opportunities for each department ➡ Explore different scenarios and key driver sensitivities Phase 3: Consolidation & Review ➡ Roll up departmental plans while ensuring numbers tie ➡ Review for gaps between targets and the budget submission ➡ Review assumptions and any overly optimistic or pessimistic forecasts ➡ Revise until ready for board approval Phase 4: C-Suite & Board Approval ➡ C- Suite reviews plan and approves budget version ➡ Board reviews plan and recommends potential changes ➡ Once the Board and C-Susite are aligned, the plan becomes official Phase 5: Communication & Implementation ➡ The approved budget is communicated throughout the company ➡ Department heads receive approved budgets ➡ KPIs/performance targets updated, and implementation of tracking Phase 6: CFO and FP&A Debrief ➡ FP&A debriefs on how the process went and records improvement recommendations for next year ➡ Survey department heads for feedback on improvements ➡ Create an action plan to improve the process for next year Phase 7: Monitoring and rolling forecasts ➡ Reforecast throughout the year to reflect the latest conditions ➡ Review variances and implement changes to maximize performance Below are several key tips to keep in mind throughout the process. These are tips I have learned over the years that make the process go smoother. ⚫ Stay positive, as negativity will grow if you let it ⚫ Communicate, communicate, communicate, hold meetings frequently, daily if needed ⚫ Give yourself a buffer when developing the calendar, and make sure you allow for potential slippage ⚫ Only ask the business for what you need; do not include everything in the template you give them.  Do as much work as you can for them and only focus their time and attention on the material items ⚫ Never submit a number the business has not seen. If you do inform them immediately of the change and who authorized it ⚫ Review all business assumptions and make sure they are supportable ⚫ Stay calm and remember it is just a budget Join me this Thursday, September 4th, at 11:00 AM EDT for a webinar on budgeting with Rohan Kapil from Jedox Link to register: https://lnkd.in/gjtP6UXj Let me know in the comments what you would add.

ROOT CAUSE ANALYSIS (RCA) "5 Whys" Method In operational management, addressing a "near-miss" involves moving beyond immediate fixes to uncover the systemic flaws that allowed the issue to occur. This process is known as Root Cause Analysis (RCA). Using the example from the provided video, we can break down how a single drop of oil led to a company-wide change in quality standards. The "5 Whys" of the Incident A common RCA technique is the "5 Whys" method, which forces an investigator to look past symptoms and find the origin of a problem. 1. Why was there oil on the floor? Symptom: A bolt on the overhead pipe was leaking. 2. Why was the bolt leaking? Immediate Cause: The rubber gasket inside the bolt had deteriorated. 3. Why did the gasket deteriorate while others nearby were intact? Direct Cause: This specific gasket was sourced from a different supplier than the others, despite being installed at the same time and in the same environment. 4. Why was a gasket from a different (and inferior) supplier used? Systemic Cause: Procurement standards or quality control checks failed to identify that the supplier was providing substandard parts. 5. Why were the procurement standards insufficient? Root Cause: A lack of rigorous supplier vetting and quality assurance protocols within the procurement department. Impacts of the Analysis By performing this deep dive rather than simply wiping up the oil, the factory achieved several high-level operational improvements: 1. Systemic Prevention: The company reviewed its supplier standards and strengthened quality control procedures. 2. Preventing Future Failures: The findings prevented similar gasket failures across the entire system, potentially avoiding massive leaks or equipment fires. 3. Financial Efficiency: Investigating the root cause is more cost-effective than repeatedly fixing the same recurring "symptom". Key Takeaway for the Incident This incident perfectly illustrates why under-reporting is dangerous. If the worker had simply wiped the floor, the defective gaskets from that supplier would have remained in the system, eventually leading to a catastrophic failure. "If you only fix what you see, you're treating symptoms. If you keep asking why, you uncover the truth."

Cost-cutting has a bad reputation. Most leaders think layoffs are the answer. But $100K+ in savings is hiding in plain sight. I’ve led dozens of cost-reduction projects and saved companies millions. Here’s what I’ve learned: You don’t need layoffs to cut costs. The proof? Companies waste 30% of their budget long before even looking at headcount. Here’s the cost-cutting framework that saves big—without layoffs: The 4Cs of Strategic Cost Reduction: 1/ Cancel: ↳ Audit unused tools, licenses, and low-ROI expenses. ↳ Cut what doesn't deliver 2/ Consolidate: ↳ Merge overlapping tools, processes, or contracts. ↳ One tool, one vendor, one contract 3/ Control: ↳ Create spending guardrails: limits, approvals, and audits. ↳ Track expenses over $500 to stop leaks early. 4/ Collaborate: ↳ Use fractional experts or outsourcing for specialized work. ↳ Pay for outcomes, not hours. 10 Proven Tactics to Cut Costs and Save Big: 1/ Audit Quarterly Subscriptions 2/ Renegotiate Vendor Contracts 3/ Reimagine Office Space 4/ Simplify Tech Stack 5/ Audit Marketing Spend 6/ Extend Payment Terms 7/ Automate Manual Tasks 8/ Use Fractional Experts 9/ Tighten Expense Policies 10/ Focus on High-Impact Areas The truth about strategic cost-cutting? You can save more by optimizing systems than By cutting your greatest asset—your people. What’s your favorite tactic—or what would you add? ♻️Share to help other leaders And follow Mariya Valeva for more