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Planning, Monitoring, Evaluation And Corrective Action
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Financial management of your unit should be viewed as a management aspect that requires planning, monitoring, evaluation and corrective action.
The old adage “if you can’t measure it, you can’t manage it” holds true for financial management.
Planning
Budget planning should be done from the bottom up, but frameworks and assumptions for budgeting should be set from the top down. Ensure that individual managers are involved in the budgeting process and are held responsible. It is important to remember that budgets should not be confused with performance management and that budgets should form part of performance management and not the entire yardstick against which people are measured.
Monitoring
An organisation can be affected by a multitude of factors and a manager should be prepared to reset the budget targets as necessary. A manager should look out for trends and measure them (for example, sales are running below target or spending is running above target). Charts can be created to monitor trends.
Non-financial indicators that ultimately affect the numbers should also be monitored, such as headcount, quality control problems and production levels. Ratio analysis also forms an important part of monitoring.
Check numbers ruthlessly and do not assume they are correct just because they have been presented well.
Evaluation
Evaluating requires taking monitoring one step further and is usually done at set intervals. Use the numbers to determine if you are in line with the business strategy. Evaluate whether cost-cutting measures can be put in place and what these measures should be. Ask yourself how efficiency can be improved and if more revenue can be generated. Question where things went wrong and why they went wrong.
Manager should also use their knowledge of financial management to benchmark against competitors.
Corrective Action
Monitoring and evaluation do not mean anything unless corrective action is taken. Managers should be required to prepare reports and action plans based on the budget variances and any ratio analysis they have done.
A typical action plan will include goals, objectives (measurable steps towards achieving those goals), timeframes and persons responsible. An action plan should be monitored and checked to see if items are being actioned on time.
Click here to view a video that explains the planning, monitoring, evaluation and corrective action of budgeting.