How to Find Balance: Too Detailed vs. Not Detailed Enough
One of the issues we see many companies run into is deciding how detailed to make their budget. Often, people think more detail is always better – but really, its more like the story of Goldilocks and the Three Bears: you don’t want a budget that is too detailed or not detailed enough. You want the amount of detail that is just right.
The best budgets are strategic and line up with the company’s long-term growth plans. When you’re planning your budget, take the time to set three to five goals you hope to achieve. For example:
- Increase gross sales by 20%.
- Reduce office supply costs by 10% by the end of the fiscal year.
- Invest 5% of revenue into new tech innovations by the end of the third quarter.
Now that you have a framework, you can look at what you need to know to get to the desired outcome. That can help determine how detailed your budget needs to be. If your goal is to reduce office supply costs, you might need to get more detailed about how you are going to do that.
Materiality is also important. Different people in the department have different materiality; e.g. if you’re a department manager, certain things might be more material to you than others. Budgeting to items that are immaterial (for example, postage expense when that’s less than 1% of your total numbers) can be a waste of valuable time and effort.
In general, the amount of detail depends on the scope of the budget. The closer to the action, the more detailed the budget should be. So, a departmental budget managing 12 people might be more detailed than the overall budget looking at the whole company.
How detailed you get might also depend on where your business is at. Are you launching a new product or service? That budget may need to be more detailed. But if a department has been running status-quo and you plan on continuing it that way, then there may not be a need to get into the nitty gritty.
Something else that can affect how detailed you get depends on how frequently you are budgeting.
How do you decide what level of detail you get in to in the budget?
