Budgeting is vital for any organisation that aims to achieve its strategic goals and objectives. Budgeting involves planning, allocating, and controlling an organisation’s financial resources to support its operations and projects. Budgeting can also help organisations evaluate their performance, identify potential risks and opportunities, and communicate their plans and expectations to various stakeholders.
The budgeting process has evolved, influenced by various factors such as technological developments, economic conditions, management theories, and organisational cultures.
The origins of budgeting can be traced back to the public sector, where governments used budgets to control their expenditures and revenues. The British Chancellor of the Exchequer presented the first national budget in 1760, followed by the US President in 1913. Budgets were seen as instruments of fiscal discipline and accountability.
The adoption of budgeting in the private sector began in the early 20th century, driven by the emergence of large-scale industrial corporations that needed to coordinate their complex and diverse activities. The pioneers of corporate budgeting were Donaldson Brown at General Motors and James McKinsey at McKinsey & Company, who developed methods to link budgets to strategic planning, performance measurement, and incentive systems. Budgets were seen as tools for planning and control.
Budgeting in the private sector continued in the post-war period, influenced by the growth of multinational corporations, new management theories, and the advancement of information technology. Some of the innovations in budgeting included zero-based budgeting, activity-based budgeting, rolling forecasts, balanced scorecards, and beyond budgeting. Budgets were seen as sources of information and learning.
The current trends in budgeting reflect the challenges and opportunities posed by the dynamic and uncertain business environment. Some of the challenges include increasing competition, changing customer preferences, regulatory pressures, environmental concerns, and technological disruptions. Some opportunities include digital transformation, data analytics, artificial intelligence, and cloud computing. Budgets are seen as enablers of agility and innovation.
As Clifford Stoll, an American astronomer and author, said: “Data is not information, information is not knowledge, knowledge is not understanding, understanding is not wisdom.” Therefore, it is essential to understand how data analytics can transform the budgeting process and decision-making in corporate contexts.
Data analytics is the process of collecting, processing, analysing, and interpreting data to generate insights that can support decision-making. Data analytics can be applied to various types of data, such as financial, operational, customer, market, and social media data. Data analytics can also use multiple techniques, such as descriptive analytics, predictive analytics, prescriptive analytics, and cognitive analytics.
Data analytics can significantly impact the budgeting process and decision-making in corporate contexts. Some of the benefits of data analytics for budgeting include:
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Data analytics can also significantly impact decision-making based on budgets. Some of the benefits of data analytics for decision making include:
As Carly Fiorina, former CEO of Hewlett-Packard, said: “The goal is to turn data into information, and information into insight.” Leveraging data analytics can improve the budgeting and decision-making processes.
Many companies have adopted data analytics in their budgeting processes and tools and improved their decision-making. Here are some examples:
Budgeting is a critical process that has evolved, influenced by various factors such as technological developments, economic conditions, management theories, and organisational cultures. Data analytics is a powerful tool that can enhance the budgeting process and decision-making by improving the accuracy, efficiency, flexibility, value, alignment, scope, speed, quality, transparency, and learning of budgeting and decision-making. Many companies have adopted data analytics in their budgeting processes and tools and improved their decision-making. As Arthur Conan Doyle, a British writer and creator of Sherlock Holmes, said: “It is a capital mistake to theorise before one has data.”
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