Annual Budgeting Disciplines - An Essential Element of Performance Management
Ed Rehkopf

Annual Budgeting Disciplines - An Essential Element of Performance Management

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Zero-Based Budgeting:  Any club serious about performance management must use Zero-Based Budgeting as a necessary budgeting best practice . This method of budgeting is distinct from the common practice of taking last year’s operating results and adding a percentage inflationary increase thereby incorporating last year’s operating inefficiencies and plan requirements into the financial plan for the coming year.  This problem merely compounds erroneous and often “fat” budgets year after year.

The concept of zero-based budgeting calls for each year’s budget to be built from scratch based on the coming year’s annual plan.  This seemingly challenging requirement can be greatly simplified by using revenue and payroll projections based on two sets of variables – the number of sales transactions and average revenue per transaction and the number of payroll hours and the average hourly wage (for non-exempt employees) respectively.  These key drivers of revenue and payroll cost are easy to obtain if department heads have properly benchmarked their operations during the current year.


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