budget
Also called: annual budget, operating budget, budgeting
The plan of revenue, costs and cash a team commits to for a period, used to allocate money and to judge results against.
A budget is the plan of revenue, costs and cash a company and its teams commit to for a period, usually a year split by month. It does two jobs: it allocates money before the period starts, and it gives a yardstick to judge results against once the period runs.
Most budgets meet in the middle of two directions. A top-down target says what the business needs (a profit, a runway, a growth rate); bottom-up detail from the teams says what it takes to deliver. When the two don't meet, the honest way to close the gap is through drivers: ask what would have to be true (more volume, a higher price, lower unit costs) and who owns each change. An equal percentage cut on every line hits efficient and padded lines alike and teaches nothing.
A budget people believe has every line tied to a driver someone owns, judges owners on their drivers rather than on spending less than they asked for, keeps uncertainty in one visible reserve instead of inside every line, and reads spending at actual volume: a cost that grew because customers grew is the rule working, not overspending.
Example
Klasna's board wants 3,000,000 UAH of operating profit next year. The driver-based forecast gives 2,251,968, and the teams' budgets add up to only 1,523,968, because 728,000 of padding hides in them.
Without the padding the honest gap is 3,000,000 − 2,251,968 = 748,032 UAH. Closing it through drivers:
- volume: 748,032 ÷ 187.25 ≈ 3,995 more lessons (less than half of one busy month);
- price: 748,032 ÷ (80,128 × 0.975) ≈ 9.57 UAH more per lesson on average;
- or the board accepts 2.25 million.
Each option has an owner and can be checked during the year. "Cut every line by 10%" has neither.
Common mistakes
- Cutting every line by the same percentage. It punishes honest lines and rewards padded ones.
- Praising underspending. Teams learn to ask for more next year.
- Judging spending at planned volume. A cost that grew with customers is not overspending.
- Hiding reserves in every line. One visible reserve held centrally is cheaper and honest.
- Treating the budget as a forecast. The budget is the commitment; keep a rolling forecast for the current best estimate.
Learn it in the course
- Budgets people believe · Top-down targets, bottom-up detail, and no padding.
- Case: plan vs actual by price, volume and mix · Price volume mix analysis: splitting a plan vs actual miss into price, volume, mix and currency.
- Cost behavior: fixed, variable and step costs · Cost behavior on a real year of costs: which costs move with lessons, which don't, and which jump at a threshold.
- Case: double marketing before exam season? · Marginal CAC by channel, what a seasonal customer is worth and the cash a doubled marketing budget needs.
- Driver-based forecasting · Driver-based forecasting: revenue and profit from learners, lessons, price and payout instead of last year plus ten percent.