How confident are you in the accuracy of your budgets? If your answer is ‘not very,’ you are not alone.
Despite a plethora of purpose-built budgeting tools and software, including those supported by AI and predictive analytics, budget overruns in construction, manufacturing, software development, and many other industries remain almost as common as they were a generation ago.
Businesses who stubbornly rely on intuition, outdated spreadsheets, and disconnected tools for their budgeting needs may be missing the golden opportunity presented by data-driven budgeting tools that provide enhanced accuracy and transparency.
Why intuition alone doesn’t cut it anymore
With over 90% of large projects going over budget, over schedule, or both, the disconnect between what is possible and reality is clear. Seasoned planners and project managers have developed habits based on decades of experience, and success. They are also called upon to make quick decisions in situations where complete data is not always available. This history leads many to continue leveraging manual budgeting methods and ‘gut feel’, despite their awareness of the inherent risks.
Overreliance on instinct is one of many issues leading to ongoing budget inaccuracies. Poor communication between stakeholders, abbreviated planning cycles, and siloed departments and teams are additional factors that allow human nature to override common sense. As projects in construction and other industries grow more complex, the impact of these risk factors multiplies – Just a single error can produce a ripple effect that jeopardizes the entire effort.
The best budgeting tools and software provide the ease of use needed to overcome objections and resistance, while leveraging advanced analytics, AI, and machine learning to overcome longstanding budget pitfalls.
The shift toward data-driven budgeting
Digital budgeting tools are more than just ‘shiny new toys,’ with decades of results and endorsements now echoing the benefits across industries and applications. Advanced budgeting software provides much needed support for use cases including:
- Product development projects relying on predictable cost and time to market estimates.
- Demand forecasting for retailers predicting upcoming customer purchasing trends.
- Optimized allocation of recruiting and training resources for human resources (HR) teams.
- Defining planned expansion budgets for private equity (PE) acquisitions.
Small companies and start-ups are more likely to rely on intuition as they roll out new products and services with limited historical data to help predict costs, but these businesses are also susceptible to errors in judgment as they struggle to balance limited resources and growth. The declining cost of advanced budgeting software has helped to prevent the expense from becoming a gating factor.
Choosing the right budgeting tool for your business
With so many options available for every budget and use case, choosing the right budgeting tool can become yet another paralyzing decision with the potential to postpone adoption. Businesses can overcome this challenge by focusing on the capabilities and features they find most valuable, such as:
- User friendly interfaces and easy integration with existing ERP and accounting systems.
- Collaboration features that allow multiple stakeholders to participate in the budgeting process.
- Scalability and cloud access to ensure the tools can grow along with the needs and size of the business.
- Industry-specific features tailored to specific budgeting methods and practices.
Small businesses benefit from budgeting capabilities like automatic expense categorization and scenario planning that allows entrepreneurs to build confidence in their future path as they free up bandwidth and capital for market expansion. The construction industry also relies on industry-specific features, such as asset management, takeoff & estimation, and real time cost vs. budget tracking.
Real-world example: Construction and BoQ
The specialized budgeting and accounting practices developed for the construction industry accommodate the unique nature of each new project, and the enormous negative consequences of inaccurate budgets and overruns. The bill of quantities (BOQ) used by project teams to establish a detailed list of the items, quantities, and work content of a project is a classic example of this specialization.
The BoQ has been embraced by the construction industry as a proven way to enhance accuracy, improve cost transparency, and promote fair and unbiased bid tendering cycles. The clear and informative digital format also provides an anchor for essential project activities including scheduling, cost control, risk management, and contingency planning. A well-structured bill of quantities can save time and money while ensuring no budget items are overlooked.
Moving beyond intuition
Gut feel and snap decisions are part of the cherished folklore for many of the world’s greatest entrepreneurs and businesses, but when it comes to budgeting, today’s competitive environment calls for digital reinforcement. The notoriously tech resistant construction industry is surging into the lead in this important category, developing digital tools that combine real-time data and cloud connectivity with unprecedented cost resolution. Leaders in every industry should follow this example by finding the digital budgeting tools that work best for them.
The benefits clearly outweigh the pitfalls when you consider the prospect of budgets that are consistently transparent, accurate, and under control!
