Question

If I am going to ask a department how much of a budget they need, they are going to put the numbers that will make them comfortable and not the actual numbers. How would you avoid such a situation?

Answer 1

This situation could be avoided if the department is told that the variance will be strictly monitored. Variance is the deviation of actual numbers from the budgeted numbers; if such deviation is high, the budget would be no use of. A high-variance indicates failure of budget which is not prepared based on four principles – identifying the goal, identifying the necessity, cost ascertainment, and applying numbers.

Because of such variance the department will be alert and they provide actual numbers only but not as per their choice.