Learn effective stakeholder communication strategies for handling unexpected budget variances in business reporting.

When analysing variance against Plans / budgets, it is imperative to look at the why rather than just the what. The drivers behind the numbers driving the variance are much more important than the variance itself. With deep understanding of the business and its competitive environment, finance can analyse these drivers and recommend action plans to address those variances and return the business health to the desired state.

Charlie Munger puts it simply: "Always tell us the bad news promptly. It is only the good news that can wait." Being clear and upfront allows us to handle situations effectively. It's important to share your problems, not just your solutions. This openness builds honesty, trust, and makes everyone feel included.

Last updated on Aug 6, 2024

You're dealing with unexpected budget variances. How do you handle stakeholder expectations effectively?

When you're faced with unexpected budget variances, it can be a challenging time. You may find that your project or operational costs have deviated from what was planned, leading to a potential shortfall or surplus. This can cause concern among stakeholders, who are invested in the financial health and success of your business. The key to managing this situation is clear communication and strategic planning. By being proactive and transparent, you can help stakeholders understand the situation and work together to find a solution.

Key takeaways from this article

Early communication:

When you notice budget variances, promptly inform stakeholders. This openness fosters trust and allows for collective brainstorming to address the financial discrepancies head-on.
Engage stakeholders:

Bring stakeholders into the loop to collaborate on solutions. Their involvement can offer fresh perspectives and help generate robust strategies to tackle budget issues.

This summary is powered by AI and these experts

1 Analyze Variances

Firstly, it's crucial to thoroughly analyze the variances in your budget. Understand the root causes by looking at the numbers in detail. Was there a spike in material costs, an underestimation of labor expenses, or perhaps an unforeseen event that impacted your financials? By pinpointing the exact reasons for the discrepancies, you can develop a clear explanation for stakeholders. This will also help you to adjust your forecasting methods and prevent similar variances in the future.

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Taha Shakeb

Finance Leader driving sustainable business growth and operational excellence
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When analysing variance against Plans / budgets, it is imperative to look at the why rather than just the what. The drivers behind the numbers driving the variance are much more important than the variance itself. With deep understanding of the business and its competitive environment, finance can analyse these drivers and recommend action plans to address those variances and return the business health to the desired state.

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Bonnie Buckle

Accountant
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Ensure that you have all the facts on the variance and if there is any place that the variance can be picked up from. It is important to be honest and straight forward.

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Laura Gomez, CPA

Assistant Controller at Caliber Companies
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Quickly determining the root cause of the variance is key to quantifying the impact of the variance and how significant the financial impact of the deviation has caused.

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2 Communicate Early

When budget variances occur, timely communication is essential. Reach out to stakeholders as soon as you have a clear understanding of the issue. Explain the situation, the reasons behind the variances, and the potential impact on the business. This transparency builds trust and allows stakeholders to prepare for any necessary adjustments. It also opens the door for collaborative problem-solving, which can lead to more effective and creative solutions.

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Ellen Card

World-Class Finance & Accounting Management Professional
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I agree with this strategy. Bad news does not get better with time. Early communication will help stakeholders manage their own expectations.

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Stacey Styles, EA

Igniting Financial Freedom âš¡ï¸ | Visionary CEO Transforming Accounting & Tax Mastery | Unlocking financial clarity for entrepreneurs and individual taxpayers ðŸ“Š Expert Tax Strategist | Dynamic Financial Educator ðŸŽ™ï¸
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You should definitely proactively communicate to ensure there's ample time to address and mitigate any potential surprises. This will in turn build trust.

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Nauman ul Haq

Finance Director | Group Reporting and Financial Control | Digital Transformation | FCA, CFA
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Charlie Munger puts it simply: "Always tell us the bad news promptly. It is only the good news that can wait." Being clear and upfront allows us to handle situations effectively. It's important to share your problems, not just your solutions. This openness builds honesty, trust, and makes everyone feel included.

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Laura Gomez, CPA

Assistant Controller at Caliber Companies
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Early and clear communication with appropriate context is crucial, and should be explained in a way that all stakeholders can understand, regardless of their financial expertise.

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3 Adjust Plans

After identifying and communicating the budget variances, it's time to adjust your plans accordingly. Review your current budget and make necessary changes to accommodate the new financial reality. This may involve reallocating resources, cutting costs, or finding new revenue streams. Present these adjusted plans to stakeholders with a clear rationale for each decision. Your ability to adapt to financial changes demonstrates strong leadership and can reassure stakeholders of your commitment to the business's success.

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Ellen Card

World-Class Finance & Accounting Management Professional
(edited)
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I actually disagree with this. This is an unexpected variance and should not cause a reforecast of the budget - particularly if a natural occurrence caused the variance. Communication with stakeholders regarding the cause and a clear path forward will go a long way towards soothing ruffled feathers.

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Laura Gomez, CPA

Assistant Controller at Caliber Companies
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Providing both short-term solutions that mitigate the impact of the variance, as well as long-term strategies to prevent similar variances in the future, is key to reassuring stakeholders.

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4 Engage Stakeholders

Engaging stakeholders is a step that should not be overlooked. Invite them to share their insights and participate in the decision-making process. This collaborative approach not only leverages diverse perspectives but also ensures that stakeholders feel valued and heard. Their involvement can lead to more robust solutions and a stronger buy-in for the revised budget plans.

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Laura Gomez, CPA

Assistant Controller at Caliber Companies
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Seek their input and get their feedback! Involving them in the decision-making process fosters a sense of ownership and partnership in addressing the issue!

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5 Monitor Progress

Continuous monitoring of your financial progress is vital after addressing budget variances. Keep stakeholders updated with regular reports on how the revised budget is performing against targets. This ongoing communication helps maintain transparency and allows for quick responses if further variances arise. It also demonstrates your commitment to financial stewardship and can increase stakeholder confidence in your management capabilities.

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6 Learn and Improve

Lastly, use this experience as a learning opportunity. Analyze what went wrong and what was handled well. Implement new processes or tools if needed to improve budget tracking and forecasting accuracy. Share these learnings with stakeholders, highlighting how they will help in managing future financial planning. Continuous improvement in your budgeting process will show stakeholders that you are proactive and dedicated to fiscal responsibility.

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Ellen Card

World-Class Finance & Accounting Management Professional
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I think planning and reflecting on what could have been done differently and improved upon will provide a clear path forward if similar variances occur in the future. Stakeholders are always interested in a contingency plan and how to survive future â€œwhat-ifâ€ scenarios.

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7 Hereâ€™s what else to consider

This is a space to share examples, stories, or insights that donâ€™t fit into any of the previous sections. What else would you like to add?

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Directory

You're dealing with unexpected budget variances. How do you handle stakeholder expectations effectively?

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2

3

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5

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1 Analyze Variances

2 Communicate Early

3 Adjust Plans

4 Engage Stakeholders

5 Monitor Progress

6 Learn and Improve

7 Hereâ€™s what else to consider

Business Reporting

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