The core idea
A budget is a hypothesis about the year: if we sell this much at that price, we need that much inventory, that many people, and this much cash by Q3. The discipline is cascading consistently from sales through operations to cash. Variance analysis then closes the loop: what actually happened versus the plan, and why. — after Horngren
The hero diagram
The master-budget cascade.
Six links. Each one depends on the one before it.
The rules on the page
The rules of the game.
How to apply
When you inherit a budget mid-year.
- Find the sales assumption. Everything downstream depends on it. If that is wrong, everything is.
- Run the cash forecast forward. Seasonal troughs are where businesses die. Know where yours are.
- Pull recent variances. Price variance? Quantity variance? Each points to a different fix.
- Flex the budget. Compare actuals to a budget at actual volume, not the original plan. Otherwise you are punishing growth or rewarding decline.
Key reading · Session 8 · Likierman
Budgeting and short-term financial planning.
Most budgets fail not because the numbers are wrong but because the cascade was broken — the sales team and operations were working from different sales assumptions. The master budget exists to force one story through every department.
One sales number. Everything else cascades.