In order to create a flex budget, you must enter Actual KBI Values and P&L values. These actuals can be entered manually or imported. But first you need to understand what a flex budget is and how it works.

With the concept of flex budgeting, you can revise your original budget using current period actuals. For example: Suppose the Rooms department budget is based on an average 70% occupancy. Operating costs, such as payroll and expenses, are based on this level of occupancy. If the actual occupancy turns out to be more or less than the projected 70%, it would be difficult to know what the new operating costs should be if all you have is a fixed budget.

The advantage of the flex budgeting methodology is that, as the period progresses, the appropriate expense levels can be determined according to the actual performance levels. Flex budgeting uses actual drivers, such as revenue and rooms sold, to apply expense methodologies to the new volumes. Generally, expenses are classified as fixed, discretionary, or variable cost. Non-fixed expenses are based on several methodologies such as percentage-based amounts, per available rooms (PAR), or per occupied rooms (POR). The following example shows how expenses are flexed against revised or actual revenues.

For Example:

In this example, room wages are budgeted as 30% of room revenue. Room expenses are budgeted as 4.5 POR variable expenses.

The flex budget revises the original budget so that the expenses are based on the latest revenue actuals. At first glance, the original budget shows favorable results in a $2,200 variance savings in room wages and favorable $100 in expenses. However, this information does not distinguish how much of the favorable cost variance is due to lower activity versus better-cost control. The flexed budget paints a more accurate report by showing that room wages were significantly lower with a $8,740 variance. Also, the room expenses were favorable by $1,000 rather than $100.

The major benefit of using flex budgeting methodologies is to show your true profit potential based on actual performance and modified cost estimations. Since the flex budget revises the original budget so that the expenses are based on the latest actuals, you can distinguish how much of the favorable cost variances are due to lower activity versus better-cost control.

As you can see from the first example, the flexed budget shows the potential profitability based on flex budgeting methodologies. It shows the most accurate analysis of your profitability and performance evaluation, and ultimately a more realistic calculation of profitability.

For example:

In the second example, the optimal profit was $9,740 less than what we actually did (127,160 - 136,900). While that is good for the bottom line, it points to a possible service issue since much of the profit was saved in labor. By flexing your budget methodologies with actual volumes, you are able to accurately gauge where expenses should be. Variances of plus or minus 3% actual to optimal should be further investigated for either a service or savings opportunity.

Flex Budget Workflow

1. Import and/or enter actuals.
2. Generate flex budget.
3. View/review the flex budget in Configure/View Budget  or by running the Flex Period Projection Report.

Related topics:

• Budgets
• Configuring-Viewing Budgets
• Copying a Dataset
• EPEP
• Flex Budgets & Actuals
• Forecasting KBIs
• New Budgets
• Opening Budgets
• Rebuilding the Cost Structure
• Re-Forecasting
• User-Defined Types
  
  
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