Ratio-based spreadsheet budgeting: common practice;Decision Critical
Use an arbitrary buffer to represent working capital needs.;All payment terms and inventory holding periods are run through the model to calculate actual working capital needs period-by-period based on assumptions. Buffer is used only for bona fide unexpected items and can, itself, be scientifically built through stress-testing.
Apply ratios smoothly to all expenses, regardless of the practical realities of deployment – for example X% to cover facilities.;True representation of semi-fixed expenses is predicated on expenses occurring as the result of discrete events. Each event is the result of a direct assumption or of fulfillment of an operational condition. An event comes with its own cost and payment conditions, which are anchored to the event itself.
Income statement only. Or with over-simplified balance sheet and cash flow projections.;Income statement, balance sheet, cash flow statement, reconciling to each other and automatically updated.
Limited drilldown to select subaccounts.;Multi-dimensional drilldown to the most granular level, trace results to root assumptions / drivers.
No or sparse operational data in financial models.;Full set of operational data and reporting which drives the financial reports.
Updates to model require re-do or structural changes.;Update logic easily through changes to dependencies.
Exceptions to rules require labor-intensive structural changes / frequently introduce errors that manifest elsewhere.;Rules-based structure with the ability to make granular exceptions.
Extensive manual maintenance and testing required to ensure formulas do not break.;No user-entered formulas.