What is the difference between a static and flexible budget, and when should you use each?

Static and flexible budgets are two different approaches to financial planning and analysis. A static budget remains fixed throughout a financial period, while a flexible budget adjusts based on actual performance. Static budgets work well when costs are stable and predictable, whereas flexible budgets are suited for industries or expenses subject to fluctuations and variations. You should use a static budget when you have confidence in your estimates and expect little change. A flexible budget is appropriate when you anticipate significant variations due to changing levels of activity or production. Often, a combination of both approaches is used to adapt to changing conditions during a financial period.

there are two main types of budgets in business - static and flexible. A static budget is set at the beginning and does not change; it’s like a plan that stays the same no matter what happens. Businesses use it to compare planned spending with what they actually spent. A flexible budget is more adaptable; it changes based on what’s actually happening in the business. This is handy for dealing with costs that can go up or down. Often, companies use both kinds of budgets. The static one helps keep track of planned versus actual spending, and the flexible one helps adjust the plan as things change. Together, they make managing money easier for a business.

There is not a lot of flexibility with a Static budget which can be OK if you are in an industry and an economy with static growth. Personally I've leaned towards the Flexible Budget, you can adjust Labor and Other Expenses based on Growth/down turn patterns and the swings in the Economy caused Climate or Political outcomes. Tornadao's, fires, hurricanes on the Climate side, Pandemic shutdowns, or stunting growth in specific industries for political agenda's. Keeping your Eye on current events & how it will benefit or effect your Company 12 months down the road will be the difference in sucess or just survival! Be Flexible and adjust !

- A static budget, also known as a fixed budget, is a budget that remains unchanged regardless of actual performance. It is prepared based on a single set of assumptions or estimates at the beginning of the budgeting period and remains fixed throughout that period. - A flexible budget, also known as a variable budget, is a budget that adjusts based on changes in activity or volume levels. It is designed to reflect different levels of performance, and the budgeted figures change as activity levels change.

Budgets, Forecasts and Variance Analysis: These support management to make the right strategic decisions. The fixed/static budget is prepared for a single activity level while a flexible budget is adjusted for different activity levels. A fixed/static budget is prepared for a particular estimated level of activity only. While a static budget is the same throughout a particular period and doesn't take seasonality or changes in sales into account, flex budgets fluctuate with sales, production, and other business activities. Static = Before Activity Flex = Post Activity Forecasts during the financial period support decisions with changing economic parameters. Variance analysis helps to keep performance on track as per budgets.

A static budget is a snapshot of your plan for the next year BASED ON DATA AVAILABLE at the present time. Our company used this for presentations at or near year-end. Then, during the year, we used a rolling (flexible) budget updated monthly for each business based on the NEW current information. This was labor intensive, but a useful tool for planning going forward. We had more than 800+ individual businesses that needed to be rolled up each month, so this was invaluable.

Static budgets are suitable when businesses expect consistent performance, and deviations from the budget are minimal. They serve as a baseline for financial planning and performance evaluation. And flexible budgets are preferable when performance fluctuations are expected and adjustments are necessary; or to analyze variations between planned and actual results effectively. They provide a more realistic financial picture and are valuable for decision-making and controlling costs. The choice between static and flexible budgets depends on the stability of your business environment and your need for accurate, adaptable financial planning and analysis. Respectfully Abdel Latif DAFFE, Chartered Accountant & FMVA? | West & Central Africa

- Static budgets are typically used for planning and control purposes. They provide a baseline against which actual performance can be compared. This allows organizations to evaluate how well they adhered to the original budgeted plan. - Flexible budgets are used for performance evaluation and analysis in dynamic environments. They allow organizations to assess how well they managed their resources in response to changes in activity levels or other variables.

It is the result that modifies or compliments changes in size. The budget is more risky and beneficial than the fixed budget (fixed budget), which states its amount regardless of the size of the activity. For example, you wouldn't believe a manufacturer signing up that the cost of electricity and supplies for the plant is about $10 per hour. She also knows that the famous actor in the factory, depreciation, and other phone costs are about $40,000 per month. Firstly, it works to produce between 4,000 and 70,009 hours per month. Based on this information, the flexible budget for each month would be $40,000 plus $10 per hour of electricity supply to the plant.

A flexible budget is a budget that adjusts to changes in activity or output. It's different from a static budget, which is based on a fixed level of activity or output. A flexible budget can be adjusted based on: Sales volume, Production volume, Revenues, Expenses, Revenue percentage, Production cost. A flexible budget includes both fixed and variable costs. It's created using a specific cost or formula. Examples of flexible budgets include: Agricultural activities Wool-based industries Businesses that use laborers. A flexible budget is more sophisticated and useful than a static budget. A static budget cannot be changed once it's created

Static Budget used when your business operates in a stable environment with minimal changes in activity levels. It is suitable for long-term strategic planning and initial budgeting, as benchmark for annual performance evaluation. Flexible Budget used when your business experiences fluctuations in activity levels or when you want to assess performance under different scenarios. It is valuable for short-term decision-making, allowing you to adjust the budget to reflect changing conditions. In practice, many organizations use a combination of both static and flexible budgets. By creating a static budget as a baseline for the fiscal year and then use a flexible budget to adapt to changes in business volume or other variables as they occur.

- Static budgets are most suitable for businesses with stable and predictable operating environments. They are less adaptable to significant changes in revenue or expenses. - Flexible budgets are particularly useful for businesses with variable revenues and expenses. They are adaptable and can provide a more realistic picture of financial performance in changing conditions.

The choice between using a static budget or a flexible budget depends on the specific circumstances. Static: These are used in stable environments with minimal changes in activity or costs. It can also serve as a starting point for new projects or businesses, subject to later revision. Flexible: It is ideal for businesses with fluctuating activity levels as it helps in assessing actual performance, by adapting to real activity levels. Its is also beneficial for ongoing budgeting and forecasting as it reflects changing dynamics. In my organization, we use a combination of both static and flexible budgeting. We start with a static budget for planning and create flexible budgets to evaluate performance and make adjustments as necessary.

Static budgets are better for: Fixed costs and revenues, Short-term planning and control, Stable environments Flexible budgets are better for: Variable costs and revenues Performance evaluation and feedback Dynamic environments Static budgets are less adaptable to significant changes in revenue or expenses. They remain unchanged for the duration of the period and do not take changes in cyclical or seasonal demands into consideration. Flexible budgets allow organizations to respond to changes in demand over time. They are useful for planning incremental demands in labor, raw materials, and run rates. A static budget could be used for long-term strategic planning while a flexible budget can be used for short-term operational control.

The static budget is prepared for the planned output, whereas the flexible budget is based on the actual output, price per output unit, actual quantity of output, and budgeted fixed costs. When I worked for previous company, static budget was prepared at the year end. Then through out the year , comparing budget and actual. Then forecast for the rest of quarters and prepared the rolling budget.

Preparing a fix budget is pretty easy and basic as you don't need to modify it. Flexible budget on the other hand requires financial modeling with adjustable variables that you can play with and adjust. A good financial model is essential to build an effective flexible budget.

To analyze a static budget, you can: Identify the fixed and variable expenses within the company's operations Account for all expenses Estimate the variable costs using budget forecasting techniques Compare the budget to actual financial results To analyze a flexible budget, you can: Identify the various costs and expenses that vary with changes Classify the expenses into separate categories of variable costs, semi-variable costs, and fixed costs Compare the budget to actual results Identify and analyze the variances that affect performance and profitability Static budgets are more important for process innovation, while flexible budgets are more important for product innovation.

Apart from all the definitions of both type of budgets, stability in macro economics is a key elements in opting static vs flexible bidgets