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How Using AI Can Streamline Your Budgeting Process

Published on January 18, 2024, Last Updated on June 28, 2024
Joe Garafalo

Founder and COO

The power of AI isn't reserved for mundane, repetitive processes. As AI-powered finance tools get stronger, they're going to start transforming your planning cycles, too. Here's what you can expect from AI budgeting.

AI financial planning is set to become a major method for finance teams and managers when it comes to everything from high-level corporate planning to quarterly budgeting at a departmental level. Artificial Intelligence can help inform how finance teams and managers allocate their funds.

Just as AI is being integrated across a whole range of processes from sales to marketing to customer service, finance teams and executives are also set to benefit from its ability to cut down on errors, eliminate manual number crunching and highlight trends and anomalies.

That can take many different forms. It can help sales leaders identify product lines, geographic areas or team members who are under or overperforming. It can help marketing managers quickly identify their most successful acquisition channels. R&D can gain instant insights on performance analytics in bringing new features or products to market.

For budgeting, it allows managers and finance teams to allocate resources more efficiently, whilst removing large swathes of manual work in the process. Here’s why you should be looking at ways to integrate AI into your budgeting process.

Table of Contents

The Evolution of Budgeting

There are a ton of different ways to budget within an organization. For small businesses starting out, there are really two main ways to look at budgeting. The first is to take a top down approach, where they have a total budget to run the company, and then adjust business operations and activities to fit this budget.

The second is the bottom up approach, where the cost for each element of the business is calculated based on what’s needed to hit their objectives, and this is then tallied up to give an overall budget for the year or the quarter.

Obviously, both of these methods are crude and leave little room for agility or efficiency, which is why companies look to more sophisticated methods as they scale. The four most common forms of traditional budgeting are:

  • Incremental budgeting. Where a company takes last year’s budget and then adds or removes a percentage (often based on company performance for the previous period) to calculate the budget for the next period. It’s simple and easy, but it can mean sticking to a budget that isn’t optimized for far longer than you should.
  • Zero-based budgeting. Here, a new budget is created from scratch every period. A lot more work, but means that costs need to be continually justified to be maintained. That can mean less waste, but a much slower review and implementation process which can frustrate many aspects of the business.
  • Values-based budgeting. A watered-down version of zero-based budgeting. You start with the budget from the previous period, and then scrutinize each cost to confirm that it still fits with the company’s long term vision and objectives.
  • Activity-based budgeting. This method starts with a top down goal for company revenue, and then breaks down the activities needed to reach that objective. Those objectives are costed up based on their ability to help the company reach their overall financial goals.

Even though these four methods can be more specific and flexible, they come with one of two major problems. Either they’re too simplistic, like incremental budgeting, which can lead to inefficiencies and bloat, or they’re too complex, like zero based budgeting, taking a substantial amount of time and effort to create, slowing down activity in the process.

Bringing AI into the budgeting process offers the potential to have the best of both worlds, making it possible to implement a comprehensive budgeting process without massive amounts of time consuming manual work.

Benefits of AI in Budgeting

AI is fantastic at analyzing large amounts of data, very quickly. While pouring through an entire departmental budget could take a person days, business budgeting software is able to do it in seconds. That doesn’t mean people aren’t needed at all, but it does mean that their workload can be shifted from manual number crunching, to much more valuable tasks like analysis and strategy.

Some of the specific ways AI can improve the budgeting process are:

Efficiency

As mentioned above, AI can work much faster with data than humans can. A base case budget can be built almost instantly, especially when using platforms like Mosaic which connect all of your financial data in real time.

This cuts a huge amount of staff workload, allowing teams to work through the budgeting process in a fraction of the time compared to traditional budgeting methods.

Accuracy

Not only can this data reconciliation be done fast, it’s more accurate too. Any time information is transposed manually or calculated using formulas and spreadsheets, you introduce the potential for errors. This is a significant reason why AI is so useful for accounting teams as well.

With automation connecting your data sources into a centralized database, and AI basing its calculations and forecasts of this single source of truth, the potential for errors or typos is removed entirely. That means more accurate budgets and better business risk management.

Predictive Analytics

Again, this is nothing that a human couldn’t do. It’s possible to build any manner of financial models or projections using traditional methods in Excel or Google Sheets. The problem is the time it takes. These models will need to be created from scratch, or at the very least edited heavily from templates or previous models.

With AI, it’s possible to create forecasts and projections almost instantaneously, and iterate on these on the fly.

Customization

Because it’s so easy to iterate and change assumptions and scenarios, teams can access almost unlimited levels of customization. Previously, managers have been limited by time. There are only enough hours in the day to create a fixed (relatively modest) number of scenarios, and at some point the budget just needs to be set.

AI allows for far more custom models to be created in far less time, opening up a wider range of options for financial decision makers.

The Future of AI in Budgeting

Even with all of these exciting capabilities, we’re only at the very beginning of AI integration in software for finance. Over time we’re going to see more and more daily tasks able to be taken by AI, but that doesn’t mean we all need to fear for our jobs.

Really, AI’s best abilities lie in tasks that most of us don’t want to do anyway. Transposing data from one place to another. Sifting through thousands of line items to find the one or two we’re looking for. Studiously building a detailed financial model in Excel, and then hunting for errors when it breaks.

The end result of all this is that finance teams will be able to spend less time on the ‘What’ and more time on the ‘Why.’ Finance roles won’t be about getting the numbers to balance, it will be about working out what can be done to improve them. That’s work that adds real value to a business, and positions finance to be a key growth driver in the future.

At Mosaic, we’re building Arc AI as central to this thesis. We see AI as an integral part of the finance function, operating as a data analyst, data administrator, financial modeler and strategist, while empowering real people to utilize its strength on a ‘trust, but verify’ basis.

Mosaic: Helping You Navigate the Next Era of Strategic Finance

The Mosaic platform offers a comprehensive suite of essential tools for modern finance teams, all in a single platform. It allows you to connect multiple data sources into a single source of truth, creating an environment that is substantially more efficient and collaborative than the traditional spreadsheet based approach.

With the integration of Arc AI onto that foundation of accurate and complete data, users can manipulate and dissect it like never before. With the use of natural language prompts, you can literally ‘speak’ to your financials.

 

 

You can ask Arc for projections based on changing assumptions, pull insights on why the numbers look the way they do, and identify trends or anomalies that warrant a closer look.

When it comes to budgeting, Arc is a powerful tool for P&L management and budget variance analysis, helping save hours in finding out why expenses are higher than planned or revenue came in higher than expected.

All of this allows your finance team to focus on what it does best, adding real strategic value to your organization. To see how Mosaic and Arc AI can help add value to your company, book a demo today.

AI Budgeting FAQs

What is AI budgeting?

AI budgeting is the use of AI to help create, manage and review the budgets of an organization. AI can be integrated into various stages of the budgeting process, from building an accurate baseline scenario to forecasting future performance based on updated budgets.

How does Mosaic utilize AI in its budgeting tools?

How can AI budgeting tools help improve my company’s financial health?

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