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Better Budgeting with Microsoft Dynamics AX 2012: Part II of Excellence in Financial Management

February 8th, 2012Sandeep WaliaLeave a commentGo to comments

I presented a session on budgeting capabilities with Microsoft Dynamics AX 2012 at the AXUG (AX Users Group) Summit in Las Vegas and I was surprised at how many users were not aware of the powerful budgeting functionality within Dynamics AX. While earlier versions of Microsoft Dynamics AX had base budgeting functionality with ability to import and load budgets and run budgets Versus Actuals the latest version Microsoft Dynamics AX 2012 has significantly enhanced the native budgeting functionality allowing it to become both a budgeting as well as financial control solution to keep expenditure within budgetary limits. This blog post talks about budgeting functionality in Microsoft Dynamics AX 2012 in a comprehensive fashion and is not limited to just the enhancements. However, I will point out areas of significant enhancement but this post will provide someone new to budgeting with Dynamics AX the knowledge to use it. The functionality with Microsoft Dynamics AX 2012 includes

Budget Development with Zero base budgeting and Historical Budgeting Rules to define budget control Budget Control at a Transaction level to prevent overspend

Microsoft Dynamics AX 2012 provides comprehensive budgeting functionality to develop budgets with flexible configuration and adaptable rules with budgetary controls at a transaction level to ensure expenditures are aligned with budgetary limits

Budget Development:
The budget development process includes creating a budget, optionally approving a budget and tracking any revisions to a budget. Lets start with budget creation.

Zero Base Budgeting effectively is the ability to build a budget from the ground up. There are 3 ways to do this Budget Register Entry: Enter line by line into a budget register entry . Budgets can be set at a GL Account and period combination or GL Account, Financial Dimension and Period combination. Enter with Recurrence: Instead of manually entering a number for each period, you can set a recurrence so that for a GL or GL Account and Financial dimension combination you can create multiple entries for different financial periods. The recurrence can be uniform i.e. same number across the periods or follow some sort of curve and be allocated using a period key and have different budgeted numbers across different financial periods. The automation with recurrence significantly reduces the manual data entry required to create a budget. Import from Excel: Often the favorite of Dynamics AX users the new Excel Add in for Dynamics AX allows you to import a budget within Dynamics AX efficiently. Historical budgeting is typically when you are basing a budget on prior period numbers e.g. a prior month or prior year. Microsoft Dynamics AX provides functionality to build budgets based on historical numbers. This is achieved by Export/ Import from Excel: The new Excel Add in for Dynamics AX allows you to export numbers, make changes and then import them back into Dynamics AX. Transfer Balances: This allows you to transfer balances based on actual transactions within a date range or for an entire fiscal year into a budget with the ability to use a factor to adjust the numbers brought in.

Transfer Balances is used in this example to bring balances based on actuals from the fiscal year July 2009 to June 2010 into the July 2011 to June 2012 budget. The numbers are multiple by a factor or 1.20 to forecast a 20% higher budget over the actuals The historical based budgeting functionality allows you to quickly develop a budget and then modify the numbers to get to a final form

Budget created through Transfer Balances shows budget numbers created based on Historical balances. Budget is created for different combinations of GL Account and GL account and financial dimensions Budget Approvals: Budget approvals are managed through the workflow framework in Microsoft Dynamics AX. The framework allows for multiple approval steps with approvers being defined by any combination of department, cost center or other organizational dimensions and hierarchy. The workflow tool has a graphical editor with drag and drop functionality so that users can easily create the rules through configuration of the system.

Budget approvals are managed through the workflow framework in Dynamics AX. Multiple approvers can be setup based on configuration rules

Budget Revisions:
Microsoft Dynamics AX 2012 has multiple budget types to differentiate between the original budget and revisions. For example the screen shots below show original budgets and revisions and then the corresponding budget report showing the summary of the original and the revisions.

Original budget entry in Dynamics AX for the 601300 GL Account Advertising expenses with a uniform $5,000 budget every month The various types of budget types are listed below

Original budget Use when you are creating an initial budget amount for an account. Transfer Use when you are moving a budget amount from one account to another. Revision Use when you are changing the budget amount for an account. Use this budget type after you have posted an original budget register entry for the account. Encumbrance Use when you are manually creating an encumbrance, which is an obligation to pay a vendor. Use this budget type to reserve budget funds so that actual expenses do not exceed the budgeted amount for an account. Pre-encumbrance Use when you are manually creating a pre-encumbrance, which is an obligation to pay for a purchase that is likely to occur in the future. Use this budget type to reserve budget funds so that actual expenses do not exceed the budgeted amount for an account. Carry-forward budget Use when you are moving budget amounts from one fiscal year to the next. Fixed assets Use when you are transferring fixed asset budget forecasts to the general ledger. Demand forecast Use when you are transferring demand and sales budget forecasts to the general ledger. Supply forecast Use when you are transferring purchase budget forecasts to the general ledger.

Preliminary budget Use when you are creating a preliminary budget for an account when the actual budget is being reviewed and approved. Apportionments Use to show the difference between budgeted amounts and amounts that are approved for spending. For example, a public sector organization might have an original budget of 10,000.00 for an account and use this budget type to approve 5000.00 for spending. Only the amount that is apportioned can be spent.

Budget Adjustment of $55,000 made through a Revision Budget Register in Dynamics AX on GL Account 601300 Advertising Expenses for the month of December 2011

Budget Report showing the Original Budget and revised budget for the GL Account 601300

Budget Control:
Now the fun actually begins. Weve created the budget and can put into place controls that ensure expenditure stays within the set budget limits. The budget controls functionality is entirely new in the Microsoft Dynamics AX 2012 version. Budget control can be setup on the transactions that you desire to put in budget controls on. The Budget control configuration allows you to select through check boxes which transactions types you want to enable budget control on. Budgetary control can be setup at the consolidated transaction level

or at a line level on the transaction. I prefer having this on the line level as on entry of the line you will immediately get a warning that the particular line is over budget. The transaction types are listed below

General Ledger Journal Allocation Journals Purchase Requisitions Purchase Orders Vendor/ AP Invoices Travel Requests Fixed Asset Expense Reports

Budget Control can be setup on selected documents on a transaction level or line level In a step above most ERP systems, Microsoft Dynamics AX allows you to define with a few clicks the calculation that determines the budget fund available. For example, you can choose to compare only against the original budget or against original and revisions. You can also select whether you want to include only posted expenditures or also include unposted expenditures, budget reservations for encumbrances and pre-encumbrances etc. The formula is dynamic and can be updated at any time.

Calculation for Budget fund available is easily defined by users by selecting what elements are included in the budget and what elements are included in the expenditures and budget reservations Now lets execute a transaction and put our budget control to test. Ive entered a Vendor invoice of $5,000 for the period and it the budget check allows it through as the Budget funds available are over the amount as shown below.

Figure. Dynamics AX Budget Control on an AP Vendor Invoice showing that the invoice is within the budget funds available Now lets raise the amount to $70,000 and we get a warning that this transaction will take us over the budget funds available and the budget check has failed

Figure. Budget Check has failed since the invoice is over the Budget Funds Available Finally we end with an Actual Versus Budget report. The report can be run on a net change basis where it compares period by period or by an accumulated basis where it calculates the rolling total of expenditures over the period and the rolling total of the budget over the same period. As a business owner, I prefer the accumulated as I could have period to period fluctuations and really care most about the big picture and how we are doing on an YTD basis.

I trust this blog arms you with enough information to use the budgeting functionality in Dynamics AX 2012. If you need more information dont hesitate to write to