Comprehensive Evaluation during Budget Review: A Practical Case Study

Budget review is often mistaken as a simple arithmetic process – checking whether the numbers add up or whether a department’s request fits within the company’s financial limits. In reality, a professional budget review is a strategic evaluation, a resource allocation exercise, and a risk‑control mechanism.

Using the case of ABC Technology Co., Ltd., this article illustrates how management and finance teams can conduct a structured and comprehensive evaluation to ensure every investment supports the company’s long‑term strategic goals.

Case background

• Company: ABC Technology Co., Ltd.
• Strategic goal: Become a top-three domestic brand (market share) within three years.
• Key strategic initiative for next year: Achieve 20 percent sales revenue growth by developing the new East China market.
• Budget applicant: Sales department (responsible for developing the new East China market).
• Budget request: RMB 5 million to support the East China market expansion

Management and finance will focus on three core questions:

• Why is this money needed?
• Where will the money be specifically spent?
• What will be the return on spending?
• These guide the entire review process.

Step 1: Reviewing the strategic relevance and feasibility of the business plan

First, reviewers must confirm that the proposed RMB 5 million budget is firmly aligned with corporate strategy and based on realistic, data-supported assumptions.

Sales Department’s Stated Objectives and Strategy

Target:

• Secure RMB 50 million in new sales revenue from the East China market, contributing to the company’s overall 20 percent growth target.

Strategic actions:

• Establish a local team: Set up offices in Shanghai and Hangzhou, recruiting 1 regional director, 5 sales managers, and 2 marketing specialists.
• Channel development: Recruit 50 regional agents, providing initial order subsidies and training support.
• Marketing promotion: Attend two major industry exhibitions, host one large product launch, and conduct digital marketing campaigns.

Underlying assumptions:

• East China has a large market capacity.
• The company’s products have competitive advantages.
• Rapid market capture is achievable through early investment.

Management’s key review questions

Market capacity and competitive analysis

• What evidence supports the RMB 50 million revenue opportunity?
• Who are the dominant competitors in East China, and what are their strategies?
• What unique advantages do our products offer?

Rationality of the strategic path

• Why adopt a hybrid model of direct team + agents?
• Would an agency-only approach be more cost-effective?
• Are exhibitions and launch events the best lead-generation methods in this region?

Timeline and milestones

The budget must be tied to milestones. For example, the team fully hired by Q1, 20 agents signed by Q1, and RMB 10 million sales in Q2.

Step 2: Reviewing the rationality of resource requirements and cost structure

The next question is “How was RMB 5 million calculated?”

Finance department’s review focus

Personnel costs:

• Compare the salary levels of equivalent positions with existing regions to verify the rationality of the salary structure.
• Validate whether the costs for 8 new hires are accurate and necessary.

Channel incentives:

• Is the subsidy policy for agents too aggressive?
• Will rebates impact the company’s overall profitability?
• Does the per capita cost standard for training meetings comply with internal standards?

Marketing promotion:

• Check historical quotes for similar exhibitions.
• Review detailed cost breakdown for lunch event(e.g., venue fees, material costs, guest invitation fees) to identify potential waste.

Cost driver relationships:

• Link costs to business volume. For example, “recruiting 50 agents” is the driver for channel incentive expenses; “participating in 2 exhibitions” is the driver for exhibition fees.
• Verify the rationality of the quantitative relationship between drivers and costs.

Step 3: Review ROI and risks

At this stage, management evaluates expected returns, financial implications, and major risks.

Simplified ROI calculation

• New revenue: RMB 50 million
• Direct product costs (assuming 40 percent gross profit margin): RMB 30 million
• Additional sales expenses: RMB 5 million.
• New gross profit: RMB 50 million – RMB 30 million = RMB 20 million
• New net contribution: RMB 20 million (new gross profit) – RMB 5 million (additional expenses) = RMB 15 million
• Sales expense ratio: RMB 5 million / RMB 50 million = 10% (to be compared with the company’s historical levels and industry benchmarks)
• Return on investment (ROI): RMB 15 million / RMB 5 million = 300% (this is a highly simplified calculatio,n but illustrative)

Management’s comprehensive evaluation and risk inquiry

Return sensitivity:

• If market response is below expectations and sales reach only RMB 30 million, can the company accept the reduced ROI?

Impact on cash flow:

• When will the RMB 5 million be spent?
• When will revenue be collected?
• Does the investment create cash pressure?

Key risks:

• Market risk: Customer preferences in East China may differ from existing markets.
• Execution risk: Failure to hire a competent Regional Director on time.
• Competitive risk: Competitors may launch price wars.

Contingency plans:

• What happens if fewer than 20 agents are signed by Q1?
• Is the budget flexible for mid-year adjustments?

Possible review decisions

After the rigorous review process above, management may make the following decisions:

Conclusion

This case illustrates that evaluating a “sales growth” budget involves far more than checking numbers. A robust budget review spans:

• Strategy alignment;
• Market rationale;
• Cost justification;
• ROI logic;
• Risk management; and
• Execution feasibility.

A rigorous, data-driven review ensures that every cent is invested wisely and directly supports the company’s long-term strategy.

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