Many organisations tolerate budget and forecast processes that are tedious, onerous and produce poor quality output. Why is this so?
There are lots of reasons but not too many excuses! I reckon they boil down to three factors:
The key to delivering high quality budget processes and outputs is to regard budgeting (and by extension forecasting) as a RECURRING PROJECT with periods of low and high intensity! If you do this then you can justify investment, and apply project management (PM) disciplines to the task.
PM is pretty well understood in corporates these days, so my comments are high level and assume that project monitoring and milestone management will occur.
Most importantly, the owner and / or sponsor of the budget, often the CFO, should determine and then communicate IN WRITING to key stakeholders (e.g. contributors, Leadership Team, Board etc.) the project issues (including):
The objective of the communication is to reassure stakeholders, often with their own agendas, that someone is thinking about the issues, genuinely wants input from them, and is working hard to ensure that their effort is minimised, often by focusing their efforts on the material items over which they have control or expert knowledge (not the 'rats and mice').
[Tip] Make sure someone in your team is good at project admin and at nagging, whilst still keeping everyone 'on-side'. Also, get your webmaster to devote part of your intranet site to the budget effort - you will be surprised who will read it!
Pretty standard so far? Well most PM is applied to ad-hoc or strategy projects. But some projects reoccur and can be templated, whereupon the input adheres to the Pareto Principle (or 80:20 rule) - that is 80% of the effort is usually directed at 20% of the task - unless you template / standardise / centralise it!
This means building infrastructure to create repositories of quality information, and reduce future effort by feeding into the budget database or pre-populate the budget templates. Wherever possible this information should be widely disseminated amongst the budget contributors and they should be asked to critique - no feedback is assumed as agreement. For example:
Other smaller costs can also be centrally forecast, based on recent history and anecdotal knowledge. Even if you misjudge by a significant percentage the materiality of the cost means that the budget will be impacted unduly. Examples often include:
Most of this documentation can be rolled forward each period with minimal effort, and each period it should incorporate learnings from the prior period. By doing so the Finance Team is training the organisation about expectations, and removing excuses about either the input or output (i.e. You did not tell me that; OR that's not what I agreed to) [or as the Grumpy CFO likes to say 'training the less evolved life-forms']
Of course using good tools improves the work of the tradesman and business intelligence solutions are make the building of infrastructure exponentially easier - but that is the subject of another blog.
In Northern Australia they muster wild scrub bulls and other cattle from large unfenced areas using helicopters, often leading them to [temporary and inexpensive] fences made of hessian strung up between trees, sometimes kilometres long. Inevitably the [up to] 1,000 kilogram scrub bulls, leading the other cattle, follow the hessian fence which they could easily charge through - drafting the cattle into steel stockyards for either branding or eventual shipment to an abattoir. I think good budget processes are analogous to hessian fences!
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