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Summer vacation season is nearly over and although we are always beach-ready each year many of us still prepare for our holidays – a few more gym sessions, healthier eating or picking up some new summer outfits. As budget season approaches, we take a look at how you can prepare to make sure your budget process is the best it can be by ensuring you are set up for success across people, process and technology!
The right team for the job
Make sure you have people with the right skills filling the required roles to help facilitate a smooth budgeting process. Key roles include:
- Cost & profit centre owners: responsible for managing their cost/profit centre to budget through the course of the financial year. Typically play a significant role in defining the budget and ensuring their buy-in to the achievability of the numbers is essential.
- Department owners: owner of a collection of cost/profit centres, will need to co-ordinate effectively with cost centre owners and communicate expectations clearly.
- Project manager: responsible for communicating with all budget stakeholders and coordinating the end-to-end budget process to the agreed timelines. Often filled by a head of FP&A.
- Budget processor: collecting and combining inputs, sending out templates and requests, analyzing in progress and finalized budgets. Ideally, most of this role is automated. Usually works closely with the project manager.
- Budget owner: Overall responsibility for producing the budget, providing direction and prioritization to the team and presenting to the board. Usually a CFO.
Making sure these roles are clearly assigned is essential for a successful budget process. In addition, clarity over the bandwidth of the stakeholders is important, if there are multiple other initiatives which are time-consuming and will be competing for resources, this needs to be accounted for in the timelines that are planned out over the budget process.
Different approaches will work for different organizations but regardless of what is decided, there should be clarity on the process that will be followed, including the stages, sign offs and which approach (e.g. combination of driver-based, top-down and bottom-up planning) will be followed. The pros and cons of each of the primary approaches are summarised below, each of these could also incorporate aspects of incremental or zero-based budgeting and can also be done on a rolling basis:
As a typical example, a top-down budget based on an initial data set (such as the latest forecast or strategic plan) can be defined centrally by finance and the exec team, and cascaded across business units and cost centers. This can then be disseminated across cost centres and other responsibility centre owners to capture their bottom-up inputs which are then reviewed and iterated with departmental heads, central finance and the exec team before finalizing the budget for the year.
Even if you have the right people and processes in place, any budgeting process can be a hard slog if the technology being used to facilitate the process is not fit for purpose. On the other hand, the right technology can enable stakeholders to focus on value-add activities rather than manual processing and chasing and can help streamline what is often a 3-or 4-month process into a couple of weeks.
Some of the typical pain points which are abundant in many spreadsheet-based budgeting processes are listed below:
- Unreliable – dependence on spreadsheet-based processes and reporting leads to risks of human error, inconsistencies and numbers that can’t be trusted
- Slow and manual – reliance on manual processing for data manipulation, consolidation and reporting means budget timelines are often extended
- Lack of collaboration – cost centre owners are often isolated when left to fill in templates, unable to see contextualised data or other inputs. Feedback becomes a long-knotted thread of back-and-forth emails
- Lack of insight – insight into how the budget is evolving is not available, and the implications of cost centre inputs are not understood until the budget is finalised
- Lack of control – an absence of workflow or audit trail leads to data and versions that finance cannot keep track of, nor is there visibility over who has done what or how they got to their input
- Poor headcount planning – internal transfers and hiring plans lack structure and invariably lead to unrealistic and inaccurate budgets
But it doesn’t have to be that way, purpose-built technologies are targeted at solving these typical budgeting challenges and some providers can be up and running in weeks, so it isn’t too late to get away from spreadsheets.
Plan for the future
At their worst, budgets can become a slow box ticking exercise rather than an opportunity to shape strategic decisions. Essentially you should have the ability to use your budget process to align to your strategic goals in both the coming year and beyond. Whether, it is market share growth, targeting a reduction in environmental impact or a new product launch, the business model, process, and inputs gathered need to align to these goals. For example, if growth is the key, does your budgeting model integrate full cash flow and financing modelling to enable planning for CapEx investment and increased funding? Cost and revenue budgets should just be the start, full end-to-end business model integration is the goal to aim for in planning processes.
Finally, learn lessons from the past. If there were aspects of the budget process that were ineffective, slow or painful last year, assess how they can be improved. This should be done in terms of the actual process but teams should also assess how quickly the budget became outdated – in fast moving industries and in the turbulent times we live in, sometimes a budget which was started in September is out of date and irrelevant by the time the financial year starts in January, and a shift to more continuous planning and reforecasting may be an optimal use of time versus a 3-month effort to create an annual plan.
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