You make the rules! If your annual budgeting process is not working then change it!
This is the time of year when most companies are kicking off their annual budgeting process much to the chagrin of everyone. If it is a typical budgeting process it takes too much time, too many resources and never seems to end. It is not unusual to find finance working far too many hours to update, distribute, collect and consolidate the budget worksheets only to find out that someone changed a cell causing an error in the consolidation and requiring even more rework to get the results and prepare the presentations for the budget review only to be told the numbers don’t work and to start over again! Frankly, we do all this and still produce a result that is inaccurate the minute it is approved.
Break the Mold
So why do companies continue to use the same approach, processes and tools to do their budgeting? It is simple really. No one wants to admit that what they were doing no longer work and everyone hates change! Even when it means making it easier, less time consuming and more accurate people are still resistant to change. In order to break the mold and really do something new you have to be willing to take the following steps:
Conduct an assessment of your current budgeting process.
This should include a backward look at the accuracy of the key elements of the budget like:
- Revenue
- Product Cost (including direct labor and materials)
- Other significant expenses like promotions and/or advertising
Identify the root cause of the variance to budget
- Lack of data/analytics to improve future predictions of performance
- The lack of useful data/analytics
- The lack of useful data/analytics to support and guide decisions on the budget makes the effort more of a “gut feel” or subjective estimate vs. a data-driven/supported budget which is much more objective and substantiated.
- Budget cadence is out of synch with the business
- If the budget cadence is too rigid it may not take into account key changes to the business when they occur which may result in not only large budget variances but more importantly in missed opportunities for the business to take advantage of or avoid the impact of key marketplace changes. A usable budget must integrate with the forecasting process to model the impact of changes to the budget.
- People closest to the business are not providing input to the budget
- In many companies, the people providing the budget information are not always the ones closest to business across all functions
Develop a roadmap to remove obstacles and improve the process.
This should follow a proven approach to address the people, process, data and technology issue focused on the improvement of budget process and outcomes.
A key to making real change is to remember that there are no rules! So abandon the notion that something or someone is standing between you and planning, budgeting and forecasting that works. If planning, budgeting, and forecasting aren’t delivering the value your business expects, it may be time for a good scrubbing.
Now is the time for your company to significantly move your forecasting forward. Leave behind the old forecasting process and move towards continuous forecasting and improve your accuracy!
