Budgeting. What I wish I knew earlier.

This blog was written by one of our consultants.

I have had the (dis)pleasure of being on both sides of the budgeting dilemma. Firstly as a consultant specialising in budgeting and forecasting software, secondly as a CTO.

Get it together folks!

As a consultant I found it difficult to understand why so many organisations couldn’t get it together! Finance needed to plan for the financial resources of the organisation. They needed to plan for cashflows during typically lean times. They needed to provide information to the board on how investment would ultimately yield a return, and that the business plans were backed by a solid financial plan.

To do this they needed input from all areas of the business. Why wouldn’t they all just work together I would ask myself. I often wondered if it was due to the business leaders lack of planning being the main reason they found it difficult to contribute to a financial budget.

Easier said than done

Later in my career I got it. As a CTO I was ‘forced’ to produce a budget. We started in October, with the goal of having the budget in place for the new calendar year (we were always late). We used the actuals from 9 months and the remaining 3 months of budget from the current year as a starting point. We would then adjust things based on our plans for the upcoming year.

It was easy to budget for planned expenditure. Things like new PC’s or servers were generally known, and we had a good strategic plan that outlined our program of works and resulting expenditure. But working in a dynamic and often fast paced business it was difficult to predict things (at times over 12 months away) like business led initiatives that needed to be supported by technology. Or a ‘must have’ client requirement that need a technology platform…

After many iterations, and negotiations (some of them using some choice words) the resulting budget was what we could all live with, but not what we all wanted. By the time we put the approved budget in place we were all done with spreadsheets and resolved to just make it work till next year. There was little true ownership of the budget, it had become something the Finance Department was doing to us. Not something we were actively a part of.

Just add a lil’ fat

As many leaders do, I got good at hiding a little fat in the budget for things that go bump in the night and things that would crop up during the upcoming year. You are then faced with the dilemma of using that budget or risk losing it the following year (sounds familiar?).

This process worked well for smaller things, but on a few occasions, the set and forget approach to budgeting meant that if there wasn’t enough fat to react to something. A lack of collaboration meant that things were sometimes a surprise…

What I wished we had done

Vision in hindsight is 20:20, and knowing what I know now, I wish we had dropped the 12 month budgeting cycle. I wish we had used a planning rhythm which continually focused on all three horizons in a collaborative way.

I wish that as a team, we had looked up at a longer-term horizon and considered the big events and planned accordingly. Together.

I wish as a team we had a plan B worked out so we were not surprised at the turning points in our business cycles.

I wish we had a focus each month of checking we were on course and closing any gaps as opposed to short term firefighting.

The reality was, on many occasions we were ‘surprised’ by the obvious things so late in the day that the cost of adjusting back to our intended course became much too great to act. With more forward planning and collaboration we would have been able to respond in an efficient and cost-effective manner.

Furthermore, all the leaders in my organisation were making plans, just differently and in silos. We just weren’t working together on them. We didn’t have a process to hold us accountable and the tools we were using (Excel) didn’t allow us to be agile and re-cut our individual plans, with the financial implications being fed through to finance.

My Advice to you

My experiences are not unique. So what would I share now that I know better?

Three things:

There are good practises and methods out there that can help you avoid the pitfalls I’ve outlined above.

At Professional Advantage we recognise the Oliver Wight Integrated Business Planning as a methodology and process to improve organisational process and alignment.

I’d recommend taking a look: Oliver Wight

As part of a video series on Integrated Business Planning, Stuart Harman, partner at Oliver Wight, discusses key problems with the annual budgeting process in the below video.

There are great technologies that uniquely help enable business performance and can help you deal with the realities and pain of disconnected (lack of) planning.
Combine the two, with a plan to help the leaders in your organisation work together in an integrated way, and you are much better placed to prepare for the future.