Are you in finance? If you are, put down a tick. Now, how do you feel about the budgeting process in your company? One tick if you rate it as mildly irritating, two if you find it actively annoying, three ticks if you really, really hate it. Is your total result four ticks? Congratulations, you win. Come get your prize – a totally new slide format for Board approval of the budget!
What was it again that you didn’t like? Oh, I see, you think the process is tedious, intensive, lengthy, and runs in circles. That you and your team have spent the last couple of weeks sleeping in the office and trying to make sense of the 27 Excel files that don’t reconcile. That as soon as you have finished updating the last slide of the reporting pack, your sales colleagues have changed the volume assumptions and you have to start all over again. Don’t worry, these are quite common issues that most companies face to varying degrees of frustration. Is there any way to make your life in finance better? Let’s try.
So it’s a lengthy process. How can we make it shorter?
You can consider your company a top performer if it takes you 1 month to complete the budgeting cycle. Most companies will manage within 2 months, and it can take some up to 6 months, and then they give up. There are normally two main reasons, or root causes, as they say in problem-solving, of why it takes so long to complete the annual budget.
One is iterations. Even in well set-up processes, you would not expect your budget to get calculated and approved in one seamless flow. So, to avoid frustration, which is just the difference between expectation and reality, we should not plan for that. It actually improves both the quality of the process and the relevance of the output when we include pre-approvals and corrections in our budget process schedule. If our main financial budgeting report is P&L, we can split it into relevant blocks, and get them approved block-by-block to avoid any last-minute redoing of the whole exercise from top to bottom just because our CEO didn’t like the revenue number.
Scenario planning also helps. So volatile is the current world, that planning assumptions change multiple times over the 2 months that are spent on the budgeting, and this is not something we can really avoid. However, by identifying the key drivers for your business and establishing a range of assumptions for them, you can proactively prepare multiple scenarios upfront instead of going in circles searching for a single true number.
A multitude of inputs. How can we pull all that information together?
Another pain in the budgeting process is that inputs from all over the company should come together, reconcile with each other, and create one coherent P&L over multiple dimensions. Product portfolio, customer profitability, cost center budget lines, monthly phasing – how many gigabytes’ worth of files do finance people have to churn over, link and cross-link, check and cross-check… And then you find out that someone has added an extra column in the middle!
Standardization and automation—these are the magic words. And you really have to keep that order. First, we build up a process that we like best (or at least hate the least), and then we build a system around it, to reduce manual operations. We don’t want to automate chaos. Unfortunately, standardization means people have to change the way they have done things before, and that’s not something people generally like. Well, change management is a critical part of our improvement plan. Eventually they will move from denial and anger through depression to acceptance. Then the company will be more than happy, finance included, to spend less effort on calculating the numbers and more on winning in the market.
There’s a lot to be said about how automation can be done effectively. Drop by again, we’ll talk about that next time.