It’s the time of the year again when many organisations are preparing plans and budget assumptions for year 2010. It may be good to time to dust off the steps we looked at in earlier articles budget assumptions, allocation and management of the budget.
Reports shows that, of the top 100 stock listed companies, the average time used for planning and budget preparation is not long at all. But this is in stark contrast to the time taken on analysis of budgets and revisions. This latter phase iterates over a much longer time as and discussion takes place as to how and if it is well coordinated to accommodate the companies’s strategy.
After top down business PLANS and budget ASSUMPTIONS are set, generally there are three budgeting phases. The first is a bottom up estimate of MANPOWER REVENUE and OPEX and CAPEX. This is then followed by ALLOCATIONS, and an operational PRIORITIZATION phase and finally the Capital FUNDING phase for approval review.
There are also many schools of thought that the budget step should be eliminated as it seems to waste so much time. This may good if rolling forecasts are well defined to place the annul budget but generally this only replaces the first phase. Many also subscribe the the thought that to much short term focus limits the organisation ability to focus and can cause it to falter. Doing budgets in the traditional way tends to allows greater focus also on the 3 year plan and draws a distinct line in the sand in on commitments by operations.
But either way, make no mistake, the budget is a vital process to get alignment for the organisation The better this is done the better the result. The final document is underpins the agreements reached for performance for the ensuing year and it a solid reference point to measure against and provides for consideration by external stakeholders . People such as shareholders, business partners, creditors and banks and financing institutions enjoy a much greater degree of confidence when budgets are well thought through and are likely to remain or increase any involvement.
Being able to have a good plan that used sound basis for assumptions is vital to making that conversion effective. Retrieve and analysis information and decide what needs to happens is to most now the most desirable function of the budgeting process. The use now of smart or business intelligent embedded in budgeting tolls to facilitate this is now a critical business requirements.
Making the budget work is a contract for the next year to engage people to ensure they work to meeting the plan goals.
In times like the present this step is even more vital to ensure hearts and minds of business operations are aligned.
To borrow from the Shernox Group
web page, we see budgeting as a viral part of the total performance management loop. It is above all it is not only about money but also about making sure the resources and processes are well organiseed and costed to get the job done. The better this process the better the decision making that is done when in execution. this says:
Strategy charts a course and links activity; Planning models sales & business processes for assesment of risks, Budgeting aligns resources and controls needed to deliver products and services; Reporting provides consolidation & business analysis of results & finally Forecasting offers refocusing options to keep it all on track. For the detail Business Intelligence allows analysis of large volumes of comparative data, on things such as sales priduct, services, customer feedback and external information. All this enables people to manage the core business mission and together form a performance management process that must have good tool sets to make it all work.
Hence, budgeting is not only about doing the annual negotiation for money. It is about making sure prioritoes for the money are well thought thru and funded so agreed plans of actions can be carried out to meet the business objective.
If you need help, go get it but don’t just take shortcuts right now as it could see you left behind your competition an or out of business.