Many companies waste a staggering amount of time and money each year on coming up with an annual operating budget they can adhere to. It's not just drawing up the budget in the first place that's wasteful, though that's certainly part of it. On top of that, finance professionals find themselves revisiting that initial budget month after month, comparing their expected results to their actual ones and making up elaborate excuses every time the two don't match.
There's a better way.
This is something that was discussed in great detail at Host Analytics World. Steve Player, North America Director at the Beyond Budgeting Round Table, gave a talk entitled "Future Ready: How to Master Business Forecasting" in which he discussed how today's businesses can do better. In short: The answer is to stop doing "dumb stuff" and focus on more advanced, "strategic stuff."
Traditional budgets tend toward the "dumb" side. They take too long, they cost too much and they're often based on assumptions that are flimsy or just flat-out wrong. It's time for business leaders to look beyond the basic budget and come up with an improved planning process that will revolutionise their approach.
The following ideas should help.
Better governance, clearer thinking
One of the keys to a better budgeting and planning process is improving data governance and getting all the relevant stakeholders involved in the process. When you take the plunge to use coporate performance management (CPM) software, you don't want it to make budgeting appear more complicated or remote than it is. On the contrary - you want transparency.
The goal should be to make your company's financial information open and available to everyone on your staff who needs it. Don't control and restrict info - share it. This should help bind people to a common cause and help them to plan for your organisation's future together.
Building a culture of accountability
Behind your approach to budgeting and forecasting should be a comprehensive strategy for corporate performance management. In other words: Every team and its members should have a clear role in the process, network smoothly and be held accountable.
Your company culture should be one in which everyone trusts one another to regulate their performance and improve for the good of the business. If this is the prevailing sentiment in your office, there should be no need for micromanagement - people will simply hold each other accountable based on shared, holistic criteria.
Setting goals, measuring progress
If all your company does is draw up a budget once a year and follow it, you're sure to veer off track and struggle to meet whatever financial goals you've set for yourself. Instead of taking this approach, your company should consider setting goals that are ambitious but medium-term, meaning you'll be able to check up on your progress more often.
If you do it this way, you can offer rewards for your employees who follow through and hit their goals. These don't necessarily have to be based on fixed targets - instead, you can use a sliding scale that measures people's relative performance.
Making planning a continuous pursuit
What your business really needs is a budgeting process that's based on fast, frequent feedback - it should be dynamic, not scheduled once every year or quarter. Having the right financial reporting software in place, like Host Analytics for example, is one way to help ensure that this happens.
To learn more about Steve Player and his unique approach to business budgeting, click here to view his Host Analytics World address in its entirety.
