Budgeting is budgeting, right? A critical component of managing business performance, but invariably one where everyone breathes a sigh of relief once complete. “Phew! That’s that done for another year! OK, well, maybe for another nine months as it takes three months to complete it each time.” It’s a process which is annual, homogenous across the organisation, time-consuming and dare I say, a distraction from the day job.
But is there really much that can or should be done to revitalise the process? Organisations already have a range of different methods they can deploy to make it work for them. They can choose zero-based or incremental, top-down or bottom-up and maybe even throw in some drivers.
Now, I’m not here to debate the relative merits of these concepts. In fact part of my take on the subject is that these methods all invariably manifest themselves in the same type of process anyway. Instead, I’m curious about whether people are really making the most of the technology they have at their disposal. This is all prompted by the number of times I’ve seen people sleep-walking into recreating an old process in a new tool, under the illusion that it will all suddenly come good.
If you’re going to rethink elements of the process, then a good place to start is with clarity on what that process needs to achieve. Ultimately it is there to set the baseline on which resources the organisation wants to deploy over the near future, who has responsibility for these resources and what the organisation hopes to achieve with them. With that in mind, here are a couple of good process characteristics:
- Robust: Not the most exciting of characteristics, but vital that the process delivers a result which is robust, comprehensive and trusted.
- Agile: The process has to align with what the business needs out of it. These demands can change over time or vary across the business, so the process needs to bend to fit accordingly.
- Owned: How you get to the answer can be as important as the answer itself. If people are going to manage their element of performance within a budget, then they need to feel the ownership which comes from having created the budget in the first place.
- Tangible: Knowing, for example, that Cost Centre A is budgeting to spend £100k against Account Y, doesn’t give much insight. Instead, the budget needs to capture exactly what that money is going to be spent on so that informed trade-offs can be made.
- Integrated: The various pieces of the jigsaw really need to come together in a joined up effort. Revenue/Margin, Staff Costs, Overheads, Capex, Project Budgets etc are all inter-related so can’t be developed in isolation.
Turning to how technology can help deliver on these characteristics, let’s first recap on the tools. Without getting into a nostalgic review of what’s come and gone over the years, the recent story is actually quite straightforward. There were the budgeting/forecasting tools of the early noughties, which one by one, were absorbed into mega-vendors and then put into stasis. More recently an array of cloud-based technologies has been brought to market, each with their own value proposition. And then there is the ever-present Excel spreadsheet. I’ve seen all of these deliver a similar process. And I’ve lost count of the times I’ve come across the scenario where at face value the organisation has a budgeting/forecasting tool, but in reality it is the place where the results get captured, once the offline working has been complete.
Amongst this mix of technologies, I don’t need to hide my affinity to Anaplan, which is a full modelling and connected planning platform in which many different data intensive processes can be realised, including budgeting, which is just one of them. When it comes to budgeting though, Anaplan really can unlock new options for the process. Here are some examples:
- Keep it rolling: Doing a bottom up budget and then revisiting things during the year with a rolling forecast, isn’t a new idea. But I like to turn it on its head, using Anaplan to deliver a rolling forecast into the hands of the business, which at the right time, gets baselined and used as an ‘envelope’ for the budget.
- Cut to fit: Having a single homogenous approach to all elements of the cost base isn’t going to work. Instead the process and the method should be tailored to each area of spend. This isn’t just about more detail for bigger costs. Instead Anaplan enables different approaches for costs depending on whether the costs are centralised or federated, whether they are discretionary or committed, or whether they serve to ‘run-the-business’ or ‘grow-the-business’.
- Understand consumption: Budgets are typically developed from the perspective of the area of the business where the resource sits; the ‘supply-side’. A true understanding of the budget comes from understanding what is consuming the resources (projects, activities etc); the ‘demand-side’. The most elegant approach is where an understanding of the consumption can tie back to business volumetrics which in turn can form the drivers of a rolling forecast.
- Dust-off and go: The reality is that if you want a tangible budget where the consumption is understood, then things are going to have to get pretty detailed in parts. You’ll be looking at line itemisation of some costs. But this doesn’t have to be painful if you avoid starting afresh each time. Building an Anaplan model which retains the catalogue of budget lines from one year to the next will help to achieve this. It’s not about presenting to a cost centre manager, a view of ‘you budgeted for £50k in x last year’, but instead ‘you identified last year that your cost centre does these things and therefore needs these resources.’
I could identify more and more examples of new ways of working the process in Anaplan, but the point is probably made. I should also suggest that it doesn’t have to be a case of ripping up and throwing away the current process. There will be good practices which need to be retained, and perhaps also a phased introduction of new ideas rather than a big bang.
In conclusion, the next time you find yourself thinking ‘I would be great if we could do things differently, but there isn’t much room to move,’ then think again. Likewise, if the thinking is ‘We’re going to buy and implement some new technology but not really revisit the underlying process,’ then again, challenge that notion!