How companies do that? Budget Process as a “non- event”? It turns out that it is not an overnight change. Let us come back to those 25 days long Budget Process. So, what stands behind Budget Process in your company? After that, those processes could be improved one-by-one and finally integrated in one set of comprehensive planning processes. To overcome the obstacle of Budget Process Multifunctionality the first step is to look critically at all the activities which are packed into your company’s Budget Process and separate them from each other (because they serve quite often different purpose, and they are different plans!). If my target were to reach 10% Year-on-Year growth, I would probably not get a reward while in fact I could be doing a tremendous job. But, let say, business has shown 5% growth in sales this year while competitors only managed to get to 1% growth. You would probably agree that a bonus is a way to say that a person did a good job to keep a person engaged and challenged. There is an opinion that one of the reasons keeping traditional budgeting alive is that they are linked to incentives/individual rewards and bonuses. Forecasting takes only those factors and events into the plan which are the most likely to happen, while other factors and events are analyzed only within Scenario Planning and will help the organization coordinating its efforts in case it happens. In other words, Forecasts could be considered as the most probable Scenarios. In other words, what is your company’s Plan B if Plan A does not seem to work anymore? More on Scenario Planning in this Numlix article.įorecasts represent what we think most probably will happen. Scenarios could go beyond just best, worst and expected case but also, for example, represent different ways of reaching the same Target. That is where Scenario Planning comes in play. There is also usually not only one way to make it happen. Being stuck with fixed or frozen yearly Budgets results into rigid resource allocation process. Target can be defined as what we want to happen while Annual Plan (which is the same as what we traditionally call 12 months Budget) – should be focused on how we allocate resources to make it happen. Targets are representing those strategic Choices and that is why they are expected to come Top-Down. For example, Strategic Plan is a result of Strategic Choices company made for its business long term. Let us look at those hidden processes separately and identify their purpose. By looking what really stands behind it, it is no wonder that this process takes 6 months! Budget Process must change, says The Association for Financial Professionals.īehind the name of Budget Process, today, quite often you will find: Strategic Planning, Target Setting, Incentives and Rewards Planning, Forecasting, Annual Planning, Scenario Planning & Analysis… There is also even a part of what is called Sales & Operations Plan could be covered under the name of Budget. Especially in the last decade it became obvious that to serve global fast economy Budget Process have preserved a way too traditional look. Budget Process exists from the years 50-60s, to start with, and each decade had put something new on its plate. The first obstacle has its roots in how Budget Process historically developed itself. Obstacle #1 Excessive multifunctionality of Budget Process Despite taking a different definition, like for the previous metrics, it takes two times longer for Bottom Performers to put Budget in place than for Top Performers. Just think about it, it takes half of a year to come up with a plan for the whole year! That is why the main complain about the uselessness of budgeting is that it becomes obsolete from the moment it is completed.Īt the same time, Top Performers can come up with a budget within 2-3 months, which is still quite a period of an intensive load of the resources of Financial Planning & Controlling Team.ĪPQC survey measures only the specific time organizations spend on the process from establishing budget objectives to delivering ready-to-use budget. According to The Hackett Group survey, a sad reality of this metrics it that on average companies spend 6 months on budgeting. It is calculated as the time from the very beginning of a budget cycle till the end of it. So, how much time does budget process really take? One of the metrics to measure it is called Budget Cycle Time. How much time budget process really takes
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