It is June and you are probably in the throes of the annual budgeting cycle. You may be on your third, fourth or fifth revision, knee deep in version control, and trying to keep on top of department heads who are yet to submit their budgets.
An annual budget is an integral part of your business and being one of the primary responsibilities of the finance team, it is critical that you put in place processes and technology that make the annual budgeting cycle simple, predictable, accurate and time efficient.
Having been exposed to the budgeting process of multiple, mid-to-large scale organisations, on average, the annual budgeting process is taking anywhere from 3.5 – 6 months. Each company is unique, but we can confidently say that by the time we leave, we have successfully streamlined the budgeting cycle down by 50% on average. By streamlining the process, you improve the budgets effectiveness by accelerating the availability of information and reducing the cost and inefficiencies of the process. With the benefit of automation and process improvement, your team will get back 1000s of hours to do more high-value activities.
Read our article to learn 4 new tips to incorporate into this year’s budget cycle.
1. Get clear on business drivers
One of the reasons an annual budget can take months to complete is that it is strategically disconnected. An annual budget needs to communicate your growth objectives and plans to internal stakeholders, all the while helping to control activities such as revenue, expenses, and financing options.
An effective budget will drive the execution of the business strategy. It needs to be based on business drivers and it requires the alignment of strategic and financial objectives. Once this baseline has been established, you can begin identifying the strategies that will help you achieve these objectives, as well as how you will measure their impact. This is considered a mostly ‘top-down’ budgeting exercise, where Senior executives set budget parameters based on the strategic direction of the business.
Part two of your budgeting process should involve Department Heads and represents a more ‘bottom-up’ approach. Operational Managers should be responsible for developing the tactics that will deliver the strategies. It is critical that any assumptions that are used to develop the forecast are documented and align clearly to at least one strategic goal.
With each iteration, you may find opportunities to standardise processes and systems. Put in place solutions that streamline, centralise and standardise data that is critical to planning. One way to remove complexities is through automation, which can help you automate low-level, manual tasks and create a single source of truth for enterprise data and reporting. By automating time-intensive activities, your FP&A team can spend more time analysing insights – not aggregating data.
2. Look through a new lens
You would be hard-pressed to find a budget that wasn’t impacted by COVID. One thing that it has taught us is that in some scenarios, the return to a zero-based-budgeting strategy can help refocus spending on activities that support growth, or recovery.
As the name suggests, zero-based-budgeting is a method that starts from zero, rather than relying on data from previous years. It requires all expenditures be justified, making you reconsider whether your budget is truly being informed by strategic business priorities. It considers the return on investment, as well as the potential ‘opportunity loss’. It essentially eliminates misaligned spend that does not support your objectives.
3. Be agile in your approach
Here at Minerva, we talk a lot about being agile, and it is no different when it comes to your annual budgeting process. Creating an agile budget involves scenario planning and ‘what-if’ analysis models.
By evaluating multiple outcomes, you give your company the ability to plan and prepare for variables that may impact your strategic business goals. You may struggle with this process if you do not have the right tools in place to handle planning for multiple scenarios. Employing a dedicated enterprise performance management (EPM) tool will let you change variables quickly and easily, without breaking formulas. By evaluating multiple assumptions and modelling potential outcomes you can better prepare your business for growth and success.
Similarly, predictive analytics and machine learning can provide you with forecasts for the short and long-term future. Predictive analytics will support your budget decision making, by giving you access to insights in your data based on identifying trends and patterns, as well as potential risks. By incorporating this kind of technology into your budgeting process you can better allocate resources and improve operational efficiencies.
4. Collaboration is key
One of the last components of improving your budgeting process is creating a collaborative environment. Ensure that the interests of each department have been represented during the decision-making process, that way you can hold team members accountable on delivery.
With a cloud-based enterprise performance management (EPM) tool, you can quickly and easily analyse data from multiple departments in minutes.
Remember that the point of a budget is to drive connected thinking and collaboration around the direction of the business. Ultimately a budget needs the support of each department for the business to work together to achieve a common goal.
We understand that developing a budget is demanding on the business and in particular, the finance team. However, the budgeting process is key to delivering the overall business strategy. If you are finding the budgeting process difficult, why not contact us at Minerva Partners?
We are a Management Consultancy that is laser focussed on business transformation, and we assist CFOs and transformation specialists every day to improve their data management, budgeting, forecasting, and planning, allowing them more time to focus on business growth and strategy.