As far as I’m concerned, doing the right thing is worth whatever amount of time it takes you to get there. With budgeting and reporting, doing it fast is the basic goal – reducing the number of approval cycles and automating consolidations. It’s a process we just want to get done. Some pundits refer to the budgeting process as a headache; the goal is to reduce pain. Others note that budgeting is about not failing*. Most agree that budgeting has very little to do with doing the right thing to drive your business forward.
Business planning is all about doing the right thing. The “right thing” requires planning at the right level of detail with the right people in the room to make financially-sound decisions at the right time to drive your business forward and impact the bottom line.
While in London at a recent Financial Forecasting Summit with our lovely hosts from the IE Group, I felt sad (it’s OK, I didn’t cry or anything - just a bit of depression – probably typical in this economy for any American traveling to England with a weak US Dollar). Over lunch with leading finance professionals in Europe, I heard more stories of time wasted in the budgeting process. I was hoping that we Americans were somehow the only ones naïve enough to waste our precious time together building bottoms-up budgets only to be told the number is not acceptable and that we must redo our budgets. We’re forced to refine them until they happen to line up with the number management mandated in the first place with their tops-down approach.
- Wouldn’t life be better if management just led? If they just had the courage to tell us, “this is your number – now go make it work.”
- What if management “connected” with the actual workers in the field?
- What if, instead of “here’s your number,” management met with operations managers to co-build a driver-based model that reflected the actual activities that result in value to the company’s customers?
- What if management and operations continuously learned from one another?
- What if everyone who showed up at work was on the same page?
The world would be better. I’m going to make this happen. At Alight, we named it Agile PlanningTM. Anyone want to join me? If you’re doing the right thing, please share your story so others can learn from your success.
Special Thanks To:
Gary Kinman, VP Finance & Analytics at SoftLayer
Ray Wolfe, CFO/CEO at Pittsburghy Mercy Health
Connie Johnson at Iroquois
Larry Van Kuran at Kaiser Permanente
Arlin Hall, CFO at Texas Blood Center
* The “not failing” notion comes from Rob Kugel.
By Ben Lamorte, from: http://blog.alightplanning.com/bid/125439/How-Much-Time-Should-Finance-Spend-Doing-the-Right-Thing
January 9, 2013 at 7:52 pm
Ben,
Thanks for a terrific article. Just a thought, why not expand on your qualitative thoughts as to how to “do the right thing” qualitatively, by also discussing the need to do the “right thing” quantitatively?
Alan
January 10, 2013 at 1:32 pm
Alan,
Wow, you really touched a nerve. I’m going to post a comment that’s almost longer than my original article!
Excellent point. Doing the right thing can be viewed as “qualitatively” vs “quantitatively” or “ethically” vs “numerically” or by stakeholder group such as “for the stock price” or “for the customers” etc.
It would seem to me that finance is ethically beholden to first define which stakeholder groups benefit (or not) by recommendations as supported by their FP&A work.
Any good financial model should be able to quantify the benefits and measure them against some objective function. Wait, now I am starting to sound like a student of optimization!
However, some benefits may not be so easily quantified, as I’m sure you know. Let’s look at the case of the work I did with Larry at Kaiser.
We defined “soft benefits” as those benefits that cannot easily be quantified such as “improved customer experience” and analyzed 3 types of quantified benefits: 1) expense-reducers, 2) cost-avoiders, and 3) revenue-enhancers. Technically, we also looked at “cost-delayers” since that could impact NPV.
In this case, 15-Year NPV was the objective objective function. However, we had to run what-if analyses based on people’s beliefs across 8 regions. With 8 regions, we had no single decision maker, so we developed an Agile Planning model to rapidly answer to three types of “what-if” questions that could be applied to each benefits model: 1) “take it out” 2) “push it out” or 3) “reduce it by a percentage,” leading to better, faster capital allocation decisions that drive the organization forward. While I am yet to quantify the value of our financial modeling work with Kaiser, I have a feeling we “did the right thing” - I may try to go back and quantify that value, but then it is a “retrospective value analysis” rather than a prospective value analysis. The problem we all face in decision analysis is that you need to make them BEFORE knowing the outcome.
Quantifying the value of “doing the right thing” should somehow be done prior to the actual decision.
I will end with a football story given we’re in January. After missing a field goal on 4th and 1, it’s easy to say “they should have gone for it.” But if you go for it on 4th and 1 and don’t make it, these same people tend to say “why not just take the 3 points?”
Part of our job in finance is to provide analysis that estimates the value of taking action before taking any action at all.
Does this answer your question or is this just starting the discussion?