Many organisations budget either because they have to, or because it’s something they always do. While visiting a large client who had expressed concern over the time it was taking to open up a budget data entry sheet, I was astonished to find it had around 1300 rows and 36 columns (they were attempting to set a budget for the next 3 years). A quick calculation showed that users were expected to enter around 46,800 numbers. Now assuming that you could enter numbers at the rate of 12 a minute, that would take each user approximately 65 hours to complete! This is assuming that they don’t have to think about what the numbers mean.
In looking at the data to be collected I could see it was basically the company’s chart of accounts. It even included an account marked as ‘Other sundries, other’. Heaven only knows what this was supposed to contain. On asking the administrator about the purpose of the budget, his only reply was that it was something they did every year.
Purpose is vital, as it determines content and process. If the administrator had told me the purpose of their budget was to collect a number against every account code in the general ledger, I would have said that he had the perfect design. However, if the purpose was to ensure the organisation could resource and implement its strategic initiatives, they were hopelessly mistaken.
For the latter, the budget should have contained, among other things, the goals to be achieved; a description of the activities necessary to deliver the goals; and the level of activity required. The budget process should then focus on allocating the right resources to enable those activities to deliver the quantified goals.
Without this level of visibility, the budget will fail it’s purpose.
As the first step in transforming the budget process, there must be an organisation wide agreement as to the purpose of the budget. Once that has been set, the next step is to ask yourself
- Does the budget content reflect the purpose?
- Does the process and people involved support the purpose?
If the answer is ‘No’ to either question, your budget process is not what you think it is, and more importantly, will work against what your organisation is trying to achieve.
By Michael Coveney, EPM Contributor, from: http://www.stw-consulting.co.uk/Articles/377794/STW_Consulting/The_CPM_Blog/Processes/Budget_Gem_1.aspx
Michael Coveney, who is based in the UK, has more than 35 years of experience in the financial analytic software industry, helping enterprises combine ‘best management practices’ with technology to improve the efficiency and effectiveness of their performance management processes.His energetic style and insightful views has led him to become a regular speaker at international events, a course leader with the Antwerp Management School, and the author of many articles and books including his latest ‘Strategy to the Max’ – a down to earth look at all you need to know in setting up systems that support the implementation of corporate strategy. See Michael’s articles on EPM Channel here.