Budgeting is nearly always portrayed as a management process that helps an organisation to execute strategy. Fine words indeed, but how many budgets and associated budget processes actually support that ideal? Surveys reveal the reality that most budgets are totally disconnected from strategy and that the resources essential to success are often missing or unavailable. …
There is nothing complex in [the budgeting] process. It is logical, makes sense and should be straightforward. But personal experience and various surveys show that this isn’t the case. In the Harvard Business Review article ‘Turning great strategy into great performance’, only 50 - 60% of the potential within a strategic plan is ever realised with the top reasons for failure being inadequate resources, poor communication, and actions required to execute not being clearly defined. It goes on to say that the cause of this failure is laid squarely on breakdowns in the planning and execution process.
So what’s going wrong and what can be done to put it right?
What type of data do our brains need to evaluate one of the most important aspects of business planning, ie The Forecast?
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As leaders and managers of human beings with million year-old brain structures, as part of our managerial toolkit we need to keep ourselves knowledgeable about psychology and the cognitive science of how people make decisions. You have undoubtedly read about how innately bad we are at making certain types of decisions, especially those involving risk, probabilities and shifting time horizons.
Part of the reason for this difficulty is the structure and function of our three-layered brain. The complexity and size of the neocortex, especially the pre-frontal cortex, is a very recent evolutionary development. Prior to this development, our mammalian ancestors still made decisions, but they did so relying heavily on the more intuitive, emotional limbic layer. It would be fairly accurate to say that our emotions are simply a different way to make a decision. It’s quick, can still be trained by experience and learning, and can be wired directly into rapid motor responses that most likely saved our ancestors lives countless times, who faced more binary decisions than probabilistic ones. Gut-feel is really “brain-feel”.
Budgeting is nearly always portrayed as a management process that helps an organisation to execute strategy. Fine words indeed, but how many budgets and associated budget processes actually support that ideal? Surveys reveal the reality that most budgets are totally disconnected from strategy and that the resources essential to success are often missing or unavailable.…
It’s no secret that business and finance professionals are spending too much time on mundane tasks, and not enough on delivering insight and other value-added activities.
A recent survey shows that while the process of generating budgets, plans and forecasts has stayed relatively static, business professionals are spending increasing amounts of time wrangling data and manipulating inadequate toolsets to deliver the budgets, forecasts and strategic plans that drive company decision making.
Where does all the time go?
Data scientists who do mashups from disparate data sources are able to gain deeper insights into problems and develop more comprehensive approaches toward attacking them by having a richer data set to work from. In turn, data mashups can help companies become more agile and speed time to market.
Consider the use of customer data.
It’s the 2012 Olympics. How do you think performance is going to be measured at the games by the teams involved? The number of gold medals? The number of world records?
Now come back a few years to when a team is preparing for the games. How is performance going to be managed? You can be sure it won’t be in terms of the number of medals they hope to win.
Instead the focus will be on the type of training being given, the diets being prepared, the way in which equipment and facilities are being used. To ensure these activities can take place, budgets and other resources are allocated to the appropriate activities. In short, the focus is on the process of preparing the athlete and not on the outcomes they hope to achieve.
Now compare this approach to the way in which organizations typically plan and budget.
IT SEEMS LIKE a long time ago in a galaxy far, far away. But in reality it was 2006, on this very planet. The entire world was booming, partly on the back of triple-A investment innovations devised by a master race of financial Jedi. And then: crash, bang, global recession. Suddenly it was all over.…
The traditional way of measuring value and business performance of a company is changing. For an increasing number of stakeholders, financial statements and balance sheet information just isn’t enough. Emphasis is now on sustainability, especially related to reputational risk and corporate image. A sustainability incident, like discovering child labor in the global supply chain, can be extremely harmful to brand value and thus revenue and profits.
To: CFO Research Services From: Senior finance executives Date: Fall 2011 Re: Growth prospects Dear CFO Research Services: You may think from our recent response to your survey questionnaire, entitled “Strategies for Better Business Insight,” that we see bright growth prospects ahead. You’d be wrong. The real picture is more complicated. Although a majority…