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The Death of Budgeting Part 1

Increase the effectiveness of Corporate Planning with the Pillars of Planning from Infocube’s Death of Budgeting

Caught up in the daily grind, in monthly, quarterly and annual cycles, it can be difficult to imagine there may be a better, more productive way of doing things.

In this blog, The Death of Budgeting, John Vaughan, Managing Director Infocube takes a simple but innovative approach to a critical aspect of Financial Management – budgeting, planning and ongoing performance management – and provides three steps for successfully integrating these activities in your organisation.

In his book Winning, General Electric’s Jack Welch famously griped: “It sucks the energy, time, fun, and big dreams out of an organization. It hides opportunity and stunts growth. It brings out the most unproductive behaviours in an organization, from sandbagging to settling for mediocrity.”

The ‘it’ he’s talking about was the corporate budgeting process. We persist because it is necessary, mandated and we don’t know a better way.

There is no getting away from planning. However, there are ways to better streamline budgeting with your financial planning and management processes – taking a holistic approach that ensures every aspect of your business is visible, under control and able to respond fast to change in meeting individual and corporate objectives.

You need vision to give direction

You can change your budgeting process into a planning activity that identifies opportunities, coordinates your organisation and pinpoints where you can add value in a highly responsive manner.

Plan to the level that matters

Many organisations budget or plan at the same level that they record information.

When people plan at this level of detail however, there’s an urge to simply put a number against each line and then adjust to get the right bottom line.

Hardly an efficient plan.

Planning at that level becomes a huge waste of time for each person involved and a loss of focus from the real task: helping the organisation achieve its strategic and
operational goals.

An alternative is to take a section of your business and plan to the level that matters.

Instead of having 150 GL accounts per cost centre in your plan, limit it to the perhaps
20 that are appropriate for a section of the business. It’s simply a case of applying the age-old principles of materiality and relevance to create a list of ‘Planning Accounts’ where at least half of them are fed from the drivers that matter. Your planning will be more accurate, will take significantly less time, will frustrate less people with mindless attention to irrelevant detail, increase accuracy and will allow you and your contributors to focus on what matters.

It’s not a matter of losing your control; rather shifting control by empowering your managers – giving them bottom line control for their parts of the business and enabling them to assess their performance against agreed targets. We can then start to be smart, rather than dominated by irrelevant detail.

Identify the drivers that matter

Add value by working with the business to identify the drivers that matter for your business and then develop contingencies for dealing with changes to them. Examples of such drivers could include fluctuations in foreign exchange rates, changes in consumer demand or major customer loss. By being prepared for change, your organisation can respond rapidly to reduce risks or take early advantage of new opportunities.

In our next blog on The Death of Budgeting we will look at other aspects of the pillars of planning.

Until next time.

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John Vaughan

John Vaughan is a highly experienced Accountant and Consultant. He has experience in the pharmaceutical, FMCG, distribution, professional services, manufacturing and financial service industries. With over 25 years of commercial experience and 20 years working with the Cognos products, he...

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