Sometimes budgeting gets a bad rap
In my last post I suggested that all budget and work plans for a large organization should be aligned with strategic goals. I also mentioned that this concept hasn’t always been obvious as budgeting sometimes takes a bad rap. Some pundits believe that budgeting is a process that limits strategy and visionary projects. However, I’ll take you through five steps that transform your strategic plans to become the backbone and catalyze a strategic, operational excellence, or visionary business transformation plans. These steps keep your budget planning in alignment with your overall work plan and with all the other resources required to successfully execute your goals.
Alignment will deliver your operational excellence
By using these five steps your work plan and budget plan will remain aligned to support your strategic plans and deliver operational excellence.
1. Clearly define your strategy and its implications on the entire budget.
Take your plan and dissect it into small executable pieces. Connect these action items to your budget and your work plan from a combination of top-down (multi-dimension constraints and goals) and bottom-up (demand-based) budget planning around both OpEx and CapEx, across all units while accounting for all regulatory and other constraints.
Budget planners typically see the organization’s budget through the eyes of OpEx and CapEx and the existing versus the investment budgets – yet how connected are the expenses to the work plan, and the new strategic plan? Is there a way to quantify the connection? Furthermore, as nothing is static in this world of constant change, how are changes in the budget made, and are they kept in alignment with the strategic plan?
2. Clearly define your constraints, policies and limitations.
Every organization has its stated and unstated rules. There are regulatory international, federal and state laws, monetary and fiscal policies. These need to be clearly stated and fed into the equations of the budget planning. But how clear are these constraints to the people sending in budget requests? How are your constraints communicated so that people don’t waste time with requests which do not comply with the company’s governance?
3. Build a granular budget based on the work plan and new requests so that you can connect your products and services portfolio.
Connect portfolio management with your budget from top down and bottom up.Don’t forget to calculate the operating budget for ongoing changes including inevitable changes in employees. How many FTEs will retire this year so that your skill set when you replace them with entry-level people will be affected? Does your budget incorporate for changes in your operations? Think about an analytical tool to see how what happens in your budget given a wide gamut of changes. And consider a tool that shows you the implications on your work plan when there are changes in your budget.
4. Define accountability and a uniform process for managing the budget requests.
You want to see the entire thread of approvals in making budget requests, and you want to have one uniform process for all. Every budget request needs to be related to the business case that relates to a strategy objective. And don’t forget that accountability starts with accurate data, which should come from one single source of that data. Consider connecting all your business process management systems so that all the data is gathered on one page. And that is the page on which you begin your analysis, not an offline spreadsheet.
5. Define an informed prioritization process
How are your budget requests submitted? If they aren’t on a standard template, is your evaluation process balanced? Do you request each budget item to be intrinsically linked to a strategic objective? And most importantly, are you using a tool to see the implications on the entire organization if this request is processed? From the onset of the budget planning process, there needs to be an automatic synchronization of ERP and other IT tools, taking the variances (vendor, data structure, processes) into consideration.
Beyond the prioritization, check that your budget requests are submitted in alignment with your human resources. Every budget line should be aligned with the skills and employee bandwidth needed to execute the programs in that budget.
Check out my next post for more information on aligning your budget process in executing on your strategic goals.