![]() This kind of collaboratively validated budget process relies on everyone working off a single set of numbers and expectations. Those operational managers know they’ll have to make trade-offs, but they’ll be more accepting of the results when they see the assumptions that went into them and have a voice in how they are shaped. Line-of-business heads get a better sense of how much (or little) new funding is up for grabs. Executives gain more realistic expectations in relation to the productivity of their workforce. Involving the leaders from these operational departments gives everyone more perspective. Or that every project on R&D’s wish list will get funded. You can’t blithely assume that, say, the manufacturing output will go up 10% across the board without buying replacements for outdated equipment. Of course, even in prosperous times, no budget can satisfy everyone’s hopes. Bring the departments into the budgeting process as early as possible, Pichelot says: “Finance should take the lead, but finance needs the operational departments involved… or you have only a partial process.” It’s important to reach out to the operational departments and regions to find out their budget expectations for the coming year, and balance those bottom-up projections against the top-down goals. You also build in the company’s high-level goals for the year (and looking ahead to future years). ![]() Key considerations include market size, projected growth or decline in market share, demand shifts, cost inputs (raw materials, employee costs, transportation, advertising, and more), competitive pressures, and the regulatory environment. Pichelot observes that the best budgeting processes start at the top, with business leaders thinking through the commercial and operational drivers that influence their financial plans. She has managed teams using budgeting methodologies of all types, including zero-based, top-down, and bottom-up budgeting. Pichelot previously spent more than 20 years as a finance leader and CFO at several companies. Bring your lines of business into the budget process earlyĪ former boss of mine liked to say, “nobody went to budgeting school.” Below, Nadine Pichelot, VP of Finance, EMEA at Anaplan, shares her perspective on how to get the most out of the budgeting process. And beyond these intangible benefits to morale, people who feel more like owners will show more accountability to deliver on those numbers.įor management, mastering the basics of budgeting will better position them to make decisions that can increase revenue, decrease costs, and improve free cash flow and working capital. When the budgeting process transitions from overly focusing on the accounting perspective to being about the real drivers behind the business, then the departmental heads feel more inherent responsibility and ownership toward the numbers. The results of getting the budgeting approach right are that businesses become more efficient, waste less time on spreadsheet manipulation, and operate more cost-effectively. This organizational alignment ensures that departmental leaders have ownership of their segment of the plan, know how the overall budget affects them, and, as a result, gain a clearer vision of both tactical and larger strategic goals. They make the budget process transparent and accessible to all involved. The most effective annual budgets are both operational and financial, rather than an arbitrary, top-down, purely finance-driven exercise. Giving more responsibility, getting more accountability That’s what we’re offering here: the opportunity to get back to basics and rethink budgeting (as well as other fundamental financial processes we’ll discuss over the following weeks). There is a better way of building a budget to reflect the company’s priorities, stimulate growth, and encourage employee engagement. ![]() During budget season, the finance team’s efforts quickly get stuck in the weeds of spreadsheet overload, and the real story is lost. It needs to tell a compelling story for people to believe in it and reflect that with their behavior. The budget is a blend of art and science. If a budget fails to influence and promote behavioral change across an organization, it remains a work of fiction, imposed from above and adopted with varying degrees of resignation or cynicism. All companies have to prepare annual budgets, but many don’t understand the real purpose behind the exercise.
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