Integrating rolling and continuous budgeting
with the Strategy
"The budget is a tool of repression, rather
than innovation"
Bob Lutz, ex-CEO Chrysler
The challenge...
Increasingly businesses are waking up to the fact that traditional,
annual budgeting can constrain, as much as it controls and
plans. No-one is saying, "Ignore the money".
However, it is a tool designed for centralised planning over
long periods.
"Only 60% of organisations link their
budgets and strategy"
Just as many organisations have set themselves free from
the annual business planning, process to a more realistic
and iterative strategic learning process, they have been brought
back to an annual cycle by the budgeting process.
"66% of organisations believe their budget
is influenced
more by politics that strategy"
Just think for a moment what happens when a budget is constructed.
To construct that budget, you have to have in your head the
strategy. Someone is saying, "This part of the
strategy means this investment, over this period, to achieve
this change, with operational costs and revenue."
Then, it becomes subject to negotiation, horse-trading and
some centralised (sometimes seemingly arbitrary) decision
making.
What comes out is often a single dimensional view of the
strategy. It will be expressed as numbers with the assumptions
hopefully documented. Sometimes, however, the assumptions
are implicit. When someone receives the budget, they
either understand the strategy well enough to know what assumptions
were made, and how they link to the strategy, or they have
to deduce them.
As an example, just imagine for a moment what it would be
like arriving to take over a department, without a handover,
and looking at the budget you have got. How would you
know how this was deduced?
One problem is that people are set up to achieve fixed targets
by fixed dates. However, the world evolves. Again, let
us be clear. We are not advocating having no performance
management. What we are saying is that performance improvement
is often more relative than absolute. The targets change,
but when they don't, you get game playing.
-
Introduce rolling budgets?
Having a budgeting that supports the strategy is a great
starting place. But having a budget that can develop
and evolve as the strategy develops is just as important.
You wouldn't want to be at the end of the year and then
find out that someone had failed to execute part of the
strategy because they were budget constrained.
-
Keep with your existing chart of accounts?
Or are you simply stuck with an existing chart of accounts that
does not reflect the joined-up nature of the organisation.
Changing that chart of accounts is a massive job: making the
links from the strategy to the existing chart is not.
We have helped many clients keep their existing structure, yet
provide a more useful view of their costs.
-
Have more responsive staff, with - more flexible incentive?.
Do you want to move away from fixed-term performance management
and appraisals to a more flexible approach?
-
Be clear about the cost of change? Our
methodology is extremely powerful at teasing out the operational
costs from the costs of change. In its first application
over 7 years ago we identified that the organisation's IT costs
were actually £45m rather than the £21m they were
understood to be. Also, we were able to make clear the
true operational and change costs. This led to a highly
flexible and responsive model for anticipating the change in
IT costs driven by different business strategy decisions that
later fed into the change programme.
Are you are bogged down? Can't easily link budgets
to the scorecard? Not clear how you are to refine your
budgeting to be more flexible? Are you missing an opportunity
to improve the way you think, work and perform....
then talk to us.
We have a variety of case studies, experience and
examples of where we have helped organisations become more flexible
in their budgeting and so turn into action and results.
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