Oh no, here we go again. While summertime makes people think of getaways and lazy, hazy days, many FP&A professionals with a December 31 fiscal year end know that budget season is gearing up. For those who use a budget—and AFP’s 2017 Financial Planning & Analysis Survey suggests that about four out of five of you do—here are four tips to help you reduce the effort involved in budgeting, and get you back to your summer vacation without taking panicked calls from the CFO.
TIE THE BUDGET TO THE STRATEGIC PLAN
Pranab Biwas, VP of FP&A for a consulting firm, noted that, “One approach I have seen several times is to work backwards from the strategic plan. Every year, the leadership team makes a three-year strategic plan, and the budget becomes the first year of the strategic plan.” This ensures that the budget serves its function of tying strategy to operations, and maintains operational alignment. Since the strategy review is an annual process, it refreshes the strategy at least annually.
TIE THE BUDGET TO THE ROLLING FORECAST
Jesse Mischler, VP of FP&A for a REIT, maintains a rolling forecast that looks 18 months ahead, so when his team begins to focus on the budget, there is already a view that has been circulated and received at least some vetting. Note that this can also become the starting point for the strategic planning discussion.
MINIMIZE THE ITERATIONS
There are two types of budget iteration that are especially painful for practitioners because they lead to re-work. First are vertical iterations, where the business develops a bottoms-up budget, only to have management and/or the board reject it and send it back down. This up-and-down cycle may continue as the two sides determine the right budget. This “elevator budgeting” method destroys trust on both sides and makes the business wonder, “Why did I bother working on this when they had a number in mind?” To avoid this, each side should communicate the targets before diving into the budget.
The second type of iteration is horizontal, where different units coordinate their expectations with each other. For example, revenue drives cost of goods, so sales and marketing will influence the operations teams, and upstream changes create more work for everyone downstream. To minimize this “back-and-forth” budgeting, allow changes on a set schedule via a project plan so departments know when to expect the work effort. This saves frustration and allows teams to plan their effort, and prevents FP&A from having to ask for yet another version or iteration.
RECOGNIZE THE 80/20
Be smart about your time and the requests you put on the business. Your key business drivers should also be your key drivers of time and effort. Spend budget season on the big items that drive the majority of spend and cross-departmental coordination; use the “off-season” to do deep dives into the smaller elements. This approach, sometimes called a rotating spotlight in zero-based budgeting parlance, helps to spread the analysis over the full calendar year and can take pressure off the budget season.Now, where is that sunscreen?