Budgeting and forecasting have become an important and inevitable part of leadership tools. Budgets for the next year and forecasts of the current year should be made available to all personnel from strategic to operational levels, it should integrate the whole organization and lead management in making their decisions. However, when the company’s budgeting period starting date is approaching, such a great idea for most of the employees responsible for coordinating and creating a budget (usually controllers) turns into a nightmare.
Adjusting templates, sending and collecting data, tracking other participants’ progress and time pressure are just some of the causes of headaches. At the end of the budget preparation process, participants are relieved that the nightmare passed and hope that next time the whole budgeting process will be more time effective, be less error-prone and cost less nerves. I worked in controlling for six years and was involved in budgeting processes in three different industries. Budgeting was always a big challenge for me, but also provided an insight into the problems that people tend to face, thus exposing me to a learning experience. The following are the 3 biggest challenges I faced along with the solution I applied to overcome them.
The first challenge – How to track who did and who didn’t send back their budgeting figures and how to get others more involved?
First and foremost, all participants should be aware of the importance of budgeting. If management doesn’t use budget and forecast as a guide in their decisions or if participants have no interest in setting achievable and objective goals, the whole process is useless. Furthermore, if management needs budget and forecast, but participants see no purpose in sending their plans, it is very questionable when and what kind of data you are going to get. It is very important to emphasize the importance of setting and integrating budget goals throughout the whole organization. This way, participants will be more interested in sending their plans objectively and on time.
Advice – Explain the purpose to all participants, communicate clearly and let them understand the importance of the whole budgeting and forecasting process.
Budgeting should not be a nightmare. It should serve as a good opportunity to review the company’s performance in the past and to engage employees in creating the company’s future. Employees have to be assured that participating in the budgeting process will contribute not only to them but to the company in general. Deadlines, expectations and requirements should be explained on time and clearly. There could always be a bottleneck in the process, but if a person in charge explains the purpose of the process, communicates clearly and coordinates people and tasks well, the problem could be detected and solved promptly and properly.
The second challenge – Can we manage to finish everything, on time?
At the beginning of the budgeting process, most companies define deadlines and responsibilities. However, the process comprises multiple tasks and participants so even if a person responsible for keeping everything on track is doing her job well, something unexpected can occur at any point in time. This is without mentioning a situation where the budget phase is consolidated and top management requirements change to the extent of affecting results at the bottom-most levels. Things get even more complicated if you are preparing a forecast for the current year concurrently, or if management wants more than one version of a budget. Finishing the budget on time becomes an elusive dream.
Advice – Make budgeting and forecasting important and invest your time in meaningful parts of the process.
Controllers should promote budgeting in all management levels in the company as an opportunity to create decision-making processes based on objective goals and KPIs. Instead of dealing with manual tasks and technical problems in Excel, controllers should invest their time and effort in coordination, communication, big picture analysis, improving the process and setting proper budget KPIs. In my opinion, controllers should not waste their time preparing Excel templates, checking formulas, sending generic e-mails and other manual work. Those people usually have a university degree and certainly can be more useful in other areas. It should be in a companies’ best interest to be efficient and to decrease the time needed to prepare a budget. Controllers should manage and be responsible for the process and analysis of consolidated reports, not to prepare templates and manually consolidate them.
The third challenge – Are those numbers correct?
I will probably never forget a meeting in which I had to present the first draft budget results based on the initial hypothesis and assumptions. The Excel sheet I had to show to directors was a master file with dozens of links to other Excel files. When I opened it, everyone in the room could only see the errors. My heart started to beat like crazy and even though I wanted to look cool and removed errors very quickly I bet no one believed my numbers were correct. That was not the only time I was frustrated with the fact that no matter how many times you check all the numbers and formulas there is always at least a tiny possibility that something could be wrong. Large Excel files which are hard or impossible to open, consolidated file with a bunch of links, renamed files and removed formulas from templates cause headaches for controllers who (no matter how skilful in Excel they are) have to put a substantial effort and time in order to ensure the accuracy of consolidated numbers.
Advice – Find the right tool to help you decrease manual work and time needed to prepare the budget.
There are many programs which facilitate budgeting process which could save controllers’ nerves and time. One of them is IBM Planning Analytics, my go-to tool for creating and maintaining IT planning solutions for clients. The program has an Excel and web-based interface with all data in one place. Security settings determine what users can see and which plan on the web they should fill out. Calculations are made automatically and in-time, budgets and forecast can be filled with actuals with one click. There is no need to prepare and send templates nor to consolidate them manually. It is possible to create a workflow where you can see everything in one place, including those that are incomplete, whether manager approved or rejected submitted plan and their comments. Also, there is an option of sending automatic e-mails with information about other participants’ actions. IBM claims that Planning Analytics decreases the time to complete the annual budgeting cycle by 63%. The process becomes transparent, flexible and easier to manage.
Budgeting and forecasting are challenging from many perspectives. Management should set objective goals that will meet investors’, lower-level managers’, employees’ and all other interested parties’ expectations. Controllers should have a consulting role and provide management with analysis and budget scenarios which could help them lead the company and survive in a competitive environment. On the other side, controlling needs tools which will enable them to quickly and accurately forecast, to coordinate people in budgeting processes better and to perform what-if and other analysis. Controllers should focus on people, process and high-level support to management. If budgeting and forecasting is recognized by all participants as important and useful, if the controller coordinates people and tasks well and has a tool that could free them from manual tasks in Excel, there is a great chance that future budgeting processes will be more successful and pass with fewer headaches.
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About the author
Tina obtained two Master’s degrees from Faculty of Economics and Business in Zagreb, one in Analysis and Business Planning, another in Managerial Informatics. She worked 6 years in controlling in 3 different industries. In order to combine controlling and IT, her two professional interests, she accepted a position of Business Analyst in Poslovna inteligencija 6 months ago. Currently she is working on projects of implementing and maintaining IT budgeting, forecasting and reporting solutions to clients.