This trend recognizes that line managers and people in accounting speak different languages, and you need some way to interpret. Managers don’t think like accountants, at least not those managers outside of Finance.
Here’s a really obvious example of that. If I grabbed an invoice at random and brought it to the manager who signed it, and brought that same invoice to the accountant that made the journal entry, I’d get two different explanations as to what it was for. Let’s say it was an invoice for Photography expense. The Marketing Manager who signed the invoice might explain that it was related to a new product launch, and might even tell me how that new product launch was moving the company into a new market, and why that’s strategically important. That’s the type of explanation you’d expect from him or her because it’s their job to know, it’s their business and their profession. Something they live and breath every day.
But if I brought that same invoice to someone in accounting who processed it, I’d get a different explanation. It would be something like “The invoice was for account 45700 – Outside Photography.” And that would be about it. Now this isn’t a criticism, people in accounting process thousands of invoices and they can’t be expected to know the business rationale for each of them. Right?
So bringing it back to budgeting, the accounting department runs the budget process in most companies, and they lay out the budget input templates in the way they think – a list of general ledger accounts with spaces to input a budget. But that’s not how most managers think about their business and it’s not the way they would budget if they had an alternative.
Let me be more specific, people outside of Finance tend to think in terms of Strategic Initiatives… or Marketing Campaigns or Events or Programs Or IT Projects, Training Programs, One-Offs, you get the point. So what happens today is that managers go offline and develop their budgets the way they want to think about them, and then they struggle – or Finance struggles – to translate all that into a standardized budget template. Worse yet, after a couple of years the manager gives up trying to do that, and just takes last year’s numbers and inflates them. And the whole purpose of budgeting goes right out the window.
Why the trend toward budgeting in business terms can be so disruptive. Well, without the right tools this is going to get out of hand really quickly. If you’re stuck with Excel today for budgeting, it means setting up custom spreadsheets for each manager, reflecting how they want to budget in their terms. Not only can this be time consuming on its own, but somehow you’ll need to translate that manager-speak into accounting-speak. More specifically, you’ll need to map the business oriented budget into the general ledger account budget so the numbers can be rolled up. And of course Excel is fragile and one wrong link or miskeyed formula blows the whole thing up.
So yes, this trend is disruptive, and if you’re not prepared this could be a nightmare. So what do we recommend?
You need some form of Rosetta Stone to translate all these projects or events into accounting-speak, or more precisely, into their proper general ledger accounts so the budgets can be rolled up.
In the case of budgeting, you need to allow managers to develop budgets in ways that make sense to them, while ensuring the needs of accounting are met. And the chief requirement of accounting is that no matter how a manager wants to think about or develop his or her budget, eventually it needs to be translated into General Ledger Accounts.
When you have the Rosetta Stone you can do that, and speak in both languages – accounting speak and manager speak. When you understand each other, everything gets better.
We have a client, Jill Larsen, the CFO a non profit in Texas. They budget for a couple of thousand programs each year. That’s the way their managers think. And remember these are program people, not accountants. So the CFO wanted the managers to think in the natural terms they thought in every day… but translate that into general ledger accounts so the numbers could be rolled up and produce the required P&L.
Now a couple of thousand programs might be the extreme. But you get the point.
There’s a big upside to all this. If you have a translation capability, or some type of Rosetta Stone, you improve communication because not only will you be able to bridge the gap between manager-speak and accounting-speak, but with this insight into where the money is really going, you’ll have much better, much more meaningful, budget reviews.