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Budgeting is as much a communication process as it is a financial one

I remember when I was a Financial Analyst at Pepsi, being at the office late at night during the budget cycle, crunching the numbers and hoping that they’d add up right and tie out. Frankly, if you had wanted to talk to me about the communication side of budgeting I would have shown you the door.

But the truth is that budgeting itself began as a communication process and communications is exceptionally important as to how efficient… or inefficient… the planning process is. In fact, miscommunication and misunderstandings are the root causes of much of the frustration people have with the process.

As finance professionals, where is our comfort zone? It’s with the numbers. There’s a certain satisfaction in knowing the numbers tie out. We know how to audit formulas to verify their accuracy. We can model what-if scenarios with precision. If there is a problem with the template or a spreadsheet, we can fix it.

But when it comes to improving communication in the budget process, that’s where we can start to feel uncomfortable and unsure. And there simply isn’t much written on the topic to help us with (do a Google search for “improving communication in the budget process” if you doubt that).

To line managers, budgeting is the way in which they are trying to communicate how they will achieve and measure the achievement of the strategic plan of the organization over the next year. This is the opportunity to state their case for resources for those specific goals. Yet the budgeting process today, and particularly spreadsheets are not effective and handling critical communications. So, how do we get budgeting back to being a communications exercise? The answer lies in the way that we, as financial professionals, think about and implement the budgeting process.

In future blogs I’ll be covering how to address some of the more common problems with miscommunication, but in this post I wanted to highlight the top 5 most common causes (and you can let me know if you have one you’d put on this list):

1) Communication breaks down when across the board changes are made, top down, and the budget holders aren’t informed.

2) Communication breaks down when changes are coming fast and furious. It’s hard to keep up with them all.

3) Communication breaks down when changes are made without understanding the business implications. Yes, we can slash the travel budget – but the 4 new sales people we hired need to be on the road selling (and not behind a desk).

4) Communication breaks down when the language of accounting… “General Ledger speak”… rather than the language of the business, is used to create budgets.

5) Communication breaks down when the people who spend the money don’t actually budget their spending (but rather someone in Finance does it for them). I realize this is controversial, but if there was just one change I could make to improve communication, this would be it.

Let me know if you agree that budgeting is as much a communication process as it is a financial one; and if you have your own war stories to tell.

 

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