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Distributed Budgeting

At XLerant, we’re changing how budgeting is done…

and who’s doing it

Our clients use our flagship application, called BudgetPak, to distribute budgeting to the people driving the actual results. To understand why, read on.

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Who does the budget in your company? Chances are it’s the Finance department. Who drives the actual results of the company? It’s almost never the Finance department (we’re staff).

So there’s a disconnect.

It’s that disconnect that is at the very root of the problems organizations have with budgeting, namely “Budgeting takes too long and delivers too little value.”

Frankly, trying to increase the value of the planning process seems like a much harder goal to achieve than making the process go faster. So where have most Finance departments invested their time and energy? In trying to shrink the time it takes to do a budget. That’s a worthwhile goal but it’s simply not enough. Let’s examine what typically happens.

  • People outside the Finance department complain that they are too busy to participate in the budget process — it’s not uncommon to hear phrases like “I’ve got a real job to do.”
  • Not wanting to bother these managers, Finance looks for ways to involve line manages less, to take up less of their time.
  • A common solution is to develop “a model” – usually in Excel – to produce a budget using a handful of inputs.
  • As part of the budget process, Finance asks managers for their assumptions about those inputs.
  • To people outside of Finance, these models are typically considered to be “a black box”. Meaning that managers don’t fully understand how they work, or precisely how their assumptions directly drive the results of the model.
  • A few managers willingly provide assumptions… but others do not.
  • For those who are more reluctant, Finance takes a stab at it, and then asks these managers for their validation.
  • The end result is a budget driven by a model that Finance understands, but is not embraced by the larger organization.
  • Ultimately, managers still complain about spending too much time in the budget process. If they don’t see the value, then even a single minute spent on budgeting is a minute too much.

If we put all of our energy and talent into figuring out ways to involve managers LESS in the process, we will never solve the deeper problem of how to increase the value of the process.

So what is the value of budgeting anyway? The purpose of the budget process is to optimize the allocation of resources. In other words, to make business decisions about how the company spends its limited resources (money and time). Invest here, not there. Staff up in this area, not that area. Pull the plug on this program, not that program. Market to these industries, not those industries.

All of these business decisions are ultimately reflected numerically, in the financial projections known as a budget.

So it’s decisions that drive budgets – not budgets that drive decisions. At least if you’re doing it the right way.

That’s a helpful reminder. I know from personal experience that you can get so involved with the mechanics of pulling a budget together (creating budget templates, writing and auditing formulas, linking spreadsheets) that the reason why you’re doing it in the first place gets lost.

So if budgeting is a business decision making process, you’ve got to ask yourself these questions:

Who knows the business best?

Who’s got their ear to the ground, and is the first to know about important business developments?

Who knows about longer term developing trends?

Who’s dealing with our customers every day?

Who knows where the developing threats to the business are coming from?

The answer is, of course, are the people on the front lines -the people whose job it is to have these answers. And it is their perspective, their input, that leads to better, more informed decisions. And that includes decisions concerning the allocation of resources (a.k.a. the budget).

So the key to a better budget process isn’t a better model. It’s not a matter of having more variables… it’s about having more participation. It’s about distributing the budget process to those people who are driving the actual results.

Now I can hear the groaning start, “Good luck with that. These people aren’t about to crack open an Excel spreadsheet and start budgeting.”

That’s exactly right. They’re not about to start futzing around in Excel. You can’t give them a locked down budget template with a grid of accounts and expect them to do anything with it. You’ve got to give them something that’s as easy to engage with as Turbo-Tax… or an i-Pod… or their car’s dashboard navigation devise.

That’s our vision. What’s yours?


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