Yes, No, Maybe - XLerant

Is Budgeting Mission Critical?

Is budgeting mission critical, or is it a nice to have… or simply a necessary evil?

Your view probably depends on what your current budget process is like, and whether or not it produces value. If, for example, you spend most of your time fixing broken links in spreadsheets so you can roll the numbers up, it may not feel mission critical. It probably feels like a necessary evil.


But take a step back for a moment and consider why organizations budget in the first place. It’s to allocate resources (money and people) in a way that will optimize results — understanding what resources are available and the best way to deploy them. So ultimately budgeting is a decision making process… deciding to fund this program and not that program. Approval to staff up in this area, not that area. Agreement to invest in these operations, not those. Direction to increase marketing spend in these segments, not those segments. These are all business decisions about the allocation of resources, and if those decisions are made well, the organization will be successful.


Now that’s the very definition of a mission critical process.


A separate question concerns the system that’s used to produce that budget. Is it mission critical? My answer is yes, of course it is. If budgeting is a decision making process, then the system that provides and facilitates that decision support has to be considered mission critical.

So what do most organizations use for budgeting? Excel.

Think about that. You could, if you wanted to, use Excel as a general ledger system. But nobody does. That’s because it’s well understood that keeping the official books and records of a company or organization is mission critical. And although Excel could do the job of recording journal entries, and could be used to keep account balances and debits and credits straight, it’s simply too fragile and prone to human error. Nobody would risk it.

But using Excel to support a process that will decide where the funds of the company are best deployed? That we’re willing to risk.

Making decisions to cut spending here while increasing it over there — based on information on linked spreadsheets – is just as risky a proposition as using Excel to balance your books.


Excel is not a database. It is not a programming language. Accountants are not programmers. But all too often we behave as if none of that is true. We try to force fit Excel as a database, we try to program it with nested if-then statements and other indecipherable formulas, and we turn the Finance staff into walking databases. Then we’re surprised when the numbers don’t add up and someone says, “This number doesn’t look right” (and Finance’s credibility can be shot is that someone happens to be a senior executive).


So why do so many finance organizations stick with Excel for budgeting?


Part of it is the devil you know is better than the devil you don’t know. Part of it is anyone who started their career in public accounting is accustomed to long hours and hard work. It comes with the territory. And most accounting and finance departments have adopted a similar culture. We’re tough. We’ll gut it out.


We also feel uneasy asking for help – or money. Especially if we are known in the organization as the ones who “always say no” to others.


But here’s what we need to understand. It’s not about us.


Yes, a budget system should make the process more efficient and cut down re-work and wasted time. But that’s not the reason to invest in a budget system.


A truly effective budget system should improve decision making. Full stop. If you evaluate a budge system and you can’t see how it will improve decision making in the budget process, walk away.


Beyond that, a budget system should improve transparency and communication. It should engage line managers and get them to own their numbers. It should get the organization focused like a laser on what’s important. It should facilitate effective budget review sessions with senior management, save them from distraction, and provide them with what they need to make smart decisions.


No CEO is going to invest in a budget system simply because it will save late nights for people in Finance. We have to think beyond that. And we should think beyond that. When we do, we’ll realize that playing the role of hero (or martyr) by gutting out a budget process with Excel isn’t in the best interest of the organization we work for. Finding a way to make budgeting a value added process is in the best interest of the organization.


That’s what we need to focus on, because budgeting is a mission critical process, as is the system that supports it.


Read More