Megaphone - XLerant

Mega Trends in Budgeting: Renewed Focus on Communication

This mega trend is something that’s come full circle; and it’s such a major trend we’ve actually done a whole webinar on this topic… which you can find a link to on our website. It’s tough to boil a whole webinar down into a couple of slides, but let me give it a try. Think about why people started to budget to begin with. We don’t know who did the first budget, but maybe it was the pyramid builders. Now do you think the purpose was to figure out what should go into general ledger account 4600?” I don’t think so. The original purpose of the budget was to communicate HOW you were going to accomplish great things, and what you needed to get there.

We still have brilliant plans that we’re trying to implement. People are still inspired to do great things. That hasn’t changed.

But a couple of things did change. We put the budget process in the hands of WE finance people. I’ll say WE because I was a financial manager at Pepsi and Reader’s Digest — and what we know best are the numbers. And playing to our strengths, we’ve focused more on the accounting aspects of budgeting than on communications. I’d go a step further and say that the communication side of budgeting has been all but lost, and the focus now is almost exclusively on accounting.

So getting budgeting back to the communication exercise it was meant to be can be disruptive because it requires a major shift in thinking and the way budgets are reviewed. Let me be more specific. If the focus today is inputting numbers into a budget template and then rolling those numbers up, that’s only about 10% of what’s needed in the new world. The other 90%, which is the real the real value-add, is in communicating why the money’s needed and how it serves the strategic intent of the organization. Making budgeting a communications exercise as well as a financial one is disruptive because it requires a new skill set and a new bag of tricks. Let’s talk about that.

One overarching recommendation is to provide a communications toolkit to your users, one that allows them to clearly communicate the story behind the numbers. That might mean adding line item detail, or written explanations, or communicating other assumptions that are driving the budget. But it’s not enough to have the capability there in your system. If it’s not easy to use, your budget holders won’t communicate anything more than they do today.

Another recommendation is to shift the focus of the budget review away from the traditional variance comparing the budgeted G/L spending versus last year. It’s a good report to have and you should keep it. It’s just that shouldn’t be the whole focus of the review. It should be on the rationale of the budget request and how it serves the company or organization.

Now if you’re budgeting to strategy, the first mega trend, then the budget reviews can also put a spotlight on the strategic initiatives and the spending that’s required to execute them. And that really elevates the whole budget review process. Make it a lot more than just a review of a list of G/L accounts.

And you’ve simply got to make sure that everyone is on the same page. For example, Sales and Marketing and Client Development all need to be working with consistent assumptions, or they’re going to wind up working at cross purposes. In other words, it’s about facilitating effective communications up, down and across the organization.

And the last recommendation we have time for today is to be prepared to cut poorly documented budgets. Easier said than done, especially when you know the manager. But it’s amazing how you can change behavior when word gets out that if you don’t adequately communicate your budget requirements and justify them, you’re budget will be cut. I’ve seen this change of behavior happen very quickly not only in smaller businesses, but with Fortune 500 companies as well. Some things are universal, like the desire to get your budget approved!


Read More