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Reverse Engineering the Budget Process

Reverse Engineering - XLerant

Reverse engineering (the process of starting with a product and taking it apart to see how it works) has been used in product development for decades. Many organizations use this as a best practice in copying some key product or concept from a competitor. When applied to a process, it is the practice of starting with the end-game (what you ultimately want to achieve) and then determining what it would take to reach that end-game or result. It can be a valuable exercise in improving a broken or flawed process.

Budgeting has become “mission critical” in most organizations that are serious about financial performance, cost control and making sure that they fund the strategy of the organization as opposed to budgeting to history or politics. Budgeting is currently a very flawed process.

Reverse engineering can be easily applied to this “mission critical” process as well. One only need imagine what a desired budget process would entail and then attempt to come up with a plan for how to achieve it.

For instance, in a desired world:

When you start with what you want to have happen and then seek solutions to address those criteria, building a better budget process becomes remarkably easy. Understanding the needs of all the major constituents in the budget process is another key to success. These constituencies are management, finance, department heads and IT.

However, one critical mistake that many organizations make is they focus on features rather than results. And they start (and end) with a list of features that deals only with the needs of finance, and not the desired outcomes for budget managers or the organization’s management. This leads to an overly complex and theoretical RFP process, or a checklist process that ignores the central issues of budgeting. And this leads to feature fights without regard to the usability or even the practicality of the feature – and also without regard to the usability or practicality of the system in general. Often, a long list of features that will NEVER actually be put into use is what sways financial teams.

The most important constituent in the budget process is not finance, nor even management. To build a better budget process, you need to first consider the needs of the department heads. Most of the current problems with budgeting are that the department head’s needs are not properly accounted for – but when they are, ease of use, flexibility, ability to document their assumptions and justify their requests, and helping them understand what they are trying to accomplish with the budget become the primary drivers. If budgeting is a financial function, why are 80% to 90% of the users non-financial people? And, budgeting is as much a communications process as it is a financial one.

So beginning with complaints or needs of constituents can be enormously valuable. Here are the results of what a recent survey said about the primary complaints of these constituents about their current budget process. It is important to note that the vast majority of respondents worked in organizations that used Microsoft Excel for budgeting:

Management

Finance

Department Heads

IT

In support of the need to focus on the usability needs of department heads, consider some quotes from a recent WSJ article on business applications:

At a time when people are accustomed to using well-designed applications from companies such as Google Inc. and Apple Inc. in their personal lives, they have little patience for workplace applications that leave them confused. Functionality is no longer the definition of success. Usability is key.

“Basically, users will accept less crap today, when it comes to software,” says Michael Krigsman, an independent industry analyst. “That is because the world of consumer software has become easy and simple to use and has trained users to expect that business software will follow a similar model. And if it doesn’t, people are much less patient than they were in the past.”

Reverse engineering the budget process is an excellent way of ensuring that you radically improve the process going forward. But taking the primary needs of ALL BUDGET USERS into consideration and including the most important constituents into the reverse engineering process is essential to success.

Building a better budget process for better financial results can be an easy and inexpensive process in most organizations if the organization has the motivation, confidence and discipline to do so.

To learn more about best practices that will improve your budgeting process listen to our podcast: The 10 Commandments of Budgeting.

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