Budgeting Best Practice Presentation
Budgeting
A systematic process for:
• Expressing future plans in formal quantitative terms
• Allocating resources to achieve strategic goals
• Monitoring progress toward goals
• Controlling spending
• Predicting cash flow and profits
• Serving as a vehicle for communicating plans in an orderly
manner throughout the organization
Top 10 Reasons Why Managers Hate Budgeting
2. It does not help me run my business.
3. It is outdated before it is even finished.
4. Too much game playing.
5. Too many iterations.
6. It is cast in stone, even though business conditions are ALWAYS changing.
7. Involves too many people.
8. Includes allocations that I cannot control.
9. By the time it is done, I don’t recognize my numbers.
10. Doesn’t match the objectives to which I am held accountable.
1. It takes too long to complete.
Budgeting Process Overview
Develop Corporate
Strategy
•Components
•Best Practices/
Controls
•Performance Measures
•Components
•Best Practices/
Controls
•Performance Measures
•Components
•Best Practices/
Controls
•Performance Measures
•Components
•Best Practices/
Controls
•Performance Measures
Create Annual Budget
Approve Annual Budget
Monitor Budget to Actual Results
Develop Corporate Strategy Components
• Clearly define the strategic goals before budgeting begins.
• Establish and foster formal and informal channels of communication.
• Communicate goals and strategies to local personnel.
• Improve procedures and information systems so that information is uniformly reported and easily accessible.
• Provide training for budget developers so that they recognize how
Develop Corporate Strategy
Components
Develop Corporate Strategy Best Practices/Controls
• Link budget development to the corporate strategy.
• Set capital and operating budget horizons to be consistent with strategic goals.
• Submit capital and operating budgets simultaneously and integrate them in terms of goals and purpose.
• Merge the budget and production plan into one document.
• Identify risks in budgeting and develop strategies to manage them.
• Foster communication to develop and strengthen strategy.
• Train budget developers in linking the budget to the strategy.
• Use performance measures to mark progress toward goals.
Example
Owens Corning
Develop
Strategy Create
Budgets Review Results
Create Strategies New
1 2 3 4
Owens Corning develops strategy before creating budgets, then
reviews actual results before creating new strategies.
Develop Corporate Strategy Performance Measures
• Number of budgets produced annually.
• Number of “ad hoc” budgets created for special needs.
• Number of full-time equivalent (FTE) staff, as a percentage of total staff, devoted to budgeting.
• Total cost of financial budgeting and planning as a percentage of
revenue.
Budgeting Process Overview
Develop Corporate
Strategy
•Components
•Best Practices/
Controls
•Performance Measures
•Components
•Best Practices/
Controls
•Performance Measures
•Components
•Best Practices/
Controls
•Performance Measures
•Components
•Best Practices/
Controls
•Performance Measures
Create Annual Budget
Approve Annual Budget
Monitor Budget to Actual Results
Create Annual Budget Components
• Gather internal and external information.
• Verify the data sources to ensure completeness and accuracy.
• Create assumptions and estimates.
• Create the sales budget.
• Create the production budget.
approval
no
yes approval no
approval Exec. Com.
no
Presentation to the Board yes
no Detailed instructions
as to the content of the budget
Communication of approved
budget
G R O U P
yes
DE P AR TM EN T
S
Consolidation Group
Negotiation Modifications
Modifications Approved
Operating Plan
Negotiation Modifications
Budget preparation (department level)
Example
Budgeting Process Flow
Create Annual Budget Best Practices/Controls
• Develop forecast collaboratively, using input from both the salespeople and management.
• Document and communicate policies and procedures to ensure that all personnel understand their roles.
• Understand who uses your budget.
• Link cost management efforts to budgeting.
• Create cross-functional teams that allocate resources based on varying assumptions.
• Conduct company-wide meetings to establish budget timelines and responsibilities.
• Designate a budget manager to be responsible for coordinating
Create Annual Budget Best Practices/Controls
• Provide training to the individuals involved in the budgeting process.
• Ensure that adequate hardware and software are utilized to support the budgeting process.
• Design a system that eliminates the need to re-key data and uses templates to reduce errors.
• Ensure the integrity of systems, databases, and records.
• Develop budgets that are flexible for changing conditions.
• Ensure that data is available electronically to budget users.
• Communicate to managers that they are responsible and
Example
Minnesota Mining & Materials (3M)
3M uses cross-functional teams to evaluate the costs and risks involved in projects.
Costs
and
Risks
Create Annual Budget Performance Measures
• Number of budgets produced annually.
• Number of “ad hoc” budgets created for special needs.
• Number of budget revisions.
• Number of errors in assumptions.
• Results of customer satisfaction surveys.
• Number of employee suggestions for process improvements.
• Employee satisfaction scores.
• Budget creation cycle time.
Budgeting Process Overview
Develop Corporate
Strategy
•Components
•Best Practices/
Controls
•Performance Measures
•Components
•Best Practices/
Controls
•Performance Measures
•Components
•Best Practices/
Controls
•Performance Measures
•Components
•Best Practices/
Controls
•Performance Measures
Create Annual Budget
Approve Annual Budget
Monitor Budget to Actual Results
Approve Annual Budget Components
• Submit the preliminary budget for approval.
• Define the timelines for budget approvals.
• Modify the budgets and incorporate changes.
• Approve the budget.
• Distribute the budget to department managers.
Approve Annual Budget Best Practices/Controls
• Establish a written approval process involving critical users of the budget.
• Reduce budget complexity and cycle time.
• Establish reasonable timelines for approving capital and operating budgets.
• Use cross-functional teams and consistent review procedures to evaluate budgets.
• Create accountability for untimely budget approvals.
Approve Annual Budget Performance Measures
• Average length of time to create and approve the budget.
Budgeting Process Overview
Develop Corporate
Strategy
•Components
•Best Practices/
Controls
•Performance Measures
•Components
•Best Practices/
Controls
•Performance Measures
•Components
•Best Practices/
Controls
•Performance Measures
•Components
•Best Practices/
Controls
•Performance Measures
Create Annual Budget
Approve Annual Budget
Monitor Budget to Actual Results
