Recommendations

From CAM-I Wiki

Contents 1 Recommendations 2 Analysis 3 Assumptions 4 Budget Bashing 5 Communications 6 Compensation 7 Data Management and Relevance 8 Decisions 9 Disconnect Operations and Financials 10 Events 11 Framework 12 Freezing the Budget 13 Noise 14 Operations and Function 15 Organization Component 16 People 17 Performance Management 18 Politics and Gamesmanship 19 Process 20 Relevance 21 Roles and Responsibilities 22 Strategy 23 Time Concern 24 Tools

Recommendations

This is a recap of all recommendations from the individual topical issues.

Analysis

• Schedule sufficient development and review into the planning and budgeting cycle
• Product or customer account managers should review and approve demand requirements, consumption rates, and resulting capacity
• Ensure the decision manager has the proper level of authority
• Build into the planning and budgeting process continued analysis of trends, forecasts, progress, and results
• Structure or improve analysis between iterations to impact the number and quality of iterations

Assumptions

• Key assumptions should be documented and communicated by a central planning function that maintains configuration control
• Key assumptions should be coordinated both horizontally and vertically in the organization
• Assumptions need to flow from strategy
• Organizational risk should be factored into or documented in assumptions
• As the Planning & Budgeting process iterates, assumptions need to be reevaluated and acted upon
• A long-term view of financial and resource needs of an organization leads to more accurate short-term forecasts

Budget Bashing

• Identify the source of concerns and focus on the process issues, rather than dismiss planning and budgeting as non value added. (ie Don't throw out the baby with the bath water)
• Listen for patterns of concerns and take appropriate action to:
  • Improve the process or outcome of the planning and budgeting process.
  • When the process has failed, consider undoing budget choices to enhance the validity of the process.
  • When the process is sound but the decision is unpopular, consider the worth of the decision versus the value of participant buy-in as a factor in reviewing alternatives.
• Clarify roles in the planning and budgeting process to reduce discontent with the process and make it more efficient.
• Design appropriate consequences to variances from the plan so that they correspond with desired behavior and actions.
• Management should complete and communicate an effective strategic plan before a bottom's up process begins.
• When a top-level override must be made, management should accept responsibility for the decision, recognize the negative effects of the override, and communicate the rational and necessity for the override.
• Making timely decisions will reduce bashing.

Communications

• Communicate decisions and priorities down the chain and (where appropriate especially for public sector) to external stakeholders.
• The process and underlying information must be transparent so that all involved understand the decisions made.
• The process should communicate to all participants when disagreement is appropriate and when support to the decision made is required.
• Discuss up front the level and timing of critical resource deployments to create more realistic forecasts and more executable plans.
• Provide for, and encourage, disagreement during the process until the decisions is made. Having been heard, the process should then expect support for the decision made.
• Develop risk management and/or contingency plans based on the underlying implications of disagreements.
• By placing more emphasis on training and development, leading organizations are better able to execute business plans. Moreover, this approach enables the finance function to be viewed as more of a strategic business partner for the organization

Compensation

• Develop compensation incentives based on internal and external benchmarks, market comparison, etc. to establish more consistent and objective performance targets and to reduce negotiation requirements and gamesmanship.
• Design compensation plans and rewards that have an optimal mix of incentives, including career growth, that drive towards both company level success and individual motivation.
• Avoid compensation plans that are primarily tied to an individual's budget performance

Data Management and Relevance

• A strategy for data storage and access is a prerequisite for effective planning and budgeting.
• Use benchmark information as an input into the budgeting/planning process.
• Create a consistent, enterprise view of the organization’s data as a foundation for Planning & Budgeting.
• Leverage operational, financial and process data for Planning & Budgeting.
• Ideally, data should have operational uses beyond the Planning & Budgeting process.
• While, ideally, the Planning & Budgeting process should not create new data collection, it may highlight the need for additional data collection that has significant operational value.
• Continuously evaluate the data being utilized to ensure ongoing timeliness, relevance, and value.
• Quantity of data should not be viewed as synonymous with quality of data and a large quantity of data can be viewed as being “precise” when it is not.
• Have a willingness to develop a budget that is usable and robust despite a lack of “complete” data and a willingness to accept a budget that is not “done” because it lacks certain data elements. Don't let perfect be the enemy of good.
• Include documentation of the meaning and sources of data elements. This will promote a common understanding of data elements and promote data collection standards

Decisions

• Recognize that decisions are the ultimate objective of the Planning & Budgeting process.
• A decision is not relevant until it is communicated, Communicate decisions to all relevant stakeholders
• Establish an authoritative source for decisions and documentation of the decision.
• Make expectations clear to reduce the level of ambiguity for managers in budget execution.
• Reduce or eliminate impediments to performance, such as staffing floors or ceilings or earmarks.
• Make more systematic use of financial and operational performance information to drive strategy.

Disconnect Operations and Financials

• Establish good formal communication and understanding within all levels of management so that each level of management understands their accountability and responsibility in the planning and budgeting process.
• The strongest financial personnel are those who understand the underlying operations; the strongest operating personnel are those who understand the resulting financial impacts of operating decisions. Develop and train personnel with these skill sets from both sides of the disconnect. Better yet, integrate financial personnel into operating teams.
• Identify financial and operating cycle gaps then synchronize cycles to the extent possible. Recognize the impact of what cannot be synchronized.
• Establish a common set of assumptions that span both operational and financial requirements. Establish a recognized authority for shared assumptions.
• Establish linkages between planning and budgeting financial measures/targets with the underlying workload and performance levels. This can be accomplished with driver based planning and budgeting as discussed in "The Closed Loop"

Events

• The planning/budgeting entity should develop broad guidelines on how to build a budgeting system so participants are alerted when certain events take place so that the planning/budgeting participants can react.
• Establish a recognized authority for shared assumptions. This source would communicate before each budget/plan iteration major guidelines, common assumptions to be incorporated, central overhead/planning rates that are to be commonly used, and elements that should be included or excluded by all.
• The planning and budgeting process should accommodate budget re-prioritization for unforeseen events via existing budget mitigations and shifts from less critical elements. Focus attention on major items, via implementation of a cost impact threshold

Framework

• A Planning and Budgeting framework must be customized to the environment of the enterprise with careful consideration of products and services, the balance of drivers, structural changes, strategy, and how management wants to run the business

Freezing the Budget

• Because of the multiple uses of a frozen budget, it is imperative that the budget reflects the strategic goals of the organization.
• Have a process that encompasses capacity, capability and demand drivers.
• Be careful what you freeze, you may get freezer burn. Personnel will act according to it which may be counterproductive. Also do not expect a solid result against thawed material.
• Carefully document what measures and time frames from the budget will be frozen and what decisions these will drive. This will provide guidance and boundaries for future uses.
• With a frozen budget, use other forecasting tools to keep visibility to running operations in current environments.
• Source budget information, resource allocations, and key assumptions should be documented and communicated by a central planning function that maintains configuration control.

Noise

• Recognize that noise will exist. Develop sound, standardized budget processes with consistent approaches for justifying budget requests; greater reliance on performance information in support of requests; and an enhanced ability to prioritize requests according to their contribution to the organization’s overall strategy or mission

Operations and Function

• Provide a clear link between money and things or resources and outputs. Plans and budgets should deal directly with the products and services of the organization while provide specific operating targets and assumptions, rather than re-defining those efforts into exclusively financial measures.
• Tailor the granularity of measures to operational levels rather than strictly high level or macro measures

Organization Component

• Establish a recognized authority to establish planning directives to manage assumptions, organizational changes, etc. that are common to all stakeholders in the Planning and Budgeting process.
• Appoint someone to be accountable for each product, service, business unit, or customer segment to ensure integration of assumptions that may impact multiple areas.
• Synchronize major organizational changes with the planning and budgeting cycle as these changes could have significant impact on the accounting framework and utlimate stakeholder notices such as government disclosure statements.
• Ensure the stability of the organization to enable participants to learn their roles in the organization’s processes, implement achievable actions to achieve their targets, and to robustly participate in the process.
• More complex organizations must pay much more attention to robust, effective communication between diverse organizational elements

People

• While natural and political inclinations may push to include more people in the process, focus on the stakeholders who have input and accountability in the Planning and Budgeting process.
• Focus finance employee development to hone strategic partnering skills
• By placing more emphasis on training and development, leading organizations are better able to execute business plans. Moreover, this approach enables the finance function to be viewed as more of a strategic business partner for the organization

Performance Management

• Ensure that those held accountable have input into objectives and related performance targets in order that they understand the expectations and feel a sense of ownership.
• Match the primary planning and budgeting periodicity to the organization's operating horizon.
• Use "frozen" rates instead of "frozen" monetary measures where volume changes significantly. These rates should be updated in synch with planning intervals.
• Identify and understand stakeholders to ensure proper accountability, incorporate their input, and accommodate their requirements

Politics and Gamesmanship

• Management is responsible to develop a broad base of political legitimacy to underpin business operations.
• Managers must remove bias and eliminate game playing through various business standards and tools to limit politics and gamesmanship. Historically based benchmarks diffuse the presence and influence of politics and gamesmanship.
• Actively track and review the business case to ensure the return on investment or savings which initially sold the plan.
• Base incentives on meeting company level targets as opposed to individual or cost center budget targets

Process

• Establish a single data source accessible by all appropriate stakeholders for data input, management and analysis.
• Standardize and maintain up to date processes, procedures, guidelines, and formats.
• Establish review and approval levels and steps that are relevant and eliminate all others

Relevance

• [No specific recommendations – Because of broad nature, reader referred to specific recommendations of other areas]

Roles and Responsibilities

• Formally define roles and responsibilities for all portions or steps of the process.
  • See Viewpoint B for of this issue for a discussion of the spectrum of roles and responsibilities.
• Roles and responsibilities could be developed via a consensus or by a directive from a central authority

Strategy

• Clear communication of strategy enables effective planning and budgeting.
• Plan horizons should take account of the business model of the organization, e.g. lifecycle and horizon of investments, divestments, and differences in channels and products
• Increased frequency of planning is required in a more dynamic environment.
• Ensure that plans and budgets reflect the strategic goals of the organization

Time Concern

• To streamline the planning process, consider defining the budgeting policy and related procedures to include:
  • Use rolling, flexible budget instead of annual budget especially for volatile business environments.
  • Streamline chart of accounts, number of cost centers, number of accounts, approval cycles, and a high degree of standardization across charts
  • Integrate forecast and measurement processes
• Increased frequency can be achieved by focusing on business drivers and using algorithms rather than conducting line by line financial planning

Tools

• Understand the process before choosing planning and budgeting tools;
  • Have a disciplined requirements process to choose tools
  • Identify where the organization's process has to change to accommodate tools
  • Where beneficial, consider using integrated/common tools
  • When selecting tools, consider data management and retrieval capabilities
• Develop a comprehensive implementation plan
• Implementation of budgeting tools is a project; treat it as one
• Perform a disciplined requirements determination that includes process definition and triages requirements from desirable characteristics
• Ensure the plan considers acquisition, training, parallel operations, process changes, critical events and milestones, reporting, measures of success, and of course a budget.

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