No doubt about it, budgeting and forecasting are universally loathed. For the finance department, the process can take six months to complete. For most operations people, it's an overly financial exercise designed mainly to please corporate headquarters. The result, says Holly Snyder, director of planning and management reporting at Nationwide Financial Services (NFS), "is that people don't take ownership of the process."
Part of the problem is that more often than not, budgeting and forecasting are not linked to strategic planning or performance measurement — the other components of what consultants say should be an integrated planning process. Well over half of CFO readers surveyed blame the absence of a well-defined strategy for the lack of value in their planning efforts, and point out that whatever strategy is in place isn't linked to operational plans.
The process is further compromised by its tradition of negotiation and horse-trading. Fully 66 percent of CFO readers surveyed believe their planning process is influenced more by politics than by strategy. Indeed, says Greg Vesey, director of business systems at Texaco Inc., "planning is the most political of all the processes that fall under the finance function."
Making the process more accurate and efficient is no small task. "Reengineering budgeting and planning is the mother of all reengineering projects," says Lawrence B. Serven, a manager at Deloitte & Touche Consulting Group. Throwing time and money at the problem doesn't always help. Neither does a state-of-the-art data mart if the definitions used across functions don't match. Rolling forecasts, balanced scorecards — the hot buttons of today's forecasting gurus — make sense, but only if they're linked to performance evaluation and (the catch) a sincere corporatewide commitment to changing time-worn traditions in finance, sales, and operations. As Serven notes, "the real issues are not process related or systems related; they're people related."
Why Now?
Which explains why many companies are only now getting around to reengineering this process. "The planning and budgeting process is where the transaction process was five years ago," says David Axson, vice president of The Hackett Group Inc., a Hudson, Ohio, reengineering consultancy that recently completed a planning benchmarking study of more than 50 companies. "Everyone is now starting to talk about benchmarking the planning process," he says. "But we're really in the early adoptive stage."
One step toward improving the process is to limit and standardize planning data. According to the Hackett study, the average company currently produces 40 different performance reports, each averaging 24 pages. Yet most include only traditional financial measures. In addition, the average budget contains some 230 line items and eats up an average of 4.5 months of company time.
Another step is to share the information across the company. Today, this information isn't shared on a companywide or a real-time basis. To be effective, it must be communicated across the organization.
A third step is for the entire planning process to be linked to strategic planning and compensation. Here companies are just getting started. In fact, according to the Hackett benchmark, only 58 percent of companies tie compensation to strategic plans and only 19 percent link it to forecasts. Likewise, whatever business planning tools — such as rolling forecasts (see "Sprint Retools the Budget Process," September 1997) and balanced scorecards — are introduced must be linked to performance evaluation and compensation in order to be fully effective.
Reengineerable?
Still, the question remains, "Can business planning really be reengineered?" The answer is yes — to a degree — as long as people are accountable and motivated. But, success in this area will always be fleeting, says Vesey, since "the technologies and the personalities are constantly changing." The result, he believes, is that "reengineering planning has to be revisited every three to four years, without question."
Finance can benefit enormously from leading this reengineering effort. "Finance executives fundamentally understand value creation," says Serven, "whereas many operating managers don't understand how their decisions affect the financials." By sharing that knowledge through the planning process, he says, "finance has a huge opportunity to really elevate its own value."
But finance has to evolve from being a reporter to being a facilitator of the process. "Finance needs to get out of its ivory tower," says Stephen Ibbotson, Avon Products Inc.'s director of global business process redesign, who adds that finance needs to act more like a consultant to operations, marketing, and sales. In the end, says Avon CFO Edwina D. Woodbury, "financial forecasts should be owned by operating management."
The companies profiled here are all currently embroiled in complete overhauls of their business planning systems. None can be thought to have thoroughly reengineered its processes. But while it's premature to claim they embody "best practices,'' they surely are manifesting best efforts — taking the first steps toward turning the planning process into a more meaningful exercise.
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