It’s budget season again. How long will your budgeting process take this year, compared to last? If you don’t know the answer, there may be room for improvement in the cycle time to complete your organization’s annual budget.

Let’s be honest: When you ask most CFOs and business unit managers about their favorite time of year, it’s unlikely they’ll answer “budgeting season.” At some companies, the budgeting process can start in June — or earlier, for shared-service units — and drag on for months. Meanwhile, others start in November and have their next-year budgets wrapped up and tied with a bow well before the holidays.

November’s metric of the month, which is calculated based on 2,617 organizations’ responses to questions, makes it clear that some companies take much longer than others to push out a budget in time to greet the New Year.

Cycle Time

The cycle time to complete an annual budget, reflected here, includes the number of calendar days — including weekends — from establishing budget objectives to delivering a ready-to-use budget. My organization, APQC, defines this process as:

“Perform planning/budgeting/forecasting: Allocating funds to meet future and current financial goals. Led by the chief financial officer, have the finance function plan, budget, and forecast in order to determine and describe long and short-term financial goals.”

Top performers can complete the entire process in 25 days or fewer, while bottom performers need 56 days or more. In other words, the bottom performers need to allocate at least twice as much time to create a budget. Median performers do it in 32 days.

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Last year, these numbers were 25 days for top performers, 35 days for median, and 60 for bottom. So, the median and bottom performers have gotten a bit faster over time. Top performers seem to have this process down to a science.

Whether you’re a top or a bottom performer, the quicker you can get through the annual budget process, the better. If you’re one of the many trying to figure out why it takes longer than you think it should, the answers lie in the complex and often conflicting roles that budgets play.

Why Does It Take So Long?

Most budgets are negotiated documents. The submitter starts with a plan of action that is reviewed by a higher level, which either approves it or sends it back to be reworked. This back-and-forth process happens multiple times. Even best-practice companies average three cycles, while others can take nine or more iterations. The time this process takes is multiplied when negotiations are repeated across multiple levels. It’s not a problem of getting the math right; it’s about negotiating an acceptable level of performance.

There’s also the problem of uncertainty. Budgets describe actions that will be taken in the future, and the future has become increasingly uncertain. Globalization now has an impact on virtually every business. Organizations must manage long supply chains, in which commodity price fluctuations are compounded by unexpected currency movements. Geopolitical instability and movement rival those not faced since the times of global conflicts.

Annual budgets are filled not only with predictions about what will happen in the world, but about the actions of key customers and key competitors, as well as those of your own organization. Budgets are built on assumptions. And at most companies, there are multitudes of assumptions, many of them undocumented, leaving individuals to guess as to what others are thinking.

To make matters worse, annual budgets are often used to measure the value of performance. Most management-accounting processes use budget benchmarks to say whether performance was good or bad. Yet, they ignore whether or not the initial assumptions were correct. Was the economy stronger or weaker than expected? Does a positive variance really mean performance was better?

Budgets are, at best, an incomplete measurement. That leads to lots of wasted variance explanations, particularly after the budget assumptions have proven wrong but the annual budget numbers haven’t changed.

Annual budgets evolved into an annual game long before gamification became cool. Supervisors quickly learned how to play the budget game. If they didn’t, they were left behind in favor of someone who could always “hit their numbers.” Budgeting rewards the best negotiators, rather than the best performers. In the process, it creates huge amounts of finance waste, of which budget cycle time is a key measure.

How Can You Improve?

With so many moving parts in play, how can you improve budget cycle time? Here are four ideas to consider.

1) Planning leaders should meet with senior executives and set organizational goals and expectations. It’s important to clearly state the underlying assumptions on which these goals and expectations are based; why senior executives believe the goals to be achievable; and what resources, such as capital expenditures or additional headcount, are included. Management should answer the question, “Why are these goals right for our organization?”

2) Consider shifting goals to more relative targets, such as growing market share faster than the industry average growth. The use of relative targets focuses on market relationships, rather than fixed numbers whose validity and achievability are based on whether underlying market assumptions remain true. This shift mitigates uncertainty.

3) Organizations have also successfully improved by compressing the cycle time allowed. Use of cloud-based systems has provided insight into how much time managers actually spend working on the budgeting process. In many cases, it’s only a few hours. Most of the cycle time is spent waiting for input or feedback from others. Compressing the timeline squeezes out these non-value-added delays.

4) Or, you could free yourself from the budget process once and for all, and join the growing number of organizations that chose to move completely beyond budgets. These organizations improve their planning by separating the management purposes that budgets try to fulfill. Instead of one process that crosses target-setting, forecasting, action planning, resource allocation, performance measurement, and rewards, advanced approaches enable organizations to better achieve each purpose and avoid the conflict-of-interest problems that slow down the annual budget process.

Marisa Brown is the senior principal research lead, supply chain management and financial management, at APQC, a non-profit benchmarking organization based in Houston.

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