Budgeting season is right around the corner, which for many organizations means plenty of headaches, frustration, delays, and grandstanding across multiple budgetary drafts. A protracted and contentious budgetary process risks disengagement from stakeholders — or even worse — a scenario in which management begins putting in whatever numbers they think executives want to see, regardless of whether these numbers are realistic or achievable.
The creation of your annual budget does not need to look this way. With a transparent, collaborative process and the right technology, leading organizations are able to complete their budgets in 28 days or less. In this month’s column, we review four practices that help these organizations complete their budget more quickly and with a better final product.
The cycle time to complete the annual budget measures the number of calendar days (including weekends) that it takes from establishing budget objectives to delivering a ready-to-use budget. Based on data from nearly 6,000 organizations, APQC finds that top performers (those at the 25th percentile) complete the annual budget in 28 days or less — nearly twice as quickly as organizations in the 75th percentile.
Tips for a Better Budgeting Process
The four practices below help me and many other finance leaders to avoid the back-and-forth of protracted negotiations and drive a smoother budgeting process.
1. Facilitate a Collaborative Budgetary Process
The budgeting process should not be a war of finance versus operations or executives versus managers. As a financial leader in the organization, it’s important to set expectations from the beginning that this will be a collaborative process driven by negotiation, communication, and problem-solving.
People are more likely to support what they help to create, so it’s important to provide opportunities for stakeholders to help design solutions when there are impasses. Take it from me: When budgeting is a collaborative endeavor rather than an interdepartmental war, stakeholders will design more realistic targets and be more willing to compromise.
2. Train Stakeholders in the Process
Well before the budgeting process begins, you should hold a kickoff that includes training for anyone with budgetary responsibilities. Every stakeholder should know the timeframe of when deliverables are due, what a good budget deliverable should look like, and what’s expected of them at different milestones in the process. If you are using a specific budgetary software or system, make sure that users are trained on how to use it.
Leading organizations also have process documentation readily available, including process steps, how-to guides, templates, and anything else stakeholders might need to carry out the process. Simply put, the fewer questions your stakeholders have about what they’re supposed to be doing, the faster they can buckle down and get the work done.
3. Start the Budgeting Process Later
Though it may seem counterintuitive, many organizations have seen substantive improvements in cycle times by simply starting the process later. Doing so enables you and your organization to observe more of the current year’s actual results rather than creating a budget that is dependent on many forward months of forecasts.
In a dynamic environment where so many macroeconomic issues are at play, fourth-quarter forecasts prepared in the second and third quarters may already be obsolete. Allowing yourself the time to observe more data by waiting longer will result in a more realistic and sounder budget for the next fiscal year.
Relative to the entire cycle time, finance professionals spend relatively little time actually working on the budget. Much of the cycle time comes from waiting — for inputs, responses, or corrections from others in a series of back-and-forth negotiations that produce a median of five versions of the budget. The time that this back-and-forth consumes only increases when these negotiations happen across multiple levels. Compressing the timeline squeezes out these nonvalue-added time delays.
4. Use Cloud-based Budgeting Tools and a Single Version of the Truth
With so many hands shaping the budget, it’s critical to standardize the data and the processes that support it. Cloud-based tools can help you avoid multiple versions of the truth and the errors that come with them. Many of these tools update the data in real-time, which helps everyone to see the immediate impact of changes to the budget and inputs made at the unit level or department level.
If these tools aren’t available for your organization, make sure that you at least have governance with strict version control in place. Without a single source of truth, your process is sure to take longer as stakeholders work to clear up any confusion about which version of the budget is the right one.
Rather than drawing out the process through a lengthy series of budget drafts and negotiations, leading organizations start their budgeting process later. Finance leaders in these organizations know how to steer the process with the right technology and how to bring all parties to the table in a collaborative way. This helps to ensure that the budgetary process is less of a battle and more of a war council engaged in creating a battle plan that the entire enterprise can rally behind.
Perry D. Wiggins, CPA, is CFO, secretary, and treasurer for APQC, a nonprofit benchmarking and best practices research organization based in Houston, Texas.