Budgeting best practice step 3 summary

• Business unit managers complete their segments of the bottom-up budget.
• Business unit managers input figures directly into the solution.
• Solution automatically calculates budgeted revenues and apportions budgeted costs based on custom drivers.

The conventional way: A huge drain on time and patience

At this point, the typically “most dreaded phase” of the entire budgeting process begins. Finance circulates spreadsheet templates to business units and departments for completion. Individual business unit managers or cost centre owners are required to fill in the templates, yet often do so inconsistently due to a lack of understanding of the structure of the spreadsheet, and more broadly of what is expected of them. In truth, many will spend time procrastinating. Such paralysis by analysis results from staring at spreadsheet templates, guessing at what is truly required, and then inevitably trying to locate someone who can provide some guidance or direction. Completed templates likely include commentary and annotations and may reference ad hoc emails, and offline discussions, all of which are difficult, if not impossible, to track.

Business unit and department managers then remit completed templates by email. Upon receiving all those completed spreadsheets, Finance must then consolidate numerous iterations of cost centre or departmental templates into a master budget template, stitching fragile spreadsheet links together. Such iterations can proliferate into the hundreds very easily, making version control a major challenge. Manual flat file input is not driver-based from a revenue and cost perspective, and cannot drill down, a capability that is especially useful to senior management. For example, an increase in headcount midway through the year in a newly opened office has substantial implications across financial statements. Quite often, the P&L impact will be disconnected from the corresponding cash flow forecast, which leads to decisions being made in a vacuum, without complete information. This is one of countless examples where a spreadsheet-based budgeting process gives rise to disconnects, which consequently diminishes access to critical budget data during decision-making.

The best practice way of creating a bottom-up budget: Course of action

1. Set a positive tone, with a human touch. Business unit and departmental managers will be notified automatically to complete their segment of the bottom-up budget. While automation has thus far facilitated several benefits during the process, this is a hand-off point that should be handled with care. Immediately following up automatic notifications with a form of personalised communication helps smooth friction that managers are likely to feel when prompted by a machine to fill in their departmental income statements. This is another timely opportunity for Finance to establish business partnerships.

2. Validate anything that is not completely clear. The Connected Planning solution calculates the budgeted revenues and costs automatically, apportioning the top-down targets across the business. This is the time for department managers to reach back to Finance using the solution (or, in some cases, senior management) to clarify and confirm assumptions, figures, or calculations.

3. Contribute the numbers. At this stage of the budgeting process, departmental managers input their numbers directly into the Connected Planning solution, primarily using a driver-based approach to reflect expected products, services, headcount, and resource assumptions. The flexibility to input at a general ledger (GL) code or aggregated level enables easier input and creation of “what-if” scenarios later in the process, especially once a manager contributes a full set of figures. The solution empowers departmental managers to proceed confidently by providing a fool-proof, self-service environment understandable to a non- Finance person. That shifts the role of Finance from being a chaperone for cost centre managers to being more of a coach, providing guidance and encouragement that enables departments to get the task done.

4. Take a deep dive. As part of the Connected Planning solution, department managers have the capability to use methods such as prior year actuals, compound annual growth rate (CAGR), seasonality, or any custom approach they wish to include. They can try some experiments, answer questions they might be hesitant to ask, look at extreme ranges and improbabilities, or get to grips with the story behind the numbers.

5. Let the technology do the heavy lifting. This type of planning environment uses a planning by exception mechanism, as opposed to the fully manual approach using spreadsheets. Version control is automatic, as there is no Save As command. Formulas are centrally managed and access-controlled, and therefore do not need to be checked because they cannot be broken by end users. All are simultaneously working on the same real-time version of the budget. Transparency and embedded automation are key benefits of such an environment, and help maintain budgeting process momentum at this critical point. Instead of spinning their wheels trying to figure out formulas, departmental managers can remain fully on task, and produce a much richer end product.

6. Control the process. The solution workflow indicates people who have completed their part of the budget, including in-built submissions, reviews, and approvals. Finance and departmental managers share a clear understanding of timelines, tasks that have been completed, and those that remain to be done.

Download our  Budgeting best practice Guide.

Our next blog will explore how bottom-up budgets are presented back to senior leadership. Follow us on our social channels for the next stage in our budgeting best practice series.