How many times did your 2012 budget change? Any lessons learned?
Henry Schumann (Manager FP&A, Allscripts)
| Feb 6, 2012Fess up everyone, how many times did your 2012 budget change during the budgeting cycle? Share a lesson learned on how you plan to reduce the number of versions when you enter 2013 budget season.
Answers
Company: Packaging Dynamics
We went through two budget reviews. We prepared an initial budget in late Ocober and revised it in late November. After that, we did revise our cash flows based on actual working capital (vs our projections).
Company: Community Services of Arizona
Budgets are just estimations, and while it is nice to be as exact as possible, if you continue to revise the budget based on what is actually occuring, the purpose for the budget is lost. While there are going to be variances, as an organization, it is important to discuss what are the priorities in terms of company mission, and how those are translated into action through the budget. If you do not have any contingencies budgeted it would be good to include that, as then if you have something you must respond to during the year, you have it included in your annual budget estimation.
If you must amend your budget, set up a schedule where you are only doing so at specific intervals, twice a year. Again, if you keep changing the budget, it will no longer serve as a planning tool. You need to have the actual expenditures and revenue occur, then take that into consideration for the following year.
Company: Forrest Consulting
Pat, fully agree. In my experience as a senior executive, I don't want to see the budget changing within the budget period. What I want to see is budget to actual and projections for line items. Preserving the starting budget numbers gives me useful information through the budget period and helps me in changing activities and planned expenditures to address the current and projected variances from budget. A budget is a plan; things will and do change. As you note, contingencies also can help negative budget variances.
Company: Independent Consultant
Pat's comments are right on. Budget revisions are too often used to mask variances from plan so that they don't have to be explained, which degrades the quality of the information flow in the organization. I see excessive budget revisions as symptomatic of weaknesses in the organizational culture, reflecting a CYA mentality, inflexibility or both.
Company: www.john-harrington.net
The question "how many times did your 2012 budget change during the budgeting cycle?" implies a semantic question. A financial projection that changes frequently due to new input or discussion is, from my perspective, a "forecast." A forecast that has been walked down the aisle and blessed by the board of directors is a "budget."
Company: Wilderness Trail Bikes, Inc.
Well considering we started the budget process late (early December) and just now finalized our 2012 budget it has been revised nine times. Our company manufactures overseas and does business on both the OEM and aftermarket side in five continents with three different model years within a calendar year. To make 2013 better we are instituting a strict calendar for data collection and reporting so that we can build templates to consolidate our global operations into one budgeting process. This should limit the revisions to four maximum. We will also be starting the budgeting process in mid October to allow time for these revisions. In essence, you have to have a plan for your planning!
Company: Floor and Decor Outlets of America, Inc.
In ll my years, I have never seen the amount of Budget Manipulation as I do today. It took my company more than 3 MONTHS to put together a budget, and two months later, continue to shift budget numbers between days, weeks, and months as actuals come in so the budgets better align with actual, and then use a "budget adjustment cost center" to putthe difference so the total budget doesn't change from what was presented and approved by the Board. Who are we trying to fool with all this extra work??? It would seem budgets are based upon the best information we have at the time, and the amount of time wasted tweaking it tom ore closely follow actual without changing it in total is a waste of time other than being able to pat ourselves on the back to say, "Look at how close we are to budget" rather than honestly explain varainces.
There has got to be a better way to spend our time such as strategically managing the business. Does anyone else experience this type of behavior?
Andy
Company: BAI
Each year we go through the planning cycle, once we set our plan (budget) it does not change. Then, throughout the year we will do forecasts to project our results to compare against the plan. The plan (budget) should not change once it is set. It is a tool that you use in order to measure actual progress against planned results.
Company: TEDCO, Inc
The 2012 budget started with lofty sales projections to cover costs "as usual". As a contract manufacturer, budgets had to change early to face certain realities. As such, sales and direct costs became "more real" and the final budget could assist in making some hard choices before 2012 started. Conservative expectations can also help channel resources for growth. Maintaining "The Budget" as Tom and others stated becomes a tool to both measure progress and adjust actual expenditures to be sure bottom line or growth goals can be met during the Managenet Review process.
Company: RYT Consulting
If your management supports this methodology, it works very well:
(1) Annual Budgets are used for setting business metrics/bonuses.
(2) Use 4 qtr rolling forecasts. When setting Annual Budgets, add a qtr
to your rolling forecast, and that is your Annual Budget.
(3) Once a Budget is approved, it does not change.
(4) Run the business on the 4 qtr rolling forecast.
Hope that helps.
Company: RMM Accounting
While changing a budget to mask variances is not a sound practice, there are times when it is necessary. If a major customer files bankruptcy early in the year, not taking into account the changes in revenues and costs is akin to burying your head in the sand. Depending on the industry and product you may not be able to replace that revenue easily. Adjusting the budget on a quarterly or semi-annual basis allows the company to recognize the change in the business and move forward accordingly. It also eliminates the opportunity for department heads to mask other shortcomings in subsequent periods by blaming the shortfalls on that early event.
Company: FP Consulting
Budgets are always changing right up to the time they are finalized and then regular re-estimates are made during the year; although, not nearly at the same level of detail. A budget is only a benchmark as much as others would it to be more. I find those types are unrealistic and would twist the organization into a knot to achieve their year-end bonuses. Lock in the bottom line for sure, but not how you get there.
Company: CMD Capital Formation LLC
A budget represents all the assumptions of what you believe will occur in the market, in theory put forth by experts, i.e. your Management Team. Multiple changes all within the same time period are the subjective element that drive us all crazy and wastes time and money.
My recommendation set specific deadlines of when changes need to be made and try to place as much revision work on the Manager making the changes. People are less likely to make changes, if they need to do work associated with a change.
Additionally, quantify the cost of every change (money wasted) and place it in front of the top individual. My experience is with companies that start the budget process in September and revise up until December 31st, and then they call it a re-forecast.
Age old problem.
Company: Maersk Drilling USA Inc
I suggest simply to skip the budget and rely solely on rolling forecasts. Since the budget serves many purposes you will need to create two new processes. A target setting process and a resource allocation process.
The benefit of doing it like this is that you will get an unbiased forecast, a target that can be negotiated the way the budget would usually do and a resource allocation mechanism that ensures that resources are available all year round.
We recently went through this transformation process in my company and I had the chance of designing the new system myself. If you want more information about it please feel free to contact me.
Company: SBA * Consulting, LTD
Interesting group of answers. If I were to boil this down for a college class, I'd say
1. There is a blur on what is and is not a budget (i.e., budget vs forecast)
2. Budgets should be static (at least 4 quarters) while forecasts are dynamic (although there are exceptions to the rule)
3. Budgets seem to be a tool politic.
4. Budgets should be used for bench-marking only, but they usually aren't.
5. Looking at budget vs actual allows the CFO to observe variances and re-think priorities.
When asked by the students the best way for budget, the answer, again from the group is there is no sure one-fire method, find the best method for the company and the environment.