Whose budget is it, anyway?

Death, taxes and annual budgets. Possibly the only certainties in life today. And the annual budget has hung in there, despite a year feeling like a decade and a month like a year in today's world. And the annual budget should continue to remain a mainstay of modern business due to its essential role in translating strategic vision and goals into an actionable roadmap. But perhaps it needs more than a few optimisations.


But first things first. It's worth pointing out that these strategic goals are the company's goals, and so the annual budget is the company's budget. For sure, the budget is facilitated and stewarded by the finance team, but it is not our budget. This “us and them” mindset – often causing non-financial managers to develop a pathological dislike of any mention of the budget – is not useful or helpful to the overall success and growth of the organisation, especially in challenging economic times.


And the reverse is also true. If the finance function closes ranks and boardroom doors on the rest of the organisation, the budget is not going to reflect the nuances and reality of the frontline, nor will it receive the support it needs to be successfully implemented. Why would anybody buy into something they've been excluded from producing?


Next, there is certainly still merit in an annual budget process. Taking your medium to long-term strategic goals (the what) and planning how you will progress them this year (the how) is an important corporate performance management function. It also provides a useful stake in the ground to give yourself something to measure your progress against, and a common goal for your organisation to get behind.


But today you absolutely cannot sign off your strategic plans and supporting budget and put them in a drawer and forget about them for the rest of the year. (To be honest, it’s never been a good idea to do this.) You need to be prepared for your world to change in ways you could not possibly have imagined when you were drawing up your budget. Take the UK in the last few weeks and months. It’s had three prime ministers in little over seven weeks, four chancellors in less than four months, and ongoing flip-flopping over a national budget that saw the pound hit an all-time low against the dollar. And these repeated hits come at a time that was already uncertain and challenging.


Built into your planning and budgeting process should be regular review and revision sessions – at least quarterly when times are stable, and as frequently as monthly or even weekly when chaos hits. And this if this all sounds a bit dramatic and reactionary, it's worth pointing out that these frequent reviews and revisions are not only about avoiding or minimising risk. Although this is obviously important, they are also about spotting and maximising opportunities that arise. For instance, while an energy company might be shifting its focus from growing sales this year to optimising its operations and lowering customer churn this year to reduce risk, a high-street retailer could have seen the opportunity to take advantage of increased ecommerce sales during the pandemic. Neither would happen though without a frank, regular critique of the original goals and plans.


But don't stop here. Frequent reviews, revisions and reforecasts of plans and budgets need to be rounded out with effective communication to the rest of the organisation, as well as your partners, bankers and other important stakeholders. Firstly, this aligns everyone behind the new common goal, and secondly, it reassures your people on the frontline that you're aware of and responding to the changing situation on the ground, and not just doggedly steering the ship into the iceberg that everyone else can plainly see.


The sooner everyone realises that the world of setting annual budgets, holding the course and reviewing in a year doesn't exist anymore, the better. For the finance team, this means taking what has worked previously and optimising it for success today by adjusting the process to better reflect and respond to today's market conditions. This enables organisations to better adapt and respond to the current reality. Because after all, it’s the business’s plans and budgets.


As published in AccountingWeb - November 2022