Planning and Budgeting
Until now, budgeting and planning has been seen too much as a necessary evil within the business world. After all, the employees in a company were brought in the budgeting process and were asked to set up certain budgets. Furthermore, managers’ bonus systems were based on the relation between the realised figures and the budgets. As a result of this settlement during monthly management meetings, the middle management often is the victim of a thoughtless budgeting process. Through this method, they are accounted for facts their department has little or no impact on. Department costs are roughly assigned to other departments, unrealistic sales budgets are pushed top-down through the organisation, all this without any commitment of employees. Such facts, which are actually caused by a poor communication and the lack of a budgeting process framework, lead to frustrations in all parts of the organisation.
With these facts in mind, the importance of a well-established budgeting process increases significantly. After all, one realises that a correctly determined budget and a reporting comparing the figures to this budget, lead to better results. The budget can no longer be considered as an obliged act. It needs to be a management instrument supporting more accurate operation of other disciplines (management reporting, variance analysis, financial planning, investment analysis, cost calculation,...).
In order to facilitate a correct budgeting process, a clear corporate strategy needs to be defined. The mission, goals and strategies need to be clearly communicated throughout the company. The fulfillment of these strategies needs to be monitored in a continuous way. There is, without a doubt, a link between the strategy-focused organisation and a well-established budgeting process. Furthermore, new trends in budgeting, like “rolling forecast†will try to lengthen the budgeting cycle up to 18 months rolling, in order to keep the managers focused on the long term strategy. That way, top management will avoid that those managers will strive to those budgets, which they agreed on, earlier this year and avoid cautious budgeting behaviour.
Furthermore, a clear organisation structure needs to be reflected in an analytical ledger. This analytical ledger shows an overview of the departments, cost centers and their responsibilties. These responsible managers need to control their processes and need to know which costs are applicable to their cost centers. The interpretation that invoices are centralised with the bookkeeping needs to be changed. At most, all invoices are centralised there and the procedure needs to be followed that the management is responsible for the validation of quality, supplier, price of the delivered goods, service performances. This way, cost-conscious acting in an organisation is stimulated, which will undoubtedly result in a decrease of unnecessary costs.
