The Agony or Corporate Budgeting

Anyone who has been responsible for preparing a budget knows that it is hard work and requires political savvy, a clear head and attention to detail. Somehow, line management forgets to plan capacity to complete their budgets and each year the process takes them by surprise – even though it comes around every year, like clockwork. However, the more proactive and perceptive managers make sure that their departments have defined their business strategy well ahead of the budgeting season. And so, they are properly prepared for the budgeting cycle and fully equipped with the required level of staffing and new capital expenditures required to run, improve and enhance their business processes.

More often than not, however, the scene plays out like this…The politically motivated manager uses the process to ensure that he has more than sufficient resources budgeted to enable him to spend on what he wants rather than what is required for the business. Because the budget assumptions are vague and inaccessible, it’s very difficult to challenge the budget and the historical inefficiencies on which his budget is based. As long as he can protect his bonus, he will supply a budget that is ambiguous enough to allow him to manoeuvre when things get tight.

Back in the engine room, the financial manager pulls out the previous year’s spreadsheets. It takes a good few days to understand exactly how they work and what needs to be changed to make the current year’s budget perform optimally. The changes needed are normally implemented to accommodate changes in organisational structures, or gain visibility into runaway costs or, to cater for changes in reporting requirements. The spreadsheets are quickly changed, formulas are updated and like all previous years, not much time is left for testing and none for documenting the system. Templates are eventually created for each department and sent out with the relevant instructions. Then, it all goes quiet until the week before the deadline.

Suddenly, the dreaded call comes in from the manager who inevitably finds multiple mistakes in the slapdash spreadsheets. Once again she does her homework and methodically uncovers all the errors that have crept into the system. Spreadsheets need to be recalled, reworked and re-commissioned, much to the annoyance of those who have already started capturing on the erroneous spreadsheets and now need to double up their work by recapturing in the new version.

Finally D-Day dawns and all the spreadsheets are resubmitted. It’s an enormous job to link the spreadsheets for aggregation, especially when some of the “smart alecks” have managed to make their own changes to the spreadsheets where protection was overlooked. Maintaining the links and version changes makes the situation worse. No-one is 100% sure if all the spreadsheets have been linked correctly and no-one wants to be reminded of the large Capex that got unlinked in the previous year and caused a great deal of embarrassment… The HOD was less than impressed when he was told that his Capex didn’t make the final version due to an avoidable spreadsheet error.

After countless reconciliations to cater for the late submissions and new versions, the numbers are only ready just in time for the board meeting. It doesn’t take long for one of the bigwigs to find something that doesn’t make any business sense and, of course, the numbers need to be rehashed… again. The board also wants to see numbers that support different scenarios. This becomes a huge corporate headache as departments try to create scenarios that are totally incompatible with how the spreadsheets have been aggregated. In fact, it’s impossible to build the scenarios into the underlying departmental sheets, so a completely new system of interlinked spreadsheets is created. By the end of this arduous process, the new spreadsheet network looks nothing like the original and a new reconciliation processes is born to reconcile what was requested versus what was finally submitted.

What is described here, in this typical scenario, is just the tip of the iceberg and leads to many gruelling hours of wasted work. The worst part is that everyone knows that all the work that has been put in to arrive at these golden numbers will probably be invalid by month 4 of the new financial year!