BUDGETING AND PLANNING FORMS AND PRACTICES


If you’re an experienced budgeting and planning practitioner, it’s likely you use a system that has evolved from a combination of learning by doing and classroom training. However, it seems logical that we should be able to construct a system by simply incrementing it with forward-looking details and minor caption changes.
If we hang on to the intuition to take history and project it into the future, it should be possible to create a foundation from which to make changes and iterate results until we arrive at a point where we have the following:
  • Departmental expense budget for communications cost management (CCM)
  • Fixed asset account, capital budget, and revised depreciation schedule
Now that we have determined where we want to go, the issue and focus is on how to get there. Experienced budget crunchers have come to learn that once a year, somewhere out of the blue comes a set of instructions and assumptions to prepare the budget. And thereupon begins an annual ritual akin to something between a Mexican hat dance and an Indian snake charmer festival. Typically, the only thing constant, clear, and repetitive is ‘‘don’t spend any more than we have to,’’ or ‘‘cut capital spending by 25%.’’
Well-run, successful organizations breeze through the cycle and complete the annual business plan and budgeting with aplomb akin to a well-run ballet troupe. Why and how do they do this? Simple:
  • They have a common-sense, well-adapted internal reporting and forecasting process
  • They get management direction in the form of two or three alternative growth scenarios for the next year
  • They use clear and simple assumptions regarding availability and use of headcount and capital
  • They operate on a no-fear, no-cut, schedule with dates and deadlines for actions by key players
Before undertaking budgeting and planning work, it may help to explain a little more about what’s been going on during the current year so far. Earlier there was a mention of timing of the budgeting and financial planning process. Figure 1 shows key elements and timing with respect to the annual business plan.

 
Figure 1: Financial Reporting Planning Activities and Time Line
Basically, there are four activities taking place during the course of an operational year, sometimes called fiscal year. The well-managed organization begins the year with an approved budget and business plan. Throughout the year, operating results are recorded and reported on internally and externally. Even though the plan is fixed and doesn’t change, operations and results will vary because of several reasons. Moreover, the organization that doesn’t change its way of operating during the course of the year isn’t long-lived. At the root of change is the forecast activity. Properly carried out, forecasting is a powerful tool for driving annual operating and strategic business plans.

Assumptions and Growth Scenarios

First of all, let’s assume for purposes of the exercise, that we are on the receiving end of the assumptions and scenarios. The effort will involve:
  • Responding to the request for a plan and budget
  • Preparing a budget for the communications cost management function
  • Supporting all other departments with communications expertise in the preparation of their operating and capital budgets.
Here are the assumptions provided each department:
  • General economic growth remains sluggish to a point or two on the upside
  • Industry segment growth: 3% overall
  • Inflation between 3% and 4%
  • Business growth in accordance with long-range strategic plan
  • Delay replacement equipment capital from first to second quarter
  • Delay expansion capital from second to third quarter
  • Revenue growth: 5% per quarter, 15% year-to-year
  • Net income growth: 6% per quarter, 20% year-to-year
  • Short term interest rates: remain under 5%
  • Cost of capital: 10%
  • Headcount additions limited to vacancies in existing positions; incremental revenue; operating cost reduction projects (contractor, until proved out) and capacity growth.
Growth scenarios:
  • Expand regional programming from one currently to two or three areas.
One of the more often ill-practiced parts of business planning is making a plan-for-a-plan, complete with dates and deadlines. This is senior management responsibility. But if it isn’t practiced well, and you’re the communications manager that has to live with the situation, you can make your own plan and deadlines and benefit from such action. Table 1 shows an example of how to lay out an overall schedule and plan.
TABLE 1
Step
Start Date
Deadline
Management issues guidelines and assumptions; requests draft plans
August 1
September 1
Management review cycle
September 1
October 1
Revision and negotiation
October 1
November 1
Prepare final plan
November 1
December 1
Final approval cycle
December 1
December 15
Distribute plan
December 15
December 31

Budgeting and Business Plan Schedule


In addition to the information above, each department manager has been provided with current financial summaries and first draft expense and capital budget forms or spreadsheets to use in developing the first draft submission.

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