SUCCESSFUL PLANNING | Budgeting and Financial Planning

Successful planning is a mixture of paradoxes at best. First, it’s not possible to judge success until it’s history, or as Yogi Berra would say, ‘‘It ain’t over ‘til it’s over.’’ And once it’s over, we can look back and judge failure, success, or in between. Second, regardless of the circumstances, it’s not possible to go back and change what happened or didn’t happen. History might be re-written, or written differently, but if it is, then it isn’t accurate. Lastly, it’s not possible to predict the future, except in terms of probabilities, such as the typical weather forecaster might say ‘‘a 20% chance of rain,’’ or ‘‘temperatures tomorrow are going to drop into the 80s.’’ In the instant case, it’s not possible to predict or know if our planning has been successful until it’s too late to do something about it.

Successful budgeting and financial planning is one of the keys to long-term success. If your department or organization doesn’t have a plan, then make a plan to make a plan and follow through. You will feel better and improve your chances of success in doing what you want to do. If your organization has an annual business plan, then live by it and as time passes, make adjustments in your day-to-day or month-to-month work to stay on track, adjust or make up for misses, and watch for opportunities to capitalize on. At the end of the year, you can look back and say what you did well, and what needs improvement. Hopefully, along the way, one of the accomplishments was a business plan for the next year.

Once successful budgeting and financial planning has been instituted and seems to be working well for a period of 2 or more years, consideration should be given to longer range planning cycles, sometimes called strategic planning. Large, successful organizations aren’t born, they are made—not overnight—but over many nights and sometimes years. It’s also true that they didn’t get to their present state without mistakes. Sometimes those mistakes were planning mistakes; other times, they were operating mistakes.

One other important ingredient,  is a long-range strategic plan that dovetails with the annual business plan and well-oiled periodic reporting practices. This last part is no small matter; very few organizations practice it well, most are mediocre at it or simply don’t practice it at all.

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.

Budgeting and Financial Planning

Budgeting and financial planning are not stand-alone activities. Budgeting or making a budget is the act of quantifying cost or pricing for an item or list of items, and in the case of communications, the list is likely to be a combination of goods and services. The items on the list may be a one-time occurrence or recur on some periodic basis. Financial planning is the process of striking several budgets based on alternative scenarios to arrive at a point where the budget fits within an overall set of financial parameters for the organization. The result of the budgeting and planning processes provide a financial benchmark within the overall business plan. The budget part of the business plan includes revenue, expenses, and net income, or if expenses exceed revenue, a loss, which is a big no-no. During the course of the year, the budget will be used to compare actual results of operations in current and previous periods, and to forecast results in future periods.

Organizational budgeting and financial planning for an organization typically rests within the chief financial officer function. There are two activities to be concerned with. Accounting is responsible for entering transactions into the system and periodic reporting of actual results. Successful budgeting and planning requires contribution, collaboration, and cooperation from department managers and subject matter experts as well. The communications cost management process envisions working closely with both groups. Successful communications cost management depends on a high level of consensus among all three groups, and in turn all the department managers are responsible for creating the budget and managing to success and satisfaction of management and stakeholders.

The purpose is to provide understanding and insight into creating and planning communications operating expense and capital budgets to fit within an existing accounting and financial operations system. However, significant improvement in managing communications cost  is likely to require changes in the way communications expenses are first accounted for and then budgeted in the future.

Recognize up front that changing accounting practices and processes should not to be undertaken lightly because change causes variances when current period performance is compared to previous periods. It can be seen as an inconsistent practice, which is a big flag-raiser with management, auditors, and investors. Getting past the flag requires an explanation. Be prepared up front, and then as the changes take effect and are noticed, be prepared to explain them again. Initially, most of the changes required to realize significant savings involve reclassification of expenses in the telephone expense account. This can be a natural outcome of implementing machine-based invoice validation and establishment of a standard cost system for communications.

Establishing and implementing standard cost and machine-based invoice validation so that each invoice is classified, coded, and recorded prior to being paid provides a basis for analysis, which can in turn support more accurate budgeting and financial planning in the future.

The bottom line is accounting will have to be convinced that the advantages outweigh the disadvantages before changes can be made. There is a two-part message: (1) be convinced and sure of your ground, and (2) be prepared to educate, inform, and convince your colleagues and executives there’s ‘‘gold in those hills.’’