Annual Budget in 10 Days! ???

Finally, a way to tackle the beast of annual budgeting! We have just started Parmenter's book on Key Performance Indicators, I did not realise he published a book that's even more valuable, Pareto's 80/20 Rule for Corporate Accountants. Gotta find this book!

Key Thoughts:

Based on Ch 3 of the book, it acknowledges that rolling quarterly planning is the way to go, but what to do when annual budgeting is around the corner. Use emotional drivers, not logical drivers!

Summary:

Emotional drivers to Senior Management - monthly budgets create meaningless month-end reports, loss months creating annual plan, huge cost involved, second guessing next year's performance, quarterly rolling forecasting and planning is best practice.

Emotional drivers to Finance Team - the most dreaded time of the year, create yardstick that are out of date before the ink dries, anxious about the reliability of the spreadsheets, non-available to in-house client during budgeting time, no value-add, frustrated with 'it's a timing difference commentary'

Strategies

- key strategic assumptions must be set before annual planning round starts

- Hold a 'budget preparation' workshop before you start - covers quarterly forecast, 3 days window, daily update to CEO

- CEO must stress poor participation is career limiting

- Budget Committee to have 3 days 'Lock-Up' - during lock-up, each BH has a set time to 1) discuss their financial and non-financial goals for the next year, 2) justify their annual plan forecast, 3) raise extra funding issues, 4) raise key issues

- never budget at account code level! WOW - insightful, - limit number of categories to <= 12, - Map account codes to these categories

- use payroll worksheet to avoid people cost errors

- Automate calculation categories where trend data is the best predictor

- Expand annual planning team

- Provide automated calculator for travel

My Comments:-

There's more useful advice here than all my years of trial and error (I started getting involve in budget in 1996!). A bit late in the year, but some of it is implementable this year eg. 3 days window and daily update to CEO

Reference: Timely Annual Planning Process: Ten Working Days or Less! by David Parmenter, Accountants Today, pg 20-23, September 2008.