How outdated budgeting and forecasting methods are affecting the corporate bottom line
“I’ve lost count of the number of companies I’ve seen where a central office, usually the accounts department, dictates to another group of employees what their budget should be – and then acts all surprised when reality at the end of the year doesn’t match their expectations,” says Kevin Phillips, MD of idu Software.
Sales people are burdened with targets, with no consideration of their unique circumstances or input, despite the fact that the people in the field in each region have the best “feel” for what may happen in their territory over the next year – which of their big customers are losing market share, which competitors may enter the area, whether the year is going to be tough or prosperous. Providing your team with a budget with a 10% increase slapped onto last year’s sales target is not only unfair, but also unrealistic.
During hard economic times, companies often turn to top-down budgeting and dictatorial strategies. They send out the spreadsheets asking each region or department to submit its budget, then spend weeks wrestling all the returning information into shape, before sending it back again for changes…and they are likely to repeat the process several times before giving up and imposing a rather brute-force solution in the hopes of reaching the desired financial outcome.
Disregarding the opinion of middle managers can be dangerous. If management feels they have no real ownership of the budget, they are less inclined to commit to meeting it. Likewise, unreachable targets can be extremely demoralising to sales staff – and low morale equals low productivity. At the end of the day, the lack of credible information begets a vicious cycle.
There is an easy technical fix to this problem companies are facing. When you have only one database, which everyone can see and contribute to, the problem of collating multiple spreadsheets disappears. The problem of trying to reconcile incompatible demands disappears. The problem of individual users “improving” your spreadsheets disappears. With a central database that’s accessible over the web, you can carefully control individual read and write privileges, everyone can always see the big picture and that picture is always up to date.
And if such a system is easy to navigate, understand and use, managers are empowered to make valuable assessments and contributions to the company’s financial plans. It’s easy to underestimate how scary dealing with financial information can be for those who are not financial experts. Remove the intimidation factor; create real empowerment and you also get real accountability.
The central planning model does not work. Let’s not adopt it.
idu simplifies financial management for non-financial managers. Its flagship product, idu-Concept, provides easy, effective budgeting and financial reporting for medium-sized to large businesses, including many of South Africa’s top firms. idu-Concept integrates easily with ERP software, but unlike more cumbersome offerings, idu-Concept can be implemented quickly, requires little or no ongoing consulting fees and reduces budgeting cycles from months to weeks. For more information visit www.idu.co.za.
About Kevin Phillips
Kevin is an entrepreneur who has built a successful business, and so has a solid understanding of the challenges and questions business owners face. He has degrees in Commerce and Accounting, and started idu Software with partners James Smith and Wayne Claasen in 1998. Kevin is fast becoming a thought leader in his field and makes regular comment in the media about current affairs affecting business as well as accounting, finance, budgeting and software. He is a columnist for Accountancy South Africa, Entrepreneur and Tech Leader and has been featured in Sunday Times, Business Day, Enterprise Risk, Succeed and Cape Argus; as well as being a guest speaker on Radio 702, Kaya FM and Summit TV.
idu Software (Pty)Ltd