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Improving your Budgeting and Cost Control
By Kevin Appleby
Kevin is leading a 4-day training event later this year. Budgeting and cost control for managers. In this episode Kevin and Graham talk to you about the importance of getting this aspect of your business right. They tell you why traditional budgeting really isn't fit for purpose any more.
Budgeting and Cost Control for Managers is running in London from 13-16 June 2017 and you can find more information here.
This 4-day training course is ideal for senior managers who are involved in business planning and budgeting or managers who control cost and budgeting for their departments or organizations or who are currently managing projects and/or contracts.
What's wrong with traditional budgeting?
The one thing that’s guaranteed about a budget is that it will be wrong. Many big companies such as Kevin's old employer, ICI, prepare budgets for the following calendar year in August or September. Even in January, month one of the year they are already out of date. By December they are irrelevant because things have moved on.
The modern business world is moving fast. Events come along that are real game changers. This year we've seen a BREXIT vote and a US election result that went the opposite way to what many predicted. The consequence of each will be disruptive change. The timing, consequences, and extent of the change remains uncertain.
We've also seen the arrival of new business models in a number of markets and seen these new models completely change the way business is done. Uber have disrupted the taxi marketplace. The rise of Amazon and other big online retailers has completely reshaped the high street. Technology is advancing at an ever faster rate and opening new possibilities every day. The one thing thats certain is that disruption is here to stay and we will see more and more of it.
The time frame of the traditional annual budget cycle simply doesn't lend itself to the uncertainties of the modern business landscape, and we need something else that is much more flexible.
So, what do you teach in budgeting and cost control for managers to address this?
We look at the whole approach to "Blowing up the Budget". You can't take the budget process and change it in isolation to everything else. Budgeting and forecasting must align with business strategy & business plans
The first thing we do is look at the whole planning & control framework, and understand how business strategy translates into plans and targets. We then look at how to set these targets, review them and revise them as things change. The targets can be both financial and non financial, and the financial ones will be the ones that inform the "budget" in whatever form that takes.
We look at replacing budgets with rolling forecasts. In essence this means every month or every quarter you review your forecast for the next 12 months. So if you do this quarterly, you monitor your performance against the first 3 months of the forecast. At the end of the quarter you review, revise the remaining 9 months of the forecast and add on a further 3 months. This means you always have a 12 month forward view. Rolling forecasts work well with our "next 100 days" concept, because they recognise that the only period you really have control of is the immediate quarter in front of you, and the further out you project the more your plan turns into an aspiration.
Challenging budget proposals
Being able to robustly challenge (or conversely robustly justify to others) spending proposals is a key part of every senior managers toolkit. To do this we take a good look at Zero Based Budgeting (ZBB). ZBB is the foundation stone of nearly all cost reduction techniques. Many traditional budgets are based on the budget in the previous year and adjusting by a % for inflation, wage increases and so on. If you let this continue, you get fat in your budget and you lose the link between spending and the business plan. In ZBB every item of spend is reviewed, and only goes in the budget if it can be justified. The key test is whether not spending a particular sum will detract from achieving the business plan.
Why is this for managers and not accountants?
Accountants are more than welcome, and will get a lot out of the course. What the course doesn't cover is all the technical accounting aspects of how you put a budget together. We don't touch an Excel spreadsheet in any of the 4 days! This means that all the boring stuff that bean counters love and the rest of management hate has been left out.
Good business planning, budgeting and cost control are all about the management team working together. To work together properly everyone needs the same understanding about the process and the tools and techniques.
Cost control isn't just about budgets
Sometimes markets change and you need to take action quickly, other times you need to go through restructuring exercises to save cost. These can be completely independent from the planning cycle and don't happen as part of the normal business timetable.
We take a look at a number of different techniques you can use to carry out a cost review in your business, with the aim of adding a few new tools to your personal toolkit.
Delivering strategy is much more than just the financial numbers
Budgets are fine, but they are run by accountants and involve financial reporting rules. When you review actual performance against budget or forecast its usually after the event, and often too late to take action. You need earlier warning. This is often best achieved by using a range of non-financial metrics, or Key Performance Indicators (KPI).
We look at how your key performance indicators need to align with the key result indicators coming from the financials. How KPI can be cascaded through the organisation and into team and individual objectives. This way the whole business is aligned and committed to delivering the plan.
Cost control and continuous improvement
Cost control isn't all about annual budgets and one off events. Continuous improvement plays a big part, and it would be wrong to miss it out. Kaizen and The Toyota Way have emerged form Japan. These gave rise to Total Quality in Europe and USA. More recently 6-Sigma and Lean have gained great popularity. Kevin intends to give an overview of all of these as part of the final day of budgeting and cost control for managers.
How do I find out more about budgeting and cost control for managers?
Or get in touch with Kevin and have a chat. You can contact him in the office on 0191 404 6841 or by email at email@example.com
Maybe you need help but a 4-day training course isn't the solution for you? Lets talk.
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