How to Solve Your Biggest Budgeting Challenges
No business can survive without proper budgeting, yet it’s a process many organizations just can’t seem to get right. And it’s no wonder. Whether financial silos or technology limitations, certain budgeting challenges have plagued CFOs and finance departments for years, prompting many to call for change.
According to a report by The Hackett Group (registration required), 62 percent of finance organizations plan to make moderate or major changes in their forecasting, budgeting and planning processes. The study, which surveyed more than 160 executives around the world, also found that 71 percent plan to standardize or automate their finance processes.
But before you can make any of these changes stick, it’s important to understand where you’ve been. Here are a few of the biggest budgeting challenges organizations typically face, along with advice on what you can do to help ease the pain.
Budgeting Challenge 1: Budgeting Is Too Complex
Whether you work in finance or are a line-of-business employee, chances are you’ve encountered inefficiencies in your company’s budgeting process. In many instances, finance has to chase down business owners to collect budget numbers, manually verify and input data, and then spend hours consolidating single spreadsheets into a master budget, leaving them with less time to analyze and make strategic financial decisions.
For business owners, the process is just as complex. Most look at the budgeting process with dread, either because they’re unclear about the process, it takes too long to get financial insights to complete their budgets, or the tools and spreadsheet templates they work with just aren’t very efficient.
Lee Johnston, VP of Finance and Corporate Strategy for LT Apparel Group, knows the challenges of complex budgeting processes all too well. When he joined the New York City-based apparel company a few years ago, he found the only tool he had to manage the multiple budgets for wholesale, retail and online divisions was Excel.
At the time, he and his team would have to download copies of spreadsheets stored on remote servers, update them, and then merge the data, which resulted in version control and other issues. In addition, many of the existing spreadsheet templates had errors, which cost valuable time to fix and dragged out the budgeting process.
“I vowed at that point to my boss, the CFO, that if we had to do it again the same way next year, I’d quit,” Johnston said.
But Johnston stuck around, and LT Apparel Group has improved its budgeting process significantly. It went beyond spreadsheets and simplified the process with the help of a cloud-based enterprise performance management (EPM) platform. As a result, it was able to automate data collection and reporting, eliminate version control issues, and conduct what-if scenarios to see the impact decisions would have on the company’s forecast and budget.
Budgeting Challenge 2: Business Users Don’t See the Value
Typically, it’s up to finance to build the budget, with limited input from business owners. This results in less-than-perfect numbers, a failure to understand and address the financial needs of each department, and lots of back and forth until the budget is right. That’s why budget owners are such a critical part of the budgeting process. They know their area of the business best and can provide the most accurate input around their needs the first time around.
However, getting business owners to participate in the budgeting process is difficult, mainly because most business users see budgeting as just one more time-consuming thing on their to-do list. Often, they fail to see how the budgeting process can help them in their own work. And when people don’t see what’s in it for them, they rush through just to check the box, which leads to inconsistencies.
To help budget owners feel more connected to the planning process, Johnston recommends getting them involved and holding them accountable. Meet with line of business owners to understand what they’re doing to drive the business and their planning process, and empower them to enter data and run reports using a budgeting and planning system, as well as run reports themselves rather than having to hound finance for them.
“It’s slightly more work for business owners up front, but it helps them do a deeper dive, and conduct a more thorough review of their business needs,” said Johnston.
He added that showing stakeholders how the budget supports the success of their own department and meets larger company goals will help make the process more meaningful and valuable to everyone involved.
Budgeting Challenge 3: Change Is Hard
Organizations that go through budgeting challenges similar to these usually recognize a change is in order, but find it difficult to try and improve processes while in the midst of budgeting season. And once it’s over, going back to evaluate what needs improvement will likely take a back seat to the next pressing financial initiative.
But change in any area of the business doesn’t come easy. It just takes the right mindset, writes organizational psychologist Nick Tasler in a Harvard Business Review article:
“Change is hard in the same way that it’s hard to finish a marathon. Yes, it requires significant effort. But the fact that it requires effort doesn’t negate the fact that most people who commit to a change initiative will eventually succeed.”
Johnston offers specific recommendations for making lasting process changes: Start off slowly by choosing a department or process owner you think “has the stomach for changing the way they do their planning.” It also helps if that person has an interest in software and technology, he added. “Give them reasons why the new process and technology is mutually beneficial,” he said. “Test it out with a small group of people and make changes to improve the process along the way. Once you’re in good shape, then roll it out to the masses, using your experience with that small group of people as a selling point.”
Your budget is an important tool for managing your business, but to get the most value out of it, everyone has to be on board. By reducing the pain associated with budgeting, you can help budget owners understand the financial impact their decisions have, and ultimately help them make better choices that will keep your company performing at its best.