Platform Specialists' Fantastic 5 Budgeting System Practices


Clients frequently ask us what constitutes a “leading practice” financial budgeting and planning system. While there is rarely a one size fits all answer, there are key areas of consideration that separate organizations with more mature systems from those just starting out. We’ve listed our top 5 below. Even if you haven’t fully invested into one or all of these areas, it’s worth taking stock of how you can start down the path to implement each to create a more effective budgeting system.

1. Data Consistency – In the context of systems, we can define data consistency as a company-wide alignment on the meaning, categorization, and usage of planning data. In concept, this is an obvious necessity for a budgeting system. Unfortunately, the reality is that data consistency is an all too common issue that leads to confusion and questions for some clients. Data inconsistency can lead to people wasting their time asking questions such as:

  • Do all business units categorize T&E costs the same?

  • What constitutes a third party sale?

  • Are all planners using the same assumptions for cost of living salary increases?

An organization with a mature planning system will put in the time and effort needed to get everyone on the same page upfront regarding how their data is used. Everyone has heard of the old saying “garbage in, garbage out”, but you also want to avoid “confusion in, confusion out”. A good set of company-wide financial norms, common use of accounts, and a solid definition of metrics can go a long way.

2. Driver and Assumption Based - Over the years, "Driver-based” Budgeting has become an industry buzz word. However, at the core, it is essentially the process of building up a financial budget based on predefined input metrics (“drivers”) that are important to how your business is run. For instance, a customer support-focused company may base their projections for support staff costs on a combination of the number of customers in a specific market and time needed to serve each customer.

One of the chief benefits of utilizing a driver-based approach to planning is that the resulting financial forecasts have a clear and direct audit trail. In the example above, if the total cost of customer support staff salaries went up (typically seen as jump in SG&A personnel costs), you would be able to trace the increase back to either an assumption of an increase in customers or an increase in time needed to serve customers. Although driver-based budgeting isn’t always practical for planning every section of your financials, it should be a primary building block for estimating core business operations related accounts.

3. Actionability - Actionability is really the sister concept to Driver-Based Planning. Put simply, actionability is having a systematic process to influence your financial projections. Let’s continue using the same example as above - the customer support staff example. If management wants to bring down the costs associated with customer support salaries on the P&L, they can pull a few levers - 1) try and speed up the time staff can resolve customer support calls or 2) reduce customer growth plans. Option 1 is likely the preferred option because it doesn’t necessarily impede top line growth. So the actionability in this example may be to launch an initiative to better train support staff to answer customers’ questions quicker. In a financial planning systems sense, the initiative can be rooted in actionable business intelligence - e.g. a 20% reduction in time to serve customers will lead to a $1M a year savings in personnel costs.

4. Timeliness of Data - In concept, data timeliness is a simple topic, but it can be highly complex in practice. Good financial planning systems push to have data updated according to the speed of how their business operates. A holiday-centric business, for example, (A Halloween Costume Store) may need daily forecast updates during the holiday season. On the other hand, a traditionally non-seasonal business may only need quarterly reforecasting that factors in updated Actual data. There is no one size fits all for timely data, but the key is to make sure that your decision making isn’t hindered by out of date financial data.

Having timely, accurate data is essential to adequately interpret the business’s performance and instituting changes, where needed.

5. Target Setting – Building on the above, to bring a planning system full circle, it is critical to factor in some level of target setting functionality – “what are we looking to achieve?”. Target setting can be as high level or granular as needed, but is necessary in order to measure results. In effect, target setting is really the starting and ending point of the planning loop. A common target setting example would be a goal for increased profitability (e.g. 2% growth in profitability next year). The target helps to provide a context for actionability. After a target is set, an action can be taken to influence drivers, and the results can be calculated and measured against the target. If the target isn’t feasible, the drivers and assumptions audit will be an easy way to prove out the problem areas.

The top 5 above focus primarily on the functional financial tenets and qualities of a more advanced planning system. There are a host of necessities of a good planning system as well; including system stability, solid data audits, and a knowledgeable user community… but we’ll save those for a future blog post.

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