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SWTCH by Pigment
Three days of predictions, insights, and advice from leaders in finance, sales, HR, supply chain and more
Register now here
By Andrew Wee, Vice President Finance APAC Arkadin
I would like to share my experience on my company’s journey towards a Better Budgeting process. I hope this will provide a starting point for fellow finance professionals to explore better ways to improve your own budget planning process.
The traditional budgeting process in most companies follows an annual budgeting cycle. This usually starts off first with management deciding on a planned Sales Budget, following which the Functional OPEX and CAPEX Budgets are determined, both of which are then put together to derive the Profit & Loss Budget. This P&L Budget is finally established as a reference for performance targets fixed for the year ahead.
Pic 1. The Traditional Budget Process
With constant changes in market conditions, what companies in a similar position need beyond Traditional Budgeting to make up for current process deficiencies are:
Pic 2. Challenges with the Traditional Budget Process (left) vs. What we need beyond Traditional Budgeting (right)
To achieve a better budgeting framework using a Continuous Budget Cycle approach, companies can consider going beyond the Traditional Budget by complementing it with more regular and frequent bi-weekly, monthly and quarterly forecasts and Rolling Forecasts projections which management uses to focus on key business revenue and cost driver discussions, and for management review on investment planning.
Pic 3. Continuous Budget Cycle Process
When the above was implemented, the outcomes of a better budgeting process achieved are:
With a better approach to budgeting, success will not come automatically. In our experience implementing the initiatives, we found 3 main success factors:
Pic 4. Some key success factors for a Better Budgeting approach
Many companies may struggle to necessarily make an immediate change from the Traditional Budgeting approach to Beyond Budgeting. Change management aside, Annual Budgets are still required for Board and Shareholder approvals, as well as for minority interest’s considerations.
Our suggested approach is to take it incrementally with improvements to a better budgeting process and outcome first before considering elements of Beyond Budgeting such as Zero-Based Budgeting and Value-based management – shareholder returns.
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