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Truly effective budgets can be deceptively difficult to produce. There can be a number of factors that seem to conspire to prevent this happening with the result that, despite the best of intentions, this year’s budget turns out to contain all the problems and inconsistencies you knew about and planned to eliminate last year. What is it that is preventing you from making the necessary improvements? This questionnaire will help you identify the critical success factors for financial planning, budgeting and monitoring.
Task
Go through each question, and if you answer ‘no’ to any of them, write down the required corrective action.
Even if you answer ‘yes’ to a question, there may still be some room for improvement, and you could take this opportunity to consider ideas for developing your current skills base and processes.
1. Do You Have the Necessary Skills to Produce Good Budgets?
The ability to produce challenging but achievable budgets is a skill that can be learned. However, if you have not had the opportunity to learn it, then it would not be surprising that you find it difficult.
Action Required
2. Do You Assign Appropriate Resources to the Task of Budget Preparation?
If budgeting is always shoe-horned into ‘spare’ time taken from doing the ‘real’ job, then you are unlikely to do it well. If you really need better systems to support the production of your budget, are these in place? Are you still making do and mending with a combination of technologies from paper to computers? Do you have enough people involved in the budget development process?
Action Required
3. Has Anyone Ever Designed Your Budget Preparation System?
All systems, other than the most trivial and inconsequential, need to be designed before they are developed. You need to identify the form and nature of the outputs (budgets and other plans and reports) that you want the system to produce, the inputs (data and other resources) that will be necessary to produce those outputs, and the mechanism by which those inputs will be transformed into the outputs. You also need to design a control mechanism that will tell you whether or not you are achieving your target of producing an effective budget on time.
Action Required
4. Is the Budget Important to You and Your Team?
If you regard budget preparation as a chore and a distraction, then it may be because you do not see the budget as being important. You may have a good reason for this, of course: if your more senior colleagues and others in the organization pay lip service to preparing effective budgets, then it is perhaps not surprising that they may be lacking in quality.
Action Required
5. Are There Conflicting Objectives in Preparing the Budget?
Are you essentially trying to put square pegs in round holes? If you know that your annual bonus is likely to ride on the achievement of your budget, then you may well (and quite understandably) shy away from the ‘challenging’ part of ‘challenging but achievable’. More problematically, are the overall budget targets that have been set fundamentally unattainable? Organizations often have difficulty discussing issues that are potentially damaging or embarrassing. Are you able to discuss the achievability of your budget with your more senior colleagues and your team in an open and honest way?
Action Required
6. Do You Own Your Budget and the Budget Process?
Effective budgeting is based fundamentally on the principle that those people who are required to deliver it are responsible for its production. If significant budget elements are effectively handed to you from above, you may be forgiven for feeling less than 100% ownership. If you do not own it, then it is someone else’s responsibility to make it better.
Action Required
7. Is the Budget a Kind of Game?
Is it a process by which you and your more senior colleagues make a bid and counter-bid? Do you feel it is necessary to start off with a ‘reserve’ in hand because you know you will be expected to make cuts somewhere, and you want to be sure that you have some ‘fat’ to fall back on when times get tough? If your more senior colleagues ask for cuts, are these on a logical, reasoned basis, or are they apparently arbitrary amounts or percentages? Do you feel that you have won or lost at the end of the process? Does a big budget mean big status? Are you judged by your peers on the extent to which you are able to ‘defend your patch’ or ‘fight your corner’? Where you manage your team, do you seek to make arbitrary reductions in your team members’ budgets without any reasoned or rational basis?
Action Required
8. Is Your Budget a Series of Apparently Unconnected Set of Line Items?
If one thread starts to unravel, does it affect others? If you make a change to your physical plans, is this reflected in your financial ones? Is the budget really the expression in financial terms of a set of consistent and logically interrelated programs and plans? Or are the numbers treated like entities in their own right, as if treating the symptoms is ever likely to affect the disease?
Action Required
