• Strategy
  • CFO.com | US

Rolling Budgets, with a Twist

A full-blown rolling budget isn't practical at many companies. But some finance executives have found that a scaled-back approach suits them just fine.

Figuratively (and sometimes literally), International Ministries is in the business of teaching people to fish. So the corporate culture is “pretty participatory and decentralized,” notes Borquist, who proceeded to get buy-in from front-line managers who build annual budgets and apply for corporate grants. Adds Borquist, “there was a great sigh of relief when I handed the regional directors the new tools.”

At Chicago-based Mesirow Financial, Erin Lavelle also favors a hybrid approach. Using tools from SRC Software, the vice president of planning and analysis “constantly reevaluates” budgets and forecasts — offline. By her lights, the level of data she deems necessary is too granular for into a real-time rolling budget, which would be better served by summary information.

Lavelle maintains that she doesn’t “really forecast” with the tool; she creates trend analyses to help determine whether business units at the $182 million (in revenue) company are on course. “As soon as you see you’ve stepped off the budget path,” says Lavelle, “you can adjust operations to help you get back on target.”

Furthermore, contends that even stepping off the path — as long as you know you’ve strayed — can suggest new products and opportunities. For example, a downturn in one product line may be an indication that another line is about to develop. By seeing this variance in a monthly update, managers can redeploy people, capital, and raw materials to navigate around the downturn and still meet corporate revenue goals.

Reducing Medical Waste

Like International Ministries, Mercy Health Partners doesn’t need a fully dynamic B&P system, says budget manager Richardson, but his FRx software package does help department managers see the relationship between the budget process and operations.

As you might expect, most of Mercy’s 200 department heads, spread across eight hospitals, aren’t CPAs — they’re RNs and MDs. Since the B&P process, which includes a monthly look at budget variances, pulls many of them out of their comfort zone, Richardson prescribed some practical training. For instance, he showed nursing supervisors that budget variances were directly linked to a patient’s length of stay. Therefore, if stays were shortened by better care, budget goals could be met more easily.

The rolling budget also eliminated the “finance department excuse,” quips Richardson. Although the hospital leadership sets initial budget assumptions, the bottom-up approach gave line managers complete ownership of their department budgets so that “if during the year managers start to blow the budget, they can’t blame the finance department for missing a target.” Borquist agrees; in his words, decentralizing the budget process “got the budget monkey off my back.”

Shock the Monkey

The finance department isn’t the only group saddled with the budget monkey. Budgets — whether traditional, rolling, or somewhere in between — create tension for every manager who is “exposed by the budgeting process,” asserts David Murray, CFO of B&P software provider Longview Solutions. Corporate reputations can be made — or broken — he adds, by how managers set and perform against their budgets.

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