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Budgeting in the Real World

More companies are writing budgets that reflect strategy and reduce frustration.

Back in 1998, the consultants’ general prescription for fixing B&P was threefold: simplify it, share the information widely, and link it tightly to strategy. Technology helps, but the key to success is making people accountable.

Finding a cure hasn’t been easy. But the good news, as the San Diego Zoo demonstrates, is that the prescription applies to companies and organizations of all sizes. Seven years ago, only a handful of large companies dared embark on what experts termed “the ultimate reengineering project.” And although the fixes vary, one thing is clear: “Companies of all kinds are doing a better job of getting line managers, whose decisions drive spending and revenue, to participate willingly in the process,” says The Buttonwood Group LLP’s Lawrence Serven, who wrote CFO’s 1998 survey and helped design the current one.

That buy-in has had a dramatic effect. Today, according to CFO’s survey of 260 finance executives, almost half (47 percent) believe most employees are completely satisfied with the B&P process, compared with just 16 percent who thought so in 1998. And the number who say the value of the B&P process clearly outweighs the cost in time and effort has also increased, from 47 percent to 65 percent.

That’s not to say Corporate America has tamed the budgeting beast. “It’s great to see progress, though perhaps with the mountain of articles and seminars and software offerings over the years, we would expect to be even further ahead,” says Serven. For one thing, he warns, “this more favorable view of B&P is not necessarily the result of improved reliability.” Indeed, perceived reliability has fallen somewhat: on a scale of 1 to 4 (where 1 is “Not at all” and 4 is “Completely”), CFOs gave the process a 2.9 for reliability in 1998 versus just 2.5 today.

Moreover, politics still dog the process. Even today, a majority of respondents told CFO that office politics had some influence. “The politics are always going to be there,” says Serven. But as the technology has improved, he adds, it has helped companies achieve certain basic best practices, such as identifying the key drivers of the business and attaching long- and short-term targets to those drivers. “Transparency [on those issues] goes a long way toward reducing the politics.”

That same transparency has also allowed companies to successfully make the link between process and strategy. The result? “People working on a budgeting process that is clearly guided and focused by strategic initiatives spend less time arguing about irrelevant details and more time focusing on stuff that matters,” says Burke Willis, practice director of financial management at benchmarking firm APQC. A recent APQC study shows that the median number of days it takes to prepare the annual budget — a major source of frustration for all concerned — is lower for companies that align their plan with strategy numbers (63 days) than for those that do not (80 days).

Linking Strategy to Budgeting

A case in point is the San Diego Zoo. When Brock, a veteran of KPMG and ITT, arrived, the strategic plan had no input from finance whatsoever. The zoo’s goal is to become “a world leader in connecting people with wildlife and conservation.” But there was no connection between that goal and the zoo’s resources, even though the latter were improving (revenues have increased from $100 million to $170 million over the past 10 years). “There was a 10-year plan in a narrative sense, but not in terms of how we were going to make it happen financially,” she recalls. In 2002, she revamped the strategic plan to incorporate a financial plan.

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