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Budgeting in the Real World

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

That time is now spent more productively since the company replaced spreadsheets with a new B&P system. Says Bozigian, “What has changed is the time we can spend on analysis. Qualitative analysis has definitely increased.”

The Tie that Binds

The next goal: to increase companies’ comfort with their B&P improvements, says Serven. Only then will they be able to tie compensation to the process, the ultimate test of accountability. “That was the final mile seven years ago, and it still is,” he says. Companies want assurance that they have identified the right drivers, the targets they have set are attainable, and the projects they have developed to hit those targets will do so. Little wonder, he says, that tying B&P to compensation will take “a couple more years.”

That’s not to say no one has attempted it. John McMahan, who leads The Hackett Group’s Finance Executive Advisory Program, points out that some 13 percent of companies have tied budgeting accuracy to compensation, and another 25 percent are either in the process of doing so or are planning to do so. This huge increase from years past doesn’t surprise him. “Everyone is trying to integrate and align their goals,” he says. “Tying B&P to compensation is just the next logical step in the process.”

Still, making that link to pay or instituting any other process improvement requires firms to remain flexible. “Budgeting and planning can never be stagnant,” says McMahan. “Because of the rate of competitive and global change, the process can no longer be tied to the calendar. It has to be continuous, iterative, and externally focused.”

After all, he says, budgeting and planning “by definition is inaccurate.”

Tim Reason is a senior writer at CFO. Research was provided by CFO research editor Don Durfee.

The Final Frontier
Coroporate performance management appears to be moving from buzzword to action item. Four out of five companies have identified nonfinancial measures that drive success, but fewer establish targets or regularly report on them. The acid test of basic CPM, says The Buttonwood Group’s Lawrence Serven, is to accomplish all of those things.
Have identified nonfinancial measures that drive company’s success 81%
Have established short-term targets for those measures 67%
Have established long-term targets for those measures 42%
Have identified specific projects to achieve those targets 62%
Report on the progress of those projects at least as frequently as financial results 51%
Percent of companies that say they do all of the above 17%
Source: CFO survey


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