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The Last Mile

Why is it still so hard to engage line managers in budgeting?

Every finance chief has run into this problem, says David S. Smith, CFO of Standard Microsystems. “No one likes to talk about [the lack of input from line managers],” he says. “With all the advanced technology we have, you would think something that sounds so simple would, in fact, be easy.”

What’s Going On

It isn’t, a fact that can be seen in a new poll of finance managers conducted by CFO and The Buttonwood Group, a performance-management consulting firm. According to the survey of 150 finance executives (see “Minimal Engagement” at the end of this article), fully 57 percent say line managers at their businesses do not personally key in their budget data. Further, very few have managers who provide variance explanations without help from finance.

Admittedly, these statistics may not capture the full extent of line-manager participation in budgeting. They do speak volumes, however, about the quality of budgets currently being produced by U.S. businesses. The truth is, engaging line managers in planning isn’t merely an exercise in corporate kumbaya. Unlike senior executives, employees who work in the field possess firsthand knowledge of what’s really going on at a business. They know what customers want, how long a piece of machinery will last, and where the opportunities for cost savings lie. Says Jean Nitchals, a senior financial analyst at Best Buy: “There is a gap between what the store managers know about their operations and what corporate knows.”

Eager to bridge that gap, Best Buy’s senior officers have already pushed planning out to the company’s district managers. Nitchals says store managers will eventually be included in the budgeting process as well.

Constar International, a Philadelphia-based PET-container maker, goes even further. There, finance and IT managers are working to fully integrate operational and financial planning. In fact, the manufacturer has interfaced operational and financial planning with a Cognos software system, something that doesn’t happen often today. “We have a cascading set of relationships, and one change reverberates through the whole system,” says Roberta Kaplan, director of business intelligence at the company. “We want the information to roll through the models quickly so we can see the impact on utilization in our plants.”

The budgeting process begins with the company’s salespeople, who forecast demand based on what they hear from customers. The projection then goes to the operational planners, who work up a production scheme to meet the forecast. That planning involves employees right down to the factory-line schedulers, who give feedback on manufacturing capacity and job scheduling. Eventually, the production and sales plans go to each plant’s accountants, who work out the costs involved. “They tell us things we don’t know about how the customers take their bottles: labeled or unlabeled, whether they pick up or we deliver, and what type of pallets they prefer,” says Kaplan. “The idea is to take information from the person who really knows it best.”


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