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The Last Mile

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

Training can also help managers appreciate the budgeting process. UMB Financial Corp. in Kansas City, Missouri, reports success with one-day budget-training sessions run jointly by the CFO, CEO, and COO. The idea, according to CFO Michael Hagedorn, is to help managers see their own budgets in the broader corporate context.

The connection is important. Once its established, managers tend to feel less put upon when asked to spend long hours cobbling together forecasts for corporate. In fact, the number-one reason why managers don’t create their own budgets, according to the survey of CFO readers, is that they don’t want to spend time on it.

Cops and Robbers

It’s the bonus-to-budget connection that really skews the process. “In budgeting, the guy who wins is the one who is best at gaming the system,” contends Steve Player, program director for the Beyond Budgeting Roundtable. “Finance is supposed to be a helper of the line, but budgeting turns us into corporate cops.”

Player’s prescription is radical: do away with the annual budget. In its place, he advocates using a continual-planning model, under which a company might use rolling forecasts and a regularly updated plan. This leaves managers more flexibility in responding to opportunities as they crop up. He also recommends decoupling incentive pay from budgeted targets. Instead, he says, companies should reward managers for true value creation. For example, bonuses might depend partly on sales growth relative to peer companies.

“In most cases, we pay maximum bonuses for poor performance,” says Player. “If we planned to have a 10 percent sales increase, but the market grew 20 percent, we’ve eroded market share.”

Of course, few managers are prepared to ditch the annual budget just yet (although some major companies, including American Express, have recently done just that). But most CFOs would probably agree with Player’s broader point that budgeting as it’s practiced today does a poor job of improving business results.

It doesn’t have to be that way, argues Serven. “We tend to think of budgeting and planning as a necessary evil, like filling out tax returns,” he says. “But if we treat it as a management exercise, it can be enormously valuable, both to the company and to the individual budget holders.”

Don Durfee is research editor of CFO.

Wanted: A Better Front End

Executives eager to get midlevel managers to use budgeting-and-planning software are often exhorted to follow one simple rule: make sure the program looks like Excel. The thinking? Despite many well-documented drawbacks, spreadsheets are familiar. And when it comes to getting employees to tackle new software, vendors say familiarity breeds content(ment).

Possibly, but results from a recent CFO poll would seem to undercut that argument. According to the survey, which queried 150 finance executives, very few operational managers actually use B&P software — whether the programs look like Excel, Lotus 1-2-3, or a point-and-click abacus. What’s more, employees who work in departments other than finance aren’t nearly as adept with spreadsheets as many vendors would have you believe. Indeed, our survey listed four common (and essential) tasks in Excel and asked respondents what proportion of nonfinance managers would be able to do them without error (see “Not Excel-ing” at the end of this article).


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