5 budgeting mistakes you should avoid

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T H E G L O B A L L E A D E R I N C L O U D B I & C P M

5 Budgeting Mistakes You Should Avoid


5 Budgeting Mistakes You Should Avoid

How You Can Get Started

Product Demonstration of This Approach

Q&A

Agenda

Learning goals:• Describe five key budgeting mistakes to avoid…and how to do so.

• Multiple down and up process• Adding more detail• Trying to control costs• Tying incentives to budgets• Relying on Excel spreadsheets

• Review the software support that is overcomes these pitfalls


Steve Player

Five Budgeting Mistakes You Should Avoid


1. Using multiple budgets iterations

Why so long?

Multiple iterationsField Corporate

SUBMITS

RE-SUBMITS

RE-REJECTS

REJECTS


5 Budget Mistakes You Should Avoid

1. Taking a top down / bottom up approach Results in multiple iterations and no ownership

1. Up and Down/ No Ownership


Mistake #2: Adding more detail

“Can’t see the forest through the trees”


The 80/20 Rule

Focus on key drivers = Quick data gathering, less calculation more time for analysis

? 80% analysis

20% data gathering

80% data gathering

20% analysis

Which one would you choose?

100+ drivers 5-20 drivers



2. Adding more detailsResults in more places to be wrong


2.More detail = More Places to be Wrong


How does your team control costs?

Cost control by a Whack-a-mole CFO


What is your spending pattern?

1) Consistent throughout the year

2) Steady increase throughout the year

3) Consistent until a hockey stick up at year end

4) Consistent until a hockey stick down at year end

5) Volatile with several ups & downs


Budget

OK

Not OK

OK?

OK?

OK?

OK?

OK?

Dynamic resource allocation: A different mindset - cost conscious from the first penny

Is this really necessary?

Do I have a budget for this? •Does it support Ambition to

action?

•Is it within our decision criteria, decision authority and capacity?

•Can I justify this?



3. Using budgets to control costsResults in cost freezing and sandbagging



3. Budget cost control freezes flexibility


The negotiation game

The budgeting exercise is a game of liars’

poker…

…destroying your ethical foundation.



4. Tying bonuses to reaching budget targetsCreates control conflicts and results in

lowballing




4. Tying bonus to budget creates conflict


Mistake #5: Relying on Excel Spreadsheets

There is “ample evidence that errors in spreadsheets are pandemic. Spreadsheets, even after careful development, contain errors in one percent or more of all formula cells.”

Professor Raymond R. PankoUniversity of Hawaii

15


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Planning

Planning Across the CorporationMany critical planning processes, too many spreadsheets


Spreadsheets are inefficient for collaborative efforts



5. Using Excel spreadsheets as a planning tool Creates control risks and impedes

collaboration


lowballing




5. Spreadsheet planning creates risk


Move from annual budgeting to rolling forecasts – now!



5. Using Excel spreadsheets as a planning tool Creates control risks and impedes

collaborationAdopt a dedicated planning tool.

Recap


lowballingPay bonuses based on actual results relative to

competition.3. Using budgets to control costs

Results in cost freezing and sandbaggingShift to relative measures for

costs control.2. Adding more detailsResults in more places to be wrong

Focus on key drivers through out.1. Taking a top down / bottom up approach

Results in multiple iterations and no ownershipReplace with continuous planning.


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DEMONSTRATIONJohn Sindel

Senior Solution Specialist


Q&A

26© 2014 Adaptive Insights | Confidential & Proprietary 26

John StillMarketing [email protected]

John SindelSolution [email protected]

Talk to us anytime!

Take the Next Step! Visit Adaptive Insights Web Site:

– Complete Demo: http://www.adaptiveinsights.com/demo_recorded.php

– Free Trial: http://www.adaptiveinsights.com/enterprise_trial/

Don’t forget to…

– Download your copy of the Harvard Business Review article, “Why Budgeting Fails”

– Complete the short survey at the end of this webinar for CPE credits

– Join the Beyond Budgeting Round Table – North America at www.bbrtna.org

– Attend the next Beyond Budgeting Training led by Steve Player. For more details call Robin Baumgartner at 214-239-0155 or email at [email protected]

mailto:[email protected]

http://www.adaptiveinsights.com/demo_recorded.php

http://www.adaptiveinsights.com/enterprise_trial/

http://www.bbrtna.org/

mailto:[email protected]


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5 budgeting mistakes you should avoid

Leadership & Management

budget mistakes

key budgeting mistakes

team control costs

spreadsheet planning

key drivers

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