How to turn budgeting into a driver of company growth

Evgeny Scherbinin, CEO of Prime Source

Remember the saying “war will reveal the plan”. How many times have we said that to ourselves when starting some undertaking or project?

Proper planning is half the battle, and according to KPMG up to 30% of the working time of finance specialists in successful companies is devoted to planning, budgeting and analysis procedures. At the same time, errors in financial planning are behind 70-80% of all bankruptcies.

On the other hand, companies that use effective budgeting tools are 70% ahead of their competitors on profit indicators. Those figures come from the IBM CFO Survey.

To build a modern budgeting system, you need analytics into which financial and operational data are integrated. Obtaining this data for analytics, however, is not always easy, and sometimes it does not exist at all. That means the data first has to be collected somehow — and that is already process digitization. Needless to say, the regulations for planning and delivering investment initiatives, including automation and digitalization projects, are radically outdated at many large Kazakhstani organizations.

On the one hand, it is necessary to constantly improve efficiency, reduce costs and launch new products into new channels; on the other, to overcome procedural obstacles. The average process of implementing a new technology in Kazakhstan, for example, takes two to three years. It involves developing and approving a feasibility study together with the collection of all the required opinions, budgeting for the following year, running tender procedures, and only then the implementation itself.

It is autumn outside, which means that the corporate sector is in the middle of business planning and drawing up next year’s budgets. This is when the foundation for the company’s successful results is laid. At this stage you need to work out what you will be doing over the year, study internal and external markets, defend planned operating expenses and investment initiatives, look at competitors and much more.

Hackett Benchmarking Solutions, which studied the situation at 1,400 global firms, found that the average company invests more than 25,000 man-days per $1 billion of revenue in the budgeting and planning process. The average time required to develop a plan is 4.5 months.

Heineken is one of the successful cases of international companies that have changed their approach to budgeting and planning. It significantly accelerated the development and approval of strategic plans by creating a single process that helped remove planning bottlenecks. Employees from a thousand of the company’s departments took part in developing the new process.

Another example is Panariagroup, the Italian manufacturer of ceramic wall and floor coverings, which built an integrated budget for itself using dedicated software. The efficiency of that software made it possible to shorten the budget cycle from four months to two.

For an organization to be effective in our time of rapid change, both the approaches to organizing IT and the budgeting processes need to be reconsidered.

From the IT standpoint, it is important to develop a service-oriented architecture within the organization: this means that the company’s single integration platform hosts services that every team in the company can use. The core technologies must allow teams to deliver products, business processes, reporting and analytics on their own. It must be possible for large numbers of developers to work collectively in the core systems, and a well-established change implementation process must be in place.

It is important that projects are handled by teams with dedicated resources working to a flexible methodology. IT units should act as resource managers responsible for implementing the core infrastructure of flexible technologies, for operations and for organizing the development process. The capacity of the external and internal resources allocated to development must match the planned ambitions for the speed and scale of change.

From the budgeting standpoint, once a business unit has defended its profit and loss (P&L), it should be able to bring in domestic or foreign outsourcing resources promptly and as needed — experts, designers, analysts, developers and big data specialists.

Kursiv, No. 38 (813), October 10, 2019