Some years ago I was advising a client organisation with regard to its budgeting and planning. A big part of the business was growing lettuces in greenhouses and supplying to a major supermarket chain. One of the first questions I asked with regard to their financial planning was: “What is the biggest operational problem your business faces on a daily basis?” The answer, to my surprise, was “pigeons”.
They went on to explain about the operational and financial consequences resulting from pigeons flying into and directly smashing their glass greenhouses into small fragments that ruin the lettuce crops. Who would have guessed that?
As we can see, budgeting is about asking the right questions and has very wide and sometimes unexpected financial and non-financial implications. Budgeting also delivers many benefits to organisations in a number of ways. The two key elements of budgeting are planning and control, and it is important for budgets to be set that link both elements. The tools and techniques of budget setting include the essential skills and expertise needed to ensure financial survival and to prepare for future growth.
Budgeting systems in the wider context include not only:
- Planning and Control, through
- Exception reporting of financial and non-financial indicators, which economise on managerial time
- Optimising efficient and effective use of scarce resources
- Co-ordination, which assists in achieving goal congruence
- Communication, through the feedback process, which should reduce or prevent sub-optimal performance
- Motivation and alignment of individual and corporate goals, through participation of as many people as possible in the budget-setting process
- Evaluation of performance, to facilitate control
Some organisations take the view that traditional budgeting systems are old-fashioned, unsuitable, and irrelevant in todays rapidly changing markets because revenues and costs for even one year ahead are impossible to estimate accurately.
This somewhat narrow view of budgeting may not lead to the sustained, long-term development and growth of such organisations.
The lack of appropriate budget setting skills exposes organisations to risk through a failure to:
- Understand financial and economic indicators and re ad the warning signs
- Advise on appropriate actions and make correct decisions
- Prepare effective financial plans and budgets
- Eliminate waste and control overheads and other costs
Insufficient training in budgeting and planning may therefore have an adverse impact on an organisation if such skills are not developed.
It is important for both financial and non-financial professionals at every level to refresh and update their knowledge and skills in the key areas of budgeting and planning. This know-how is readily available from world -class training provider GLOMACS in its user-friendly training seminar Setting And Controlling Budgets: Essential Budget Preparation Tools For Planning And Control, in which participants are encouraged to express and discuss their opinions and experiences and flag up the areas in which they require further guidance.
- Advanced Financial Statements Analysis: Evaluation and Interpretation of Financial Position and Performance
- Budgeting, Forecasting and the Planning Process: Integrated Approach To Financial Planning
- Financial Risk, Root Cause Analysis & Problem Solving
- Financial Strategy: Essential Strategic Finance Skills