FOCUS BPM - Budget Failure

Definition

Strategy Misalignment

Traditional Budgeting

Info Islands

Planning for Initiatives
Senior Management:

Directs operational management to increase sales from new products and customers.

Sales & Marketing:
Sets strategies such as 6% sales growth from new customer acquisitions for next 6 quarters.

Finance:
Lumps revenues, costs of new sales reps, marketing costs, training courses etc into SG&A (Selling General & Admin) without relating back to the initiative.

Senior Management:
Uses broad brush cost cutting to reduce all SG&A

Result?
Poor definition, poor funding, poor accountability…..hence strategy misalignment...why? Because everyone works towards budget numbers.

What’s the point of spending so much time and effort on the budget and KPI’s

Budget Failure

Why 90% of strategic plans are never implemented properly!

(so why do we waste so many resources on traditional budgeting?)

The Balanced Scorecard is currently the most used business performance methodology. Most organisations use many Balanced Scorecard concepts either formally or informally. We use the balanced scorecard methodology in the example below to dramatise just how easy it is for strategic plans and budgets become misaligned.

The Balanced Scorecard (without the scorecard) is a wonderful methodology which seeks to align organisational plans and tactics through the four business perspectives:

    1. People (learning and growth)
    2. Process (internal and external processes)
    3. Customers (customer value propositions)
    4. Financial (financial goals and objectives

by using 4 major strategic themes or initiatives:

    1. Build the Franchise (increased revenue from new customers or new products)
    2. Increase Customer Value (increase value from existing customers)
    3. Operational Excellence (reducing operating expenses)
    4. Good Corporate Citizen

This is a simple process and in fact most organisations (informally) follow the methodology.

A Classic Example:

The example to the left is a classic example of what happens in many organisations. The Initiative could be to increase Revenues from new Customer so investments in time and resources are required to train and reinforce People to ensure that Internal Processes are geared towards a Customer value proposition which will increase revenue and meet Financial objectives. Simple.

Each initiative is an investment of time and resources by the organisation that requires a Return on Investment evaluation. However, most organisations simply do not have the budgeting mechanism to “account” for these intitiatives and make the numbers transparent. The initiatives probably start off with linked and transparent inflows and outflows but end up in the budget as aggregated numbers which are virtually impossible to break back. It is very difficult to see which investments add value and which destroy value if everything is lumped together. Broad-brush cost-cutting begins and promotes ongoing dysfunctional behaviour.

…so the glue that links the strategic plan and financial resources, the traditional budget…just ruined the best laid plans….again. Fortune magazine believes that 90% of strategic plans are never implemented properly and this simple example demonstrates why. The strategy may be fine but the execution is poor because everyone works towards the budget.

... So what is the cost of one failed initiative?