As if there is ever any doubt about how the budget process will pan out! A little preparation ensures business as usual.
By the numbers
I will admit to being bewildered when one of the young creative types in our office asked about “the outcome” of the budget, as she dashed past my desk.
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Was she implying that I was incapable of producing exactly the number that I wanted? Or was it an ironic in-joke, recognising that of course I would produce exactly the number that I wanted?
Confused, I resorted to the ever-faithful knowing nod, but this time combined with a gentle rolling of the eyes (sequential, of course – not simultaneous).
Later it occurred to me that perhaps the question reflected a lack of familiarity with financial matters, and that perhaps there were others equally unaware of the budgetary process that might benefit from some brief notes. For those of you, I thought it might help to discuss the process in its entirety, not just the cobbling together of meaningless numbers, which is only the first stage.
Step 1: Determine your employer’s strategic goal du jour. In financial services we learn about our CEO’s objectives by reading The Australian Financial Review, but this may vary in other industries.
For example, if your employer has announced a target of 10% growth in profit you must have a budget that is consistent with that (ensuring that your little lies are consistent with the CEO’s big lie is known to management theorists as “goal congruence” or “strategic alignment”).
Step 2: Identify bold initiatives that will help you to achieve that goal. It is essential that they require significant capital expenditure or significant additional employment, preferably both. It does not matter whether they are feasible, and some will argue that it is better if they are not. Expansion into a new product line or geographic region will do nicely.
Step 3: Prepare a budget based on the following assumptions:
- Lower revenue for the first six months (justify this by the distraction of the new initiative).
- Capital expenditure and employment will commence in the second half of the financial year.
- Plenty of the usual rorts: training, conference, team-building – you know the stuff.
- Reverse engineer second-half revenue to generate whatever number is necessary is to achieve a 10% growth in profit. Don’t worry that it will be impossible to achieve that target.
Step 4: Presentation is critical. The first page must have a clear reference to your assumptions. Small print is good – say, nine point – but italicised, so that you can later claim to have highlighted the assumptions.
Place the assumptions as far back as you can, no earlier than page 40, preferably after something so mind-numbingly boring that readers will give up long before they get to the assumptions (the bank’s latest economic forecasts should fit the bill). Ensure that they are plausible, and highlight the importance of the capital expenditure and additional employment.
Step 5: Schedule a meeting with your superior when Finance tell you that you must cut your costs by 10%.
Tell him that it undermines the integrity of the budget process and that it unfairly penalises those who treat the budget process honestly (see how such a statement suggests both that you have integrity and that you treat the budget process honestly?) and ask him to reconsider.
Step 6: Prepare a budget that cuts costs by 10% (take out some of the rorts you bunged in at stage three) and deliver it “under protest.”
Step 7: Business as usual.
Step 8: When the head-count and capex freeze is announced shortly after the half-year, react as if this was unexpected. Send an email to your superior explaining that you will not be able to achieve the budget outcome and that in fairness he (he is a he, isn’t he?) should manage the bonus process to ensure that you are not unfairly penalised by developments outside your control.
You probably can send the same email as last year, but do check just in case reporting lines haven’t changed
I know this will take planning and careful analysis, but remember: your bonus is at stake!
Next week: My publisher (Mistress Amanda) demands that I explain how small business operators can use this process.