Continous Budgeting


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Continous Budgeting

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Continous Budgeting

  1. 1. * “Running an Agile Fortune 500 Company” Aditya Yadav,
  2. 2. * A Typical Global Company * Fortune 500/1000 * 200 Divisions * 40 Countries * 25000 Employees *
  3. 3. * @ Acme Inc.
  4. 4. * Original Question “Are we too shortsighted? We seem to be we are not looking far enough into the future.” * The Correct Question - “You need continuous budgeting, if finance is short sighted then strategy cannot look far ahead into the future.” *
  5. 5. * And The Philosophy Behind The Answer
  6. 6. * * * * * * * * * * A lot of my friends in Sales pride in being extremely (i) Focussed, and (ii) Targets driven Most of them have daily + weekly + monthly + quarterly + yearly targets which have to be met How short sighted are we? We don‟t think beyond a day We are like a horse in the race which may for small moment have a probability of winning the race But in the Wild/Real World will be hunted down by predators in no time. It‟s a losing proposition This is pervasive throughout almost each and every organization we have studied across the world An average non-founding CXO Tenure is 2-3 years. What do you think he will focus on? Will he do absolutely anything that doesn‟t have a chance of delivering results in probably half the time space of his probable tenure? What happens to long term benefits to the organization? How short sighted are we? We hope to address this albeit in a small way w.r.t. Budgeting which is the root of all problems in organizations… Note: we have already discussed Continuous Accounting earlier… *
  7. 7. * A budget is a quantitative expression of a plan for a defined period of time. It may include planned sales volumes and revenues, resource quantities, costs and expenses, assets, liabilities and cash flows. It expresses strategic plans of business units, organizations, activities or events in measurable terms. – wikipedia * Budget helps to aid the planning of actual operations by forcing managers to consider how the conditions might change and what steps should be taken now and by encouraging managers to consider problems before they arise. It also helps co-ordinate the activities of the organization by compelling managers to examine relationships between their own operation and those of other departments. Other essentials of budget include: * * * * * * * To control resources To communicate plans to various responsibility center managers. To motivate managers to strive to achieve budget goals. To evaluate the performance of managers To provide visibility into the company's performance For accountability In summary, the purpose of budgeting is tools: * * * * tools provide a forecast of revenues and expenditures, that is, construct a model of how a business might perform financially if certain strategies, events and plans are carried out. Tools enable the actual financial operation of the business to be measured against the forecast. Lastly, tools establish the cost constraint for a project, program, or operation. Lets go through these one by one… *
  8. 8. * * * Conditions might Change and Managers need to account for that * * We will set a direction and not Targets or Goals * That said we are also not so worried about accountability as discussed in earlier decks. It‟s the team that Succeeds, with room for Failures and opportunities to Learn. And absolutely little or no Negative Accountability. * * * Focus on Transparency, Visibility, Communication and Collaboration Budgeting has to be in relationship with other departments Some sort of control over allocation of limited resources, managing them in the most flexible way possible We don‟t intend to evaluate the performance of managers using this mechanism. We have discussed Success in an earlier deck and this is probably the worst way to measure Success of Failure. We will focus on Tools We will… * * * * * * Minimize Constraints Minimize Lost Opportunities Minimize Gaming of the System And lets make it Real-time! And lets make it Continuous! And address everything stated above! *
  9. 9. * * * * * * * * Sales volumes and revenues, resource quantities, costs and expenses, assets, liabilities and cash flows * Hence every projection will be a set of 3 projections, and we will keep all 3 available for analysis but will make decisions based on the „Likely‟ projection But our biggest focus is Cash Flows Every Project/Effort/Business post the Incubation stage has to make 20+ year Cash Flow Projections Caution: We understand the impossibility of being anywhere close to the reality Note: We understand the Cone of Accuracy converges as more and more information is obtained and time passes by Hence any and all Projections have to revisable instantly at anytime in the future The Actuals are frozen in time and based on the Continuous Accounting principles are virtually real time Also we WILL NOT use any concept of Probability in our Cash Flow projections, because Maths and decimal places will blur our Reality (concluded from Empirical Research in the context of Budgeting) * * * * Worst Case Projection – if everything fails Likely Case Projection – an Intuitively Median or most likely case History of Projection revisions * * * Best Case Projection – if everything works out as planned Indicate some sort of Accuracy of Predictions, and The State of Affairs of Projects w.r.t. Forecasted/Expected Conclusion: The budgeting is continous, minimizes gaming, lost opoprtunities and has all other attributes discussed in the last slide. *
  10. 10. Aditya!!! *