The document discusses key trends in budgeting and forecasting, highlighting the shift towards more scenario-focused approaches that are crucial for modern SMEs. It contrasts traditional budgeting practices, which often lack adaptability and relevance, with innovative methods like the balanced scorecard and agile methodologies that emphasize real-time data and customer-centric metrics. The future of budgeting is framed around leveraging technology and big data, with an increased emphasis on continuous, analytical decision-making to enhance organizational performance.

1. Trends in Budgets &
Forecasts

2. Tim Richardson
B.A. (Linguistics), B. Sc (Com Sci), M. Acct, CPA, CPIM
Worked in Indonesia, Singapore, Central & Western Europe. Raised in Mansfield 🏔
Founder, GrowthPath, integrated cloud solutions for SMEs up to $25m
Finance Director for two global manufacturing businesses, Philips Lighting
Controller, European Retail for Lighting
CFO of a $70m online business
IT developer ERP/MRP, business warehouse, API-based integrations

3. Key trends behind decision making
• Business change much faster, new ways of organising
the enterprise emerging
• SME sophistication growing rapidly
• Much more non-accounting information business-critical
• Increasing IT, modelling and decision science skills seen
at all levels of management

4. Key questions
How much does budgeting/forecasting matter?
Is it working?
What should we do, what should we expect?

5. Definition of the budget
Big process:
• gathers competing interests
• mediates/dictates one plan of what the business should
do,
• defines & measures good/bad performance
• justifying responses to real-world event

6. Budgeting vs Forecasting
Budgeting implies an internal focus, often on costs (e.g. departmental
budgets).
“Forecast” is more likely to refer to scenarios, allocating resources and
achieving strategic goals.
There is a growing appetite for the second version in SMEs.

7. Why do we budget?
1. To communicate objectives and coordinate actions
2. To wisely allocate resources (which teams & projects get
what)
3. Are we on-track? Guide responses.
4. Reward good management
5. Show shareholders, lenders, stakeholders that we are in
control of assets & compliance.

8. How are we doing?
Typically, budgets are weak at allocating
resources, weak at communicating priorities
and poor at diagnosing deviations
Prone to poorly designed incentives when used
to motivate behaviour

9. The budget process
largely defines what
finance does...
True or False?

10. How does the budget define the role of
finance?
The way we budget affects the way we report,
analyse, assess performance, diagnose and
respond.
It largely defines the tools used by finance, the
type of data it collects, and the influence it has.

11. Some strengths of traditional budgeting
• The tools are easy, well supported in software, and
consistent across organisations
• Low tech
• Business lingua franca: recruits hit the ground running
• The process and outcomes are well understood all over
the business.

12. The assumptions of the traditional process
1. Accounting numbers are good measurements
2. Historical performance is a strong guide to the future
3. The process is rational and transparent, with everyone
acting in the best interest of the entire organisation
4. Months are the ‘seconds’ on the business decision-
making clock (the smallest unit of time)

13. Accounting numbers
+ easy to measure. They are quite objective and consistently defined.
- But they are not very predictive, and they are not very diagnostic.
They don’t provide much focus or reveal priorities.
They are divorced from the competitive differences which drive customer
behaviour, and they are not well linked to management decisions and plans.

14. 14
Traditional budget
The role of senior
management
Points of difference
Competitive Advantage
Barriers to entry
Plan,
Objectives
Operations Business Control
STRATEGY
Budget/forecast in a
position of influence

15. How to manage change to the budget/forecast
process
Budgeting is a very old institution
It is very political, since it affects who gets what (this is a
sign that it matters, it’s not a bad thing)
These are signs of a hardy, change-resistant process
Technically-based changes are more likely to succeed over
politically-based changes

16. What today’s business needs
• More scenario focused, so numbers support decisions even several
times per week
• Focus on drivers and real objectives of the business
• Interfacing with realtime events [e.g. website analytics]
• [... increasing pressure on continuous disclosure...]
• More diagnostic
• An analytical infrastructure as opposed to reporting on numbers

17. Complaints about budgeting are not new
• Process is too long
• Too slow with outputs, guaranteed to be stale
• Insights are not actionable
• Impedes flexible response, the complete
opposite of modern management requirements

18. In the slides
• A brief discussion of two older responses to
traditional budgeting
Beyond Budgeting
• Activity Based Costing

19. Balanced Score Cards
A 20-year old response which is source of
powerful insights about a better budget/forecast
approach

20. Balanced Scorecard: Major innovations
• Make leading indicators first-class citizens
• Big focus on innovation process and
customers
• Big focus on the one-page dashboard
(maybe the inventor)

21. Targets and reporting should be in 4
groups of KPIs
only one of which is traditional accounting.
The other groups are
• Innovation (often called Learning and
Growth)
• Your market [‘Customer’]
• Cost-control [‘Business Processes’]

22. Each group has only max 4 measurements
Four is a “golden number”: it is hard to choose only 4 KPIs for each of
these important sectors
So you are forced to prioritise, which is extremely valuable and even
more relevant today because the cost of generating KPIs is almost $0

23. Financial Market Value
Revenue per Seat
Lease, avg finance rate
Free Cashflow
Customer FAA On Time Arrival Score
Customer Net Promoter Score
Customer Repeat Rate
Process Time on Ground per turnaround
On Time Departure
Learning,
Innovation,Alignment Ground crew, % Spanish/English bilingual
% seats Inflight Sytem 21 deployed
Ground crew, % stockholders
You can walk into a room,
and in a minute or two it’s
clear what management is
focusing on (and how it is
doing)
This is a remarkable
achievement.
I rate Balanced
Scorecards very highly.

24. A signpost to the future
The Balanced Scorecard is the best precursor to
modern approaches
It nailed the use of non-accounting leading
indicators, simplicity and focus, and visual
representation of data

25. The future of budgeting requires balancing
the
pressures
for change
Opportunities:
(1) new tools
wider numeracy
& analytical
skills in the
organisation

26. Opportunities
1. Much more technology and technological
literacy
2. New ways of working

27. How is technology impacting budgeting?
1. Massive amounts of data are now “surfaced”
via integrated IT and big data tools.
2. Expectation of faster, more interactive, more
available everything
3. The technology industry is itself driving new
types of business structure: Agile, Uber...

28. How is technology impacting budgeting?
• Big Data: Businesses can now process massive amounts
of data (example real-time register sales, geolocation data)
• Management is getting more sophisticated in the use of
analytical IT: being an Excel expert is increasingly less
relevant. Who knows MDX and R, Hadoop...
• Predictive analytics: patterns of correlation and leading
indicators can be found.

29. Modelling, Forecasting and Budgeting will
merge
Budgeting will be built on models using business drivers.
It will be multi-scenario, and much more closely linked to
forecasting, decision making and non-financial information

30. Hidden in the slides ...
An introduction to building budgets on the basis
of business drivers

31. Big-data & management accountants
The US accounting industry expects:
Finance skills sets will change
Search US job ads for “data scientist”
PwC said accountants at the most at-risk job for being automated out of a job
(97.5% chance). Ahead of checkout staff! Another study said 94%, 2nd place.
Data becomes an critical asset which needs to be monetised and
secured

32. Embedded PDF
For a case study of what happens when
accountants stand still, see:
https://goo.gl/OG0K2Z

33. New Tools
New tools are new incredibly cheap.
This is not an IT presentation, but for e.g.
search for ”AWS Redshift marketplace” to see
how cheap big data solutions are

34. New tools: Visualisation
Data visualisation is not
new but it is increasingly
easy and interactive.
Become good at this.
Read Edward Tufte

35. New organisation models
• The public/non-profit sector will growing in
size so its influence will grow*
• Management attention and economic activity
is moving to the hyper-innovative, disruptive
models
* but I don’t know what this will mean ... it could go different ways

36. What is Hyper-innovation?
After around 20 years, a consensus approach
has emerged to suit extremely disruptive
markets with breathtaking speed to market
Google, Facebook, Uber, Airbnb, Xero,
Airtasker, ....

37. Extremely analytical businesses
These new businesses are extremely data
driven.
If you see Finance as a powerhouse of
modelling and analysis, there is a lot to like.

38. Going to market: What needed to be fixed?
The traditional product development approach in software
has been the "waterfall" approach.
Define what you want (top of the waterfall) and proceed
one-way through distinct phases until the product is ready.
This is also true of the ponderous budget.

39. Response: Agile methodology
• Fast development, rapid releases
• The team constantly goes back to the market to observe customer
and competitor behaviour. Much more user involvement
• It is very focused on meeting deadlines, less focused on what gets
delivered. Never finished. Fan of kanban, a lean-supply-chain idea.
Project management is surprisingly low-tech.

40. Agile is being
adopted by
large, non-tech
businesses
See: “PwC Global PPM
Survey”

41. What does it mean for Finance if an
organisation adopts Agile for projects?
• More projects, budgets and business cases with a shorter time
frame.
• Metrics which are customer-focused, not traditional.
• More complex mix of personnel costs
These are all very manageable.
Finance has an opportunity to help agile project teams take longer term
views of their project, and to help model market behaviour.

42. Budget/forecast maturity model
Hidden in the slides:
A simple maturity model to evaluate your
organisation’s model

43. Summary:
Increasing numeracy across business, particularly dramatic
in SMEs
Cost of advanced tools falling fast ($100 a month for BI)
Disruptive business models
... Driving faster, more focused decisions

44. The role of the management account
The way organisations allocate resources,
measure performance and diagnose deviations
can get enormously better.
This is the traditional remit of the
controller/CFO.

45. To keep up with GrowthPath
New presentations and insights are announced
here:
Twitter: growthpath_au
tim@growthpath.com.au