Budgeting Yoga

 Author: Martin Webster, mwebster@profitstars.com

What does budgeting have to do with Yoga, you are asking?  Well, it’s a stretch, but bear with me.  I have quite a few friends in the fitness industry.  I routinely hear them coaching their clients about the benefits of stretching to avoid pain. So, when I hear financial managers describe the budgeting process as painful (one CFO told me, “I’d rather retire than go through another painful budgeting process.”), I feel obligated to do a little coaching of my own.

(Here comes the Yoga tie in)  There are some key steps financial managers can take before the budgeting process begins, to alleviate the pain of budgeting season.  These “stretching exercises” include:

1. Make sure everyone signs off on the strategic plan.  Many managers treat the budgeting process as a once-a-year, mandatory exercise.  They’ve lost sight of why they are creating a budget.  In fact, in almost every industry study that has examined why business strategies fail, one of the top reasons is “The typical workforce doesn’t understand the strategy.” The fiscal budget is the financial support for the strategic plan.  One way to get buy-in to the budgeting process is to get strategic sign off.
2. Hold budgeters accountable to their budget while rewarding them for progress toward achieving strategic goals – the old carrot and stick approach.  The problem with most incentive compensation plans is they sometimes reward short term behaviors at the detriment of long-term results.  Consider creating a compensation plan that balances strategic Key Performance Indicators (KPI’s), like Margin per Customer, Efficiency Ratio, Customer Satisfaction Ratings, and Key Customer Retention with short term budget variances of loan and deposit account volume and rates, fee income growth and operating expense control.
3. Ensure the management team is involved in the entire financial management process.  The more they understand and are involved in the process, the quicker the budgeting process will be.  Imagine you just learned how to play an instrument, like the guitar.  If you don’t play your guitar for nine months, how good do you think you’ll be at it?  Not ready for the big stage, right?  Budgeting is the same way for many managers. Regularly review budget variances with them and reforecast as necessary.  This will keep them focused and ready for budgeting season.
4. Get the proper tools in place.  Some important things to look for when evaluating systems that will make life easier for all involved are:

• Designed specifically for financial institutions – some software vendors assume their solution will work for a bank or credit union but they don’t always understand, or have the capability to model the unique balance sheet structure of financial institutions.
• Integration with the core operating system – having the ability to import instrument level detail improves accuracy and speed of forecasts and reporting.
• Ability to create a budget from the strategic forecast – since the fiscal budget is a subset of the strategic plan, the system should automate this process
• Easy to use financial reporting tools – the best solutions streamline monthly reporting while providing the flexibility to customize reports for different audiences.
• Integrated budgeting tools for both front-line managers and administrators – forecasting tools should be appropriate for the level of budgeting responsibilities, not one-size-fits-all.

While these stretching exercises will take some upfront work, the end result will be a shorter budgeting process that supports the organization’s strategic goals and has buy-in from front line managers.  And best of all, you won’t have to wear leg warmers and a headband.