#It budget planning process drivers#
Traditionally, business leaders have balked at using zero-based budgeting as a means to understand the critical drivers of a business. For example, a pharmaceutical company is investigating digital sales models to complement its traditional go-to-market approaches. Those in more stable industries are looking at launching new products and investing in new technologies and business partnerships in the next normal. Some companies are rethinking their M&A strategies and pursuing acquisitions, partnerships, and divestitures along their supply chains. In that way, executives can determine which bold moves might be pursued (if they haven’t already done so), both organically and inorganically. It’s also a good time for senior-leadership teams to perform independent stress tests of companies’ strategic plans. Now that stores have reopened in some regions, the retailer’s CFO and finance team are revisiting their initial assumptions and considering them against real-time factors, such as sales volumes and how the omnichannel strategy has performed over the past few months, as well as whether current trends will accelerate, decelerate, or stop altogether in 2021. When its brick-and-mortar stores needed to close in April 2020 as a result of COVID-19, the retailer quickly invested in an e-commerce platform and a logistics partnership to facilitate sales. Consider the case of a vertically integrated retailer.
#It budget planning process how to#
Teams in sales and marketing, for instance, must have a common understanding of when the economic return and the next normal officially start-and therefore how to budget for travel and expenses.įinance teams will need to determine which of the economic scenarios they projected actually materialized and then systematically examine how various strategic initiatives launched during the crisis have affected corporate performance (in revenue, pricing, sales volume, and competition). Everyone will need to be on the same page. That review is critical, as different parts of the organization will have similar questions related to crisis response and recovery. When kicking off the 2021 budgeting process, CFOs will need to revisit and pressure-test the scenarios, assumptions, and decisions that were made (or not) during the COVID-19 crisis. Rethink decision making to speed up and debias processes.Assign finance talent to the highest-priority areas or topics to prevent burnout.Hold back some spending centrally-as contingent resources-to build flexibility and optionality into budgets.Reimagine the business from a zero base to determine key business drivers.Stress-test scenarios and assumptions to counter uncertainty.We see five steps that CFOs can take immediately to remake their budgeting processes for 2021: By contrast, radically redesigned and reimagined strategic budgeting and performance-management processes can generate bolder discussions that are more in line with strategy, deeper insights that can unlock more value, and more agility in resource-allocation decisions. The typical budgeting exercise, whether bottom up or top down, can get stuck in endless negotiations and may not address critical concerns about strategy, value creation, or resource allocation. Under such circumstances, a “perfect” budget for 2021 may not be achievable-but a better budgeting process certainly is. Common to all businesses, however, is the need for greater speed and cost control amid ongoing, unprecedented uncertainty. Even within the retail industry, for instance, some subsectors have fared better than others: the grocery subsector is thriving, while the department-store subsector is struggling. The COVID-19 crisis has affected sectors in different ways. 1 Ankur Agrawal, “ A burning platform for digital finance,” LinkedIn, July 30, 2020,. Meanwhile, 65 percent anticipate more use of rolling forecasts in 2021 and beyond. For instance, 43 percent of the 127 CFO respondents we recently surveyed cite the need to streamline their overall budgeting processes to react more quickly and efficiently. But they also know that the business-as-usual budgeting process, with its traditional inputs and standard approaches, is no longer fit for the task. After months of improvising, CFOs recognize that they need real budgets for 2021 to match resources with strategy. Our conversations with finance leaders over the past six months reveal two contrasting truths about the looming budgeting season. This article is a collaborative effort by the global Strategy & Corporate Finance Practice, including Ankur Agrawal, Michael Birshan, Christian Grube, Matthew Maloney, and Ishaan Seth.
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