A few years ago I was tasked with implementing Planning Analytics for budgets and forecasts within a manufacturing business.
Early on in the project I had meetings with each of the teams responsible for planning the different account lines. The goal was to understand what they did currently and where improvements could be made.
When I carry out this task I often find that, across the wider business, people don’t always view it as an important function but purely a necessary evil. On this project, however, I found a particular group of cost lines being planned in incredible detail. The cost lines were those associated with the packaging of products and the cost of staff; line maintenance; and the packaging itself.
The two members of the team responsible for these account lines took me through what they did in detail. They showed me a collection of Excel workbooks in which they took the planned production capacity and through shift and packaging line calculated what quantities they would process; how many staff were needed to run the lines each day; were those days bank holidays or weekends (incurring overtime); likely staff turnover – meaning training cost requirement and reduced efficiencies; how often the machines would likely break down/need to be maintained… And so much more.
They were proud of their methodology, and rightly so. However, when quizzed, they pointed out that they had been within 5% of the actual cost incurred for the last five budgets. When I proceeded with my standard questions, it became clear that this took both of them approximately three weeks to produce – and they had missed the budget deadline a couple of times in recent years. Their task was to provide three or four cost lines monthly, no breakdown was required for the budget but they were producing far more information. My next question was clear: “Is this being used elsewhere?” A quizzical look and a simple, “No,” was the response.
I looked at this as part of the wider picture and found:
- The costs had stayed fairly constant for the last decade (despite production quantity changes, etc.)
- The costs were a very small percentage of the total overheads.
Remember that your time is valuable. Always consider how much of that value should be assigned to the task of budgeting. In this case it would have taken just a few minutes to use last year’s figures and apply small uplifts and adjustments for extraordinary spend. The result would have been the same, and the time saved could have been spent on value-added tasks.
This is one example of a small part of the budgeting process. If we extrapolate this to the whole budget it’s possible to see how reviewing all of the methods and adopting a systematic approach could vastly reduce the time required to produce an accurate budget. I often see the budget creation process still ongoing during the financial year that the budget is intended for and this could so easily be avoided.
Introducing a system, such as IBM Planning Analytics, alongside a review of your processes and your requirements from a budget can provide great benefits. Finance professionals are no longer spending their valuable time creating plans and can instead utilise their skills analysing performance against those plans. There are many other associated benefits, including: having one version of the truth (centrally held plans – no more multi-tab, multi-version Excel sheets); ease of reporting (utilising Planning Analytics Workspace); cross-company collaboration; and group/company-wide consolidation of values.
To hear more about how we can help streamline your budgeting process with IBM Planning Analytics contact us.