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Business Feature: FD's Diary - Mix n match
The FD reckons he's top down and bottom up (which may not be a pretty sight, but works)
28 February ' I have to say I've been interested in the comments made on budgeting.
We had our first session with the operations team today. Our sales guy ran things well. He had a clear insight into the budget, largely because he was heavily involved in negotiating the top line figure and how we were to achieve it. We could not see how else he would buy into it and sell it to his team.
The operations people are different though. They are (to use a turn of phrase) reactionary. I'm not talking about their politics. I mean they're used to responding to crises at short notice, to sales leads where they come up, and to otherwise meeting day to day routine maintenance demands. It's what we ask of them. So they're not a management team in the sense that they initiate action. They're only a management team in the sense that they respond to demands, and by and large (fingers crossed) quite well.
In that case we went down as far as we needed on top down, I think. And now they're happy to provide input on how they can respond. It helps that none of what we're doing is also much news to them. We might be rolling out new product this year to cover many more of our sites and are only now installing new kit, but given what has been happening this is no revolution. It's part of change.
And they liked the reassurance that we were holding the meeting, that we'll be holding more meetings with their people to tell them what's happening and we're allocating time to training to make sure that they know what's needed of them
So I'm not sure we were top down only. I think we've done both where appropriate. Mix n match might be the best description here. Anything wrong with that?
* * *
February 24 ' With the budget approved next week sees a series of meetings being planned to disseminate the thinking.
I know that ideally we should have done this earlier and involved the team in more of the decision making, but theory and practice don't always work. And although the change in work patterns might shock the ex-CEO but the reality is that they have been steadily creeping into most people's realities over the last few months as the new kit has been used to an increasing degree in trials and in practice.
Managers are the first to get the treatment and following the success of the use of a facilitator (and the follow up from that is still suggesting people bought into what was agreed more wholeheartedly than I expected) we've decided that neither Ops nor I should chair this meeting ' partly because we'll be doing a lot of the talking. So we've asked the sale manager to lead the day. After all, it's his job to sell the new ideas to the market, and he has already personally completely bought into them so we thought he'd be a good partner in this. I think he's quite chuffed.
* * *
February 22 - Board meeting days are always draining because they're unpredictable.
Mrs. CEO sent in a letter appointing Ops as her proxy at the last minute - which meant the budget was pretty much in the bag before we started, but left him incredibly uncomfortable because the ex-CEO wanted to know what he'd done to win such favour. He wanted to know if there was there a conspiracy going on between us and Mrs. CEO to prevent him having more cash, as he wanted (and which, if we're honest, we could pay). It took some time to assure him otherwise, and I'm not sure he was convinced.
Then he tried to divide and rule Ops and me. It has dawned on him that to date he has pretty much recognised the business we're running as the one that he created but that if the changes we're planning take place that will not be the case. So he had a go at Ops asking why he'd accepted these changes since the ex-CEO claimed they are all my work.
Ops remained adamant he bought into all the ideas in the budget and after over 2 hours of micro examination of detail (every planned fixed asset spend for start) Ops eventually asked him if he wanted to change anything. He said no. I asked if I could minute that; he consented and Ops got his vote in for Mrs. CEO and the budget was approved.
Then the ex-CEO pointedly asked just Ops to lunch.
I clearly am persona non grata with him. I never expected to be popular, but it's slightly odd that the focus of both sides is moving so heavily into winning favour with Ops. I wonder why? He says I'm being paranoid. Who knows with them?
* * *
February 20 - Well, I know I said I was having last week off, but by the time the oldest children had been found holiday pass-times with grandparents and organised activities there was time to do four things of importance. The first was have some good afternoon sleep whilst Olivia was also out for the count. The second was to talk to my wife (odd isn't it, we marry someone, presumably because we like them and then do all we can to create obstacles to effective communication with them). Third I did spend time with Olivia without her siblings being around and fourth I managed to do some work to preserve useful holiday time.
Much of the latter was spent on yet another review of the department and how it will function in future. AJ had told me #4 was aware of her pregnancy and that I could therefore talk to her about maternity cover. So I did, and she added to my dilemma. Yes, she could work over the summer, but to be candid, she wasn't inclined to. She will be at the end of her second year at university. Next year she'll be a graduate and looking for a job. She's inclined to do something flippant this summer as it might be her last chance. Unsurprisingly she doesn't see covering AJ's maternity leave as being flippant. I can't really blame her.
So I had to make a direct request - was she telling me she was not available to work this summer, and she agreed (after thinking about if for 24 hours) that this was the case.
Now I was 2 down, not one, but #4, being somewhat indiscrete or helpful (depending on perspective) also advised me to presume AJ will not be back from maternity leave - apparently her partner has an overseas posting available later this year and #4 is sure she'll be off with him, motivated at least in part by the fact that, as I have suspected, she's never quite been happy working more directly with #3, even though I can offer no logic for this.
So I have to rethink my stategy. #3 and #5 remain. The new credit controller is good - and has more skills to offer, which we're already looking at using. We have a new stock controller who has more skills than just that to offer, but I'm a key player out still. Do I dare recruit a full tinme replacement on the pretext of #4 going (in effect) and hope that her predictions about AJ are right? If they were I'd need to be looking in May I suspect.
It's all so easy this lark, except for the people that is.
And tomorrow is the board meeting to approve the budget, just to prove the point.
* * *
February 10 ' Hectic times! Trying to get as much of half term off as possible and to follow up yesterday's meeting and get February accounts out and deal with an employee who is driving everyone here mad about how his net wages are calculated (search me by the way ' I didn't set his tax code ' we just apply it).
But, yesterday was really good. You might think that all those daft exercises people run to get groups to work together are pretty mad (and let's be candid, in many ways they are when looked at at face value) but they helped break down barriers yesterday and make people see themselves as equal participants in a process about which they were worried. To just get to that stage was probably worth the facilitator's fee.
After that though he really teased at the issues ' except what he really did was get us to tease at the issues, which is quite different.
This meant we had to really ask what we are trying to achieve in our control system. Are they to protect assets, collect data, ensure proper authorisation within a hierarchical organisation, to facilitate better business operations, or what? And how far should one be traded off against another? How much should be on trust, and how much not? How much should be positive reporting, and how much by exception? What are appropriate limits for delegation? Are we collecting the right data (our recent experience showed not in all cases). Do we need to change systems to do that?
How much did we answer? Not a lot, if I'm candid. But we spent over 4 hours in session working around quite a lot of our systems. We learned things about them we did not know. We learned what irritates. We know more about each other. We ended up splitting up various areas so small groups can look at them ' no more than three in each group. In a couple of cases the group is one person (me) but with two people to bounce things off. We're looking for improvements in business efficiency and limitation (not elimination) of risk.
Was this worthwhile? I'd say so. Get a facilitator! His fee is within #3's authority limit ' I hope she pays it the moment it comes in if it's whilst I'm off next week.
* * *
February 8 - I note I've been quiet for a while. From my perspective you have to understand that this might be welcome. A little 'ordinary time' can sometimes be good for you.
Then anxiety levels rose again. Amongst the shareholders about the budget, for a start. Mrs CEO says she has already approved it and will not be attending the meeting. The ex CEO is adamant he wants a pay or dividend increase. I know you've heard all this before, but isn't that so true of business life? I've suggested that the index of wage inflation be applied to both to be candid, we should be able to afford it) and I'm hoping that will keep them happy. It would be so nice to have some constructive comments though.
Much the same is true of the managers who are preparing for tomorrow's meeting on controls. On rather, I don't think they are preparing. They're just in a blind funk about it because they haven't ever thought about the issue. So they're asking what's expected of them, and not what they can bring to the show.
I've sat down with the facilitator though and we had a really good 2 hour session working out what we want to achieve and how he can help. I'm impressed. This could work. Tomorrow will tell.
* * *
February 2 - Peace never seems to last for long. AJ told me today that she's pregnant.
I could offer nothing but congratulations through bleary eyes.
Then I worried that she's not married to the somewhat older Dad. (Isn't that old fashioned of me, and some indication of joys to come my way in the future).
Finally, there's that sinking feeling you can't avoid of the hassles to come. #4 will not be able to cover her whole absence so we'll be in the temp market, if she comes back. But I can hardly complain since my wife is still on maternity leave!
* * *
In January the FD dealt with the fall out from his stock losses and finished his budget whilst everyone else get hot under the collar about controls.
For previous installments of the FD's Diary, see:
December
November
October
September
August
July
June
May
April
March
February
January
December
November
October
September
August
July
June
May
April
March
February
January
December
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October
AccountingWEB.co.uk 28-Feb-2006
Categories: Finance, CEO's Diary
Times read: 11762
Bottom up budgeting (or zero base as I would call it) is all very well in a simple organisation with a small number of budget holders. In a complex organisation with a large number of budget holders, then top down (or incremental) budgeting is all you can do unless you want to paralyse the whole process.
This is especially true where the budget setting process is not strictly dependant on costs and the budget becomes a license to spend, not a prediction of costs and income.
sometimes top down budgeting is the only way to go...
When you have
- rapid change
- not everybody knows enough of the ramifications of all the changes to think and evaluate how it will impact on them...
- culture has been static until the changes began and hasn't yet settled into its new form
- etc
Then bottom up can fail. Top down may the only way to produce a sensible answer...
It all depends on the circumstances, environment and culture, and the skills, personality and adaptability of the people - from here, on the far side of an internet connection with no access to assess these factors except the FD's diary, who are we to judge?
But if you must go top down, obtaining buy in as soon as possible becomes important. And you seem to be doing that. To get that buy in, you may need to flex (more below).
You could try asking managers:
"How do you see your budget working for you?
Does it give us what we need for your department to be efficient and effective? If not, why not? How do we change the paramaters of the problem to achieve a fit? What do we change in your (manager's) expectatations/department/budget to create the conditions for success?" This gives them back some ownership. They have to think about how they do it, rather than being presented with the complete "you will do this".
In terms of flex, you will want to see the new way of doing things bedded down to measure how it changes the business. Then (perhaps at the end of Q1, or half year) produce an updated forecast for the year. This then would be the time to move to get greater involvement from managers, in forecasting their own numbers.
Knowing they will be doing this might also give you some additional leverage to motivate them, to measure themselves against your budget now. After the reforecast, measure against both budget and forecast...
Surely, the FD knows that top down budgeting is always doomed. It doesn't matter whether the sales manager sells it well or not, inevitably people will still feel that they don't have ownership of the budget. Has the FD considered using a budgeting software tool to help in his quest for better corporate performance managment?
Just wondered
Just because you're paranoid doesn't mean they're not out to pull one over on you...
nothing wrong with a bit of healthy paranoia! Perhaps it is just as well that the directors have problems with each other?
You probably thought of this already, but maybe you need to be thinking temp to perm,
which gives you the advantage of seeing someone's work and their interractions with their colleagues (and definate knowledge of AJ's decision) before you take them on permanently.
Think of it as an extended job interview...
I suspect you will be in for an interesting time when the results of all this discussion and thinking start to flow back in.
I look forward to reading this in future updates...
