The Planning Peril

Redesigning the budgeting function? Avoid built-in risks.

The Planning Peril

BY LAWRENCE B. MacGREGOR SERVEN

ongratulations! You’ve just been picked to be part of a team to redesign your organization’s planning and budgeting process. This is your chance to be a star and make a significant upward career move.

Or is it?

As a corporate planning veteran, here’s my viewpoint: Any effort to undertake a redesign is studded with land mines, both professional and personal. Such projects often fail, and they’ve also been known to dead-end some promising careers. So tread carefully—and read on for suggestions on how to maneuver around those mines.

CAN WE TALK?

First, let’s look at why the revamping process is so perilous.

Exposure. The budget process touches nearly everyone in an organization, especially top management. And if the new plan lacks widespread support and fails to deliver what it promises, an accusing finger will be pointed at the highly visible redesign team.

Expectations. There’s always a natural tension between senior management and operating managers. Usually, the senior team pushes departments to boost revenue and cut costs, while the operating managers try to negotiate lower, more-realistic expectations. The tug-of-war negotiations frequently inject a certain amount of politics into the process. A recent CFO Magazine survey disclosed that two-thirds of management respondents thought politics more than strategy drove their companies’ budget process. Redesigning the budget planning methodology can be emotionally charged as a result.

Denial. Many managers wish the planning process would just go away. Since seminars and articles on the budget process often focus on how to save time rather than on improving effectiveness, top managers tend to believe that the whole procedure is little more than a necessary evil. If that’s the pervasive belief in your company, it will be tough to get support.

So what can you do to improve your chances?

RULE 1: DON’T EXPECT A SILVER BULLET

For every planning redesign success story—whether it applies to rolling forecasts, continuous planning or activity-based budgeting—there are a dozen failures. As a management consultant for many years, I can say without question that there is no one-size-fits-all solution. Prefabricated solutions address only the more superficial aspects of planning, not the root issues that most frequently undermine it. Such issues usually include, among other things, a widespread lack of accountability, ambiguous goals and objectives, insufficient linkage between long-term strategy and short-term operating plans and—the one omission that drives a stake through the heart of any plan—a lack of personal incentives to achieve planned goals and objectives.

Perhaps the most widely accepted cure-all for a bad planning and budgeting process is technology—that is, an expensive software program—and it’s often the first to be prescribed. The CFO of one of the country’s largest pharmaceutical companies found out the hard way that new software doesn’t provide an automatic fix. After one particularly rough annual planning cycle, a third of the finance team was ready to quit, complaining of 16-hour days for weeks at a stretch. After going through dozens of plan iterations only to wind up with a budget that nobody could support, they were demoralized. They believed that nobody outside the finance department took the planning process seriously, and that most managers viewed it as little more than a horse-trading exercise. In addition, the operating managers complained they were being taken away from their real work to spend time on make-work.

Frustrated, the finance group concluded that the problem was really about technology, and that state-of-the-art budgeting software would solve their problem.

They were wrong. Even with the new technology, the next year turned out to be worse. Not only did the finance team have to contend with the same old problems but, in addition to all their other concerns, they had to learn a new, complex (and temperamental) budgeting system, too.

RULE 2: GET KEY HARD DATA

It’s always struck me as ironic that as data-driven as finance professionals are, they have a tendency to jump into redesigning a planning and budgeting process before they adequately identify its strengths and weaknesses.

Performance measures not only provide a benchmark, they can help uncover issues and establish the requirements for a redesign. Most important, they create a mandate for change, which helps allay concerns that the call for a redesign is politically motivated. Only hard data—well collected and thoughtfully analyzed—can effectively show that a redesign is truly needed and that it’s not a device to criticize (and thus undermine) the current management team.

The challenge most redesign teams face is the lack of effective performance data. Countless cost measure surveys (that is, the number of people and dollars involved) have been done, but very few measure effectiveness by gathering hard data about the efficacy of the planning process. This preferably is done by surveying a cross-section of an organization’s managers. For more on a survey designed to measure the gap between what an organization needs and what it has, see the sidebar “How to Create a Planning Effectiveness Survey.”

Be sure the effort gets sponsorship from managers high enough in the organization to put the best interests of the entire enterprise above the interest of a few. Try to avoid disproportionate input from those biased in favor of one segment of the organization.

Keep the redesign team small: Put an upper limit of eight—but fewer is even better.

RULE 3: SOLICIT ALL VIEWPOINTS

When people will be affected by a process they have had no hand in crafting, they tend not to give it wholehearted support. As obvious as that fact of human nature is, it’s often overlooked at great expense. To avoid that problem, strive to give everyone—or as many as practical—a voice in redesigning the process.

In addition to a survey, use a mix of one-on-one interviews and focus groups. After the first draft of the redesign, hold validation sessions across the organization to give people a chance to learn about the proposed changes and voice their concerns. You may even want to set up a Web site where staffers can express their views.

RULE 4: DEFINE SUCCESS

Be sure you pin down how you intend to measure the redesign’s success. Rather than get caught in a situation where the bar keeps being raised without explicit agreement, push to clearly define it at the outset.

Business planning professionals hear about the raised-bar syndrome all the time. A company decides to redesign its process because everyone feels the procedure takes too much time and delivers too little value. Success initially is defined as streamlining the process, and the redesign team comes up with a proposal that theoretically trims weeks off the planning cycle. The plan sounds good and everyone is happy—for a while. In time the mood changes and people return to ask about the relevancy of the project—and suddenly the program is in jeopardy.

SCOPE AGREEMENT

How does your company really view planning? This is an important question because it frames the scope of the project. If it sees planning as simply a game about negotiating expectations, the proposed solution becomes essentially an effort to renegotiate expectations and rationalize shortfalls.

Chances of developing a workable planning process improve if management recognizes that planning and setting goals are an integral part of running a business, which includes assessing the resources required to achieve stated goals and track progress along the way.

Planning redesign projects have high visibility. Done correctly, they can dramatically transform a company and have an enormous impact on shareholder value. Yet very few initiatives have so much potential for both success and failure. Recognizing this up front, and being aware of the risks and how to handle them, will put the odds decisively in your favor.