As the end of the calendar year draws near (I know it's hard to believe!) everyone should be thinking about and planning the budget process for their organization, if you haven't already started. I thought it would be timely to put out a discussion around some of the reasons we do a budget and why we go through the process each year.
1. The planning process provides coordination of activities to ensure balance throughout the organization. How are resources being deployed.
2. It provides solid communication on who, how much, when, what, price and other similar questions that should be asked and answered.
3. Motivation is provided by the process to ensure managers are engaged in the business and paying attention to what is happening and where the company is going.
4. The process provides controls to ensure that actuals are compared to budgets and "red flag" processes are established. Then attention can be directed to the problem areas, exploitable opportunities, unrealistic plans and the road map for the period being budgeted.
5. The budget provides a method of evaluating departments and managers to ensure they are managing to certain key performance metrics and to understand when those are and are not being achieved.
6. The process of budgeting is often an educational experience for the company and managers, and should be, as everyone learns or are reminded, about the detailed workings of their departments, relationships with other areas of the company and how they are interrelated.
If your budget processes aren't highlighting these items then maybe it is not effective. Now is a great time to check your process and objectives. Happy budgeting! Feel free to weigh in on anything you'd like to add.
