Budgeting & Forecasting

Top-Down vs. Bottom-Up? What You Need To Know To Build Your Budgeting Process

When it comes to budgeting, where does your organization stand? Do you start at the top or build it from the bottom up? While there are plenty of ways to go about your corporate budget, most fall under two categories: Taking either a top-down or a bottom......

When it comes to budgeting, where does your organization stand? Do you start at the top or build it from the bottom up? While there are plenty of ways to go about your corporate budget, most fall under two categories: Taking either a top-down or a bottom-up approach. The process you choose can affect your business in different ways—and each comes with its own pros and cons. To make the right decision for your organization and to determine which will best enable you to execute on your financial operating plan, consider both models in turn. Top-Down vs. Bottom-Up Budgeting While the end goal may be the same—a company-wide budget—both top-down and bottom-up budgeting approaches have different starting points and get to the finish line using distinctly unique routes. So what are the fundamental differences between them? What Is Top-Down Budgeting? Top-down budgeting starts with senior management. It’s up to them to create a budget for the entire company, allocating resources to each department according to company-wide objectives and organizational targets for the year ahead. Past performance and current market conditions are taken into consideration, while the previous year’s budget and historical performance help determine which departments should get what—with an eye on how departments contributed to past goals. Departments build their own budgets from there, based on the resources they've been allocated. Often, though, some funds will be set aside at the corporate level, allowing for final shuffles or extra calls for resources if departments feel they don’t have what they need to meet their individual goals. Top-down budgeting, in other words, is a form of “budget allocation.” It starts with a set amount and allocates funding and resources accordingly across departments, leaving it to them to develop new plans or reduce their existing ones based on the resources they’ve been allotted. What Is Bottom-Up Budgeting? Bottom-up budgeting, meanwhile, begins exactly where you’d expect: the bottom. That is, departments prepare budgets for their teams based on what they need for the next year: the initiatives they want to run, the programs they already have in place and the hires they want to make. To ease the process, company-wide objectives and expectations are often shared with departments first, to give them organizational-wide visibility as they make their plan and provide protection against siloed requests. Departments present their budgets for approval, and the finance team or budget committee goes through each from there, to approve or disapprove line items according to those larger organizational objectives. A company-wide budget emerges from that work. One example of a bottom-up budgeting approach is zero-based budgeting, which starts with a clean slate every time in order to justify and prioritize every departmental expenditure. Top-Down Budgeting: Pros and Cons Neither approach is inherently better than the other—and certain types of corporate budgeting, such as driver-based budgeting, will work with either model. The key is to understand how your own organization works and to make your budgeting process a natural extension of it. It’s also critical to understand the advantages and disadvantages of each model before choosing one. A top-down budgeting process, for example, empowers you to allocate resources based on company strategy and an overall picture of organizational performance and goals. As with any type of top-down management style, though, aligning your departmental teams behind the results may be more difficult. Pros of Top-Down Budgeting Executive buy-in is built in. Since management is involved early on, you know that your budget will be aligned with their viewpoint and goals—and that it will reflect the future growth plans and strategic direction of your business as a whole. And by capping departmental budgets based on overall goals, you make departments more accountable to those objectives. It can be faster. A top-down budgeting approach is generally faster than a bottom-up method—and at the same time can create organizational transparency into business-wide spending. Cons of Top-Down Budgeting It can be more difficult to get departmental buy-in. Given that individual departments aren’t involved in the budgeting process, they may not be motivated to see it succeed. Intra-departmental strife may also result if one department feels their goals are being deprioritized in favor of another department’s objectives. It can create a “if you don’t spend it, you lose it” environment. As a finance team what you see as an attempt to be efficient with your spending, departments may perceive as a threat to future resources. Which means they may feel the need to spend what they have even if they don’t need it to meet their goals—or risk having their next budget cut. Bottom-Up Budgeting: Pros and Cons A bottom-up process ensures that your budget contemplates the needs of every department so that they have the resources they require to achieve their goals and put your organization ahead on its larger strategic objectives. It’s generally a slower process for your finance team, though, as you incorporate all of the departmental requests into a cohesive overall plan. Pros of Bottom-Up Budgeting It’s often more efficient. Departmental teams, in general, have a closer eye on the resources they need to accomplish their goals—which means bottom-up budgeting is generally based on a more efficient and often more accurate assessment of where resources need to be allocated to get results.. It’s more aligned with departmental needs. Since the executive team doesn’t always have deep visibility into the individual programs or initiatives each department is planning, they may not know how or where to allocate resources to get the best results. Departments do, though. And since departments—and their managers—are ultimately the masterminds of their own budgets in a bottom-up approach, they’re also more likely to rally behind the overall results. Cons of Bottom-Up Budgeting It can lead to over-budgeting. Since every department wants to truly ensure they have the resources they need to meet all of their goals, managers will often pad their requests to give themselves wiggle room for changes—something that can throw off the entire organizational budget if you don’t keep an eye out. It can take longer to create (unless aided by the right technology). Bottom-up budgeting starts with a series of smaller budgets that are then combined together into something more cohesive for the entire organization. Making those smaller budgets work together—and going through each line item to incorporate necessary changes to fit company objectives overall—can take both time and resources to achieve. It’s also something a tool like Excel wasn’t traditionally designed for so it can require a more sophisticated technology to make it work. (Check out The Ultimate Guide to Budgeting and Forecasting to help you better formulate strategies, plan for the future and align your company's goals.) Figuring Out What’s Right for Your Business Choosing which approach is most effective for your business means understanding the psychology of how your organization operates. Do teams work better when ideas are their own, or do they prefer your leadership to come to them with the best plan of action? And how is your organization at creating transparency in their goals and strategies so that you can pivot and reallocate resources faster? In some cases, you may not even opt for one model or the other, instead approaching your budget from both directions as a way of ensuring you have visibility into both departmental and organizational goals or to meet specific objectives. You may introduce a longer-term plan that takes a more top-down approach, for instance, then implement either a rolling or traditional plan for the nearer term using a bottom-up method. Or some years, you may choose to go into more detail on the cost structures of your goods or services—building a bottom-up budget from there. Other years, you may want to take the opposite approach. After all, in the end, the point of both top-down and bottom-up budgeting approaches is the same: to make sure resources are allocated intelligently and in a way that gives everyone what they need to build towards your overall business strategy and goals. If everyone has an eye on that, either model is bound to be successful. Find out how Vena can help you build a better budget.

December 9, 2022 |

How To Optimize OpEx Budgeting for a Hybrid or Fully-Remote Work Environment

The COVID-19 pandemic has changed the business world forever, with one of the drastic and more obvious after-effects being the shift toward remote work. According to this report from Global Workplace Analytics, 82% of employees in the U.S. want to continue......

The COVID-19 pandemic has changed the business world forever, with one of the drastic and more obvious after-effects being the shift toward remote work. According to this report from Global Workplace Analytics, 82% of employees in the U.S. want to continue working from home for at least one day per week. Finance and operations leaders at the firms embracing this trend have likely had to tweak how they approach budgeting for operating expenses (OpEx)—because while your firm might be saving money on rent, travel and promotional events, you’re probably spending more on cloud technology, employee engagement initiatives and new digital experiences for your clients. Individual companies will all have their own strategies for making remote work feasible based on their size, structure and industry. But in any case, managing changes to your OpEx budget while prioritizing your bottom line requires the freedom to look ahead and respond quickly when OpEx needs evolve. If you don’t have the flexibility to analyze every single line item—or if you’re managing your OpEx budget manually with offline Excel spreadsheets—you might miss out on opportunities to make your new remote work plans more efficient. You don’t want to burn cash needlessly—especially after the last 12 months—and that’s why you need to arm yourself with reliable, up-to-date OpEx data. Read on to discover three important steps for optimizing your OpEx budget for a hybrid or fully-remote work environment. We’ll also give you some examples of how organizations just like yours have navigated similar changes with a data-driven approach to OpEx planning. 1 Make OpEx budgeting more collaborative across departments with workflows 2 Model the bottom-line impact of potential OpEx changes with what-if analysis 3 Invest in OpEx items that will drive new revenue streams in the remote world Make OpEx Budgeting More Collaborative Across Departments With Workflows As you make changes to your OpEx budget in preparation for remote work, you’ll find that each of your departments have their own requirements for making it happen. For example: Your sales and customer service teams might have to invest in a new communications tool while your marketing team recoups sponsorship dollars from a cancelled in-person conference. Your department heads know better than anyone what their teams will need to adapt—and that’s why OpEx budgeting needs to be collaborative instead of siloed in finance. If your finance team is calling the shots on where to save money and where to spend it, departmental leaders and budget owners won’t feel like they’re part of the planning process. This will lead to business plans that might look good on paper, but probably aren’t very practical or conducive to efficient operations. You can avoid this by building workflows for collaborative OpEx budgeting so stakeholders across departments can review remote work plans before they’re finalized. That way, instead of having your finance team manage OpEx changes from the top down, your department heads can work together to deliver solutions that work best for the business. Consider this example from Young Life—a nonprofit Christian youth ministry with a global summer camping operation. When the pandemic shuttered camps and forced Young Life’s corporate team to work remotely, finance leaders teamed up with camp managers to adjust each location’s OpEx budget. With detailed review and approval workflows already in place, it was easy to ensure the new budgets included input from department heads at each camp. According to Brandon Combs, Young Life’s Director of Camping Budgets and Finance, this ultimately helped the charity “stave off some major losses because we were strategic, not reactionary.” “Our people feel a lot more valued because they’re a lot closer to the business and I’d definitely say they’re delivering more reliable budgets as a result,” says Brandon. “When we’re trying to make your business more sustainable in the face of change, it can’t be a guy in finance telling you how much toilet paper to buy for your camp. It has to be the person who’s actually making that purchase.” Click here for more on Young Life's journey toward collaborative OpEx budgeting. Model the Bottom-Line Impact of Potential OpEx Changes With What-If Analysis As you iron out your plans for hybrid or fully-remote work, you’ll need to understand how the changes will affect your financial position. Factors to consider might include: Will you keep your office space, ditch it, or rent it out? Will you provide remote employees with a stipend to cover their work-from-home expenses? Do you need to invest in IT or software tools for data security? Does working remotely mean we have to outsource production, distribution or fulfilment? What will that cost? Are there any OpEx items we can cut or defer now that we’re remote? The answers to these questions should be included in what-if analysis as you explore all of your options and chart the best path for your business. If you don’t test your assumptions and assess multiple different OpEx scenarios thoroughly, you won’t be able to justify your remote work plans with reliable data. Metro Supply Chain Group, a global third-party logistics provider, has helped a lot of growing companies optimize their fulfilment operations in the remote world. Given that supply chain costs are petty big line items in any firm’s OpEx budget—and perhaps even more so as companies go remote—Metro always ensures their clients make the best decisions by helping them visualize the impact of potential changes to their plans. “We can run multiple scenarios and use multiple forecasts to aid decision making,” says Paolo Mari, Metro’s VP of Business Analytics. “Operational metrics are important, but the story is not complete until you can see how they impact your costs, revenue and EBITDA margins.” Metro uses Vena's Power BI Connector to bolster their analysis with compelling visuals. Learn more here! Invest in OpEx Items That Will Drive New Revenue Streams in the Remote World If your OpEx budgets are a team effort and you can support them with what-if analysis, you might even find opportunities to make some more money as your business goes remote. You could rent out your unneeded office space, for example, or enter a new geographic territory with a fully-remote team. Global Workforce Analytics makes a strong business case for remote work in this report, citing increased productivity, reduced absenteeism, lower office costs and more. It’s important to remember, though, that all of those things are circumstantial—because if you want to grow your business while adapting to a remote work environment, you need to look long and hard at what’s really driving your revenue. Then you can align your OpEx budget to support those areas of the business and make changes proactively as you adjust to the new normal. Meats By Linz, a food distribution company specializing in high-quality beef products, was quick to adjust their OpEx strategy when the pandemic shook their business last spring. With revenue from restaurant sales evaporating, CFO Bart Vittori knew he needed a plan to help mitigate the damage and to drive new revenue streams—all while tweaking OpEx budgets for remote office work and safer frontline operations. After teaming up with sales and marketing leaders and modeling the impact of various revenue scenarios, Bart found that the company’s B2C e-commerce channel—which usually wasn’t given much attention from an OpEx standpoint—needed a serious facelift. So when he shifted OpEx on the fly and allocated resources toward advertising their B2C offering, revenue from e-commerce rose dramatically in a short timeframe. None of that would have been possible, Bart says, if OpEx budgeting was siloed and manual. “I quickly analyzed, ‘Okay, if we’re down 80% in this segment, what will that mean long term? How can we keep our employees safe? What investments can we make to drive sales elsewhere?’ That would have taken months if I was still using spreadsheets,” he says. “The reports showed us that e-commerce was our only viable revenue segment through all this, so we doubled down on our marketing spend and started to make it work. We thought it would take three years to add this many B2C customers, but we did it in three months.” Read Bart's full story here and learn how Vena delivers the data you need to thrive. Simplify OpEx Budgeting With Vena Complete Planning Regardless of your company’s intentions for hybrid or full-remote work, optimizing your OpEx plans proactively is the key to making it successful. Working collaboratively, looking ahead and making data-driven decisions is crucial—and that’s why you need to enable yourself with the right tools for the job. OpEx Made Easy Discover how Vena’s OpEx budgeting and forecasting software gives you reliable insights faster so you can focus on growing your business.

May 25, 2021 |

Report: 55% of Businesses Operate With a 12-Month Rolling Bottom-Up Forecast and Budget Process

Deciding which budgeting process is right for your company entails understanding how your business works and ensuring your budgeting method is a natural extension of it. Typically, most budgets fall under either a top-down or bottom-up category. But as rec......

Deciding which budgeting process is right for your company entails understanding how your business works and ensuring your budgeting method is a natural extension of it. Typically, most budgets fall under either a top-down or bottom-up category. But as recent survey results published in Vena’s 2020 Industry Benchmark Report reveal, most businesses are opting for a bottom-up budgeting process. Out of the 350 global business leaders surveyed in the report from across a range of industries, including food service, manufacturing, health care, insurance, technology and more, 55% are operating with a 12-month rolling bottom-up forecast and budget process. 1 Top-Down vs. Bottom-Up Budgeting 2 Why Do Businesses Need Rolling Forecasts? 3 Agile Financial Forecasting Top-Down vs. Bottom-Up Budgeting There are advantages and disadvantages to both top-down and bottom-up budgeting. In general, a top-down approach involves your executive management developing a high-level budget for the entire organization. A bottom-up method, on the other hand, involves managers in each department creating budgets that are then sent back up to department heads for approvals. As managers and department heads play an active role in the budget-making process, bottom-up budgeting gives them a sense of ownership as they work towards providing accurate estimates of costs per department. Once budgets from various departments are collected and approved, an overall budget can be created for the entire organization. Why Do Businesses Need Rolling Forecasts? Unlike annual budgets, rolling forecasts give you more than one opportunity to make changes to your budget. Rolling forecasts let you plan continuously over a set period of time. A 12-month rolling forecast, for instance, means you are reforecasting those 12 months at the end of each quarter or even on a monthly basis. And since your outlook is being updated on a rolling basis, you'll be better positioned to respond to any fluctuations to your operational activities as they happen. You’ll also be able to identify opportunities or risks based on recent market changes or trends and tweak your budget to accommodate those changes. So how can your team get started with a flexible and collaborative approach to budgeting and forecasting that involves automating repetitive tasks, eliminating manual data errors, gaining trust in your numbers and positioning your business for the future on a regular basis? It all starts with making a shift to agile financial forecasting. Download Vena’s 2020 Industry Benchmark Report here. Agile Financial Forecasting Making the shift to agile financial forecasting involves enabling your team with the budgeting, forecasting and reporting tools that will help create budgets based on any requirements (driver-based, zero-based or bottom-up), shorten the budgeting cycles while also making the budgeting process collaborative across the organization. When you can instantly consolidate data from across your organization into a centralized location, your team can spend less time gathering and organizing data and worry less about making manual errors. And when your team can easily leverage existing spreadsheets and models and perform complex calculations with a familiar and flexible interface, such as Excel, improving current budgeting and forecasting processes becomes a natural process and not a steep learning curve. With faster access to accurate budgeting data and a clearer lens on understanding your business from every angle, this will leave everyone with more time to focus on what matters most for your business—analyzing the drivers behind your revenue. Whether your budgeting model works from the top-down or bottom-up, the important thing to remember is to create a budgeting process that powers your plan to grow. Your budgeting and forecasting processes should be a regular check up on your business. When everyone has a clearer vision of where your business stands today and where it’s headed, it’s easier to build a blueprint for better learning at the micro and macro levels. Better budgeting and forecasting with Vena Learn how to accelerate your budgeting and forecasting processes so you can position your business for the future on a daily basis.

November 6, 2020 |

How To Build Budgeting Agility With Rolling Forecasts

This blog was first published in 2020 and updated on October 25, 2022. Agility is crucial to any organization. It defines how your team works together—and how quickly it adapts. But organizational agility depends on the strategic and operational business p......

This blog was first published in 2020 and updated on October 25, 2022. Agility is crucial to any organization. It defines how your team works together—and how quickly it adapts. But organizational agility depends on the strategic and operational business processes used by your company. With the right agile processes in place, your team will be better equipped to keep up with market changes and to empower your organization to thrive. Rolling forecasting is one such process—bringing agility to your budgeting and forecasting and deepening your visibility ahead. By extending your budget past a fixed timeframe, it allows you to continue to update across fiscal years. And as with any forecasting process, it enables you to keep evaluating resources and project allocations so that you can make changes that tie your budget to ongoing performance, allowing you to project and allocate resources to keep up with any changes underway. A lot of finance teams opt for rolling forecasts over a traditional static budgeting or forecasting approach. To decide if it’s right for you, consider the following: What is a rolling forecast? Rolling forecasts vs. static budgets 4 benefits of rolling forecasts The challenges of introducing rolling forecasts Rolling forecast best practices What Is a Rolling Forecast? Updated at set periods—whether it be quarterly, monthly or even weekly—rolling forecasts do exactly what they say: they roll, taking a rolling view in arrears and into the future across revenue, expenses, cash metrics and more. By adding and dropping a week, month or quarter every cycle, a 12-month rolling forecast—or some other variation—allows you to maintain visibility ahead, even well past the traditional static budgeting timeframe of a fiscal year. It lets you look 13 weeks, 12 months, four quarters or 18 months into the future at all times—or whatever makes the most sense based on the business process or planning outcome to which it's being applied. Rolling Forecasts vs. Static Budgets While rolling forecasts are rising in popularity, traditional static budgets are still a pretty common choice among finance teams—and a fixed budget with a fixed timeframe and fixed targets is still going to be the best decision for some organizations. In fact, businesses that are low growth or in a less disruptive space may find that the more traditional approach is all they really need. But in high-growth companies or large organizations with a lot of moving parts—or amidst evolving market or industry changes—traditional budgets and intra-year forecasts may not be enough to keep up. Rolling forecasts fill that gap. By helping to maintain visibility into recent performance while better projecting future needs, they allow those quick-moving companies to remain agile to new trends and requirements while continuing to move the planning horizon forward. Of course, it’s not actually an either/or approach. You can opt to implement both static budgets and rolling forecasts—or you might even be required to have both so that you can offer a full view of company performance to your board, investors or stakeholders. In those cases, rolling forecasts become an extension of your annual budgeting process. You can choose to introduce them as a process of review at regular intervals to keep up with current performance and changing market conditions or apply them only to certain areas, such as revenue or cash planning, with a more traditional approach used elsewhere. How To Create a Rolling Forecast in Excel Rather than a static, or traditional budget, rolling forecasts predict future performance. Creating a rolling forecast in Excel allows you to combine historical data with present financial information to plan for the future more accurately. 4 Benefits of Rolling Forecasts Without having to wait a full year to revisit your budget, rolling forecasts let you plan for both the short and long term—always with a view into the future, several months ahead. In doing so, they can help you better pivot to make sure you’re getting the best results at every step. Consider the benefits of rolling forecasts: 1. They help you stay ahead. Instead of basing your budget primarily on past results—as is the case with traditional budgets—rolling forecasts let you consider current operational drivers, such as customer satisfaction, market share and category growth, to stay ahead of market and business changes. 2. They improve accuracy. A static budget risks becoming out of date within months—or even days if the market unexpectedly changes. But a rolling forecast gives you a constant outlook, allowing you to adjust quickly so that you have the right resources in place to keep up. 3. They mitigate risk. By maintaining a consistent horizon for your forward-looking outlook forecast, you’ll be better positioned to keep your plan aligned to current performance, recognize risks to your business and make appropriate course corrections. 4. They let you make better decisions. With a more up-to-date eye on your forecast, you’ll also have a better understanding of when to take risks—for example, putting resources into a new growth initiative—or when staying the course is a better game plan. Also, areas of the business that work on a longer time horizon will no longer do so in a vacuum—becoming part of the bigger holistic picture instead. FREE 12-Month Rolling Forecast Template for Excel Improve your operating expense planning with our free Rolling Forecast Template. The Challenges of Introducing Rolling Forecasts While the benefits are many, there are also some potential obstacles that can get in the way of implementing rolling forecasts. Keep these in mind if you're considering introducing rolling forecasts into your business: 1. They can require added investments—both in time and money. To be successful, rolling forecasts may require technology and training investments, as well as extra time from your team to put the best processes in place and to keep them running smoothly. Be prepared to justify the extra expenditures. 2. Success is dependent on company culture. For rolling forecasting to work, you need your senior managers to not only support it, but also to update their own forecasts on a rolling basis—which means you’re adding to their already busy workload. But managers can benefit from the process as well—funding requests don’t need to be restricted to just once a year, for instance. Helping them understand that can get them on board. 3. They’re dependent on clean data. You need a constant flow of performance data to inform your rolling forecasts. That data allows you to compare actuals to forecasts and ensure your plans are on track. It’s no surprise, then, that companies can let a lack of clean, actionable data get in the way of introducing rolling forecasting. Waiting for the data to be perfect, though, isn’t the answer either. (Check out The Ultimate Guide to Corporate Budgeting to help you better put finance at the heart of everything your company hopes to achieve.) Rolling Forecast Best Practices What does it take for a rolling forecast process to be successful? Consider six best practices: 1. Always keep your business-wide objectives in mind Fully aligning your rolling forecast with your company strategy—and iterating your forecast as those goals and plans change—will help you ensure the right resources are available to meet your organization’s ongoing goals at any given time. Leverage a three-year or similar outlook as a guide stick until it’s time for your next annual strategic plan. This gives you the flexibility to build rolling plans that align to your strategy, whether those strategies are updated annually or more often. 2. Choose the best timeframe for your business Whether you choose to forecast quarterly, monthly or weekly, the timeframe should match the rate at which your company is evaluating progress—as well as the pace of the industry around you. 3. Figure out how granular you want to get Just as important as the timeframe you choose is deciding how deep you want to get into your forecasting each time. It’s best to focus your deeper analysis on the drivers that promise to most impact your strategic goals and ongoing performance. 4. Choose the right technology The right tool will help you ensure your rolling forecast has the inputs it needs to be useful across your business strategy and KPIs. It will also ensure that you have buy-in early on longer-term commitments around cash management, inventory management and new hires. Leveraging technology makes rolling your plan a simple lift and empowers your people to run an efficient and effective rolling forecast process. 5. Incorporate the best data available While it’s certainly important to start with a solid data infrastructure, it’s also crucial that you not let the status of your data stop you from getting off the ground. Leverage areas where your data is clean, then use the forecasting process to build transparency and accountability, resulting in your data becoming even cleaner over time. 6. Measure along the way Use dashboards and visualizations to track execution against your rolling forecast so that you can see how it keeps up with ongoing performance. In doing so, you’ll be able to make any necessary iterations along the way—and ensure your progress stays transparent across your business. Once you’ve established a new normal, rolling forecasts can give you exactly the agility and insight you need to help your business thrive—and ensure you’re ready for whatever is ahead. Learn how Vena's rolling forecast software solutions can help empower your rolling forecasts.

October 19, 2020 |

How To Align Your Budget With Your Business Goals

Whether you’re playing a game of chess or helping to grow a business, strategy is key to making every move the right one. So how do you decide your next move when you have no visibility into the strategy at play? If you’re part of a finance team, you may f......

Whether you’re playing a game of chess or helping to grow a business, strategy is key to making every move the right one. So how do you decide your next move when you have no visibility into the strategy at play? If you’re part of a finance team, you may find yourself in exactly that position during budgeting season—building out your budget without a strong view into business goals and objectives. Without that, you’re left moving your pieces and assuming the game hasn’t changed, making critical decisions on where to allocate resources for operations and growth without any kind of roadmap. That’s why budget alignment with business strategy and KPI or goal setting is a critical part of a successful budget—and key to achieving your organizational goals. It’s also how you ensure you have the right resources and team in place as you work to meet your overall objectives, reallocating resources as necessary to meet those goals. Budget alignment will empower your organization to reach its strategic goals—and that’s something the whole company can get behind. So how do you make that happen? In this blog post, we'll look at: Why should your budget be aligned with organizational goals? 3 steps to achieving budget alignment Why Should Your Budget Be Aligned With Organizational Goals? If you don’t have visibility into your organizational roadmap already, it may be time to start advocating for it—or even asking for a seat at the table so that your team can fully support your business goals from beginning to end. When making your case, consider three reasons why your organization should be making alignment a top objective this budgeting season: 1. You’ll make the budgeting process less of an administrative task When true alignment is achieved, your budget moves from a job that needs to get done to become an operational extension of your overall strategic planning process. 2. You’ll allocate resources more intelligently Even in high-growth companies, resources aren’t infinite—and spending them unwisely is just unhealthy business practice. Every leadership team is going to have to make tough decisions on where to spend and where to cut as well as what operational and growth initiatives are worth investing in. Budget alignment helps you prioritize or provide portfolio options for that spending so that financial allocation decisions are based on your company objectives—and not just the loudest voice in the room. 3. You’ll have more money when you need it Without a deep understanding of company strategy, your finance team won’t be able to model or advise on resource requests, including the headcount, tools and other resources that will empower your organization as it turns strategy into results. Teams will be left scrambling when the time comes—something that can lead to employee burnout and stunted progress, or force teams to adjust plans in a silo to accommodate for the resources available rather than taking a holistic organization-wide approach. Without alignment, it’s easy to spread your money too thinly across too many projects and end up without enough cross-functional resources to get things done across the line. It’s in the best interests of everyone in the organization, then, to make sure alignment is achieved. 3 Steps To Achieving Budget Alignment What is the relationship between strategic planning and budgeting in your organization? If a strategic plan outlines where your business is going, the right budget should smooth the path—allocating resources holistically to operationalize your strategies. The following steps can help achieve that, to ensure your budget supports your organizational goals: Step 1: Keep Your Eye on the Long Term Whether you budget annually or have a rolling budget, your long-term strategy should be a sounding board to your process early on so that you’re able to prioritize the right resources and programs. Most business goals are going to take longer than a year to reach fruition so even an annual budget can’t take into consideration the full picture. By keeping strategy front of mind during all of your team’s long-term planning, you’ll be able to ensure it trickles down to fuel your ongoing budgeting needs. But how do you do that? Consider introducing a strategic budget. Strategic budgeting expands the budgeting process past a year to add a more long-term view to the budgeting process. Less focused on detailed line items, such as spending and revenue, it centers specifically around your company’s goals when it comes to competitive threats, risk assessment, growth opportunities and where resources should be reallocated to support growth. Break down the organizational silos. Organizational silos can make it difficult to allocate resources efficiently for the long term. Tools such as scenario modeling or zero-based budgeting can help you break down your silos and funnel your strategic plan directly into your budget so that your future goals drive every budgeting decision you make. Use the right technology. The right technology solutions can make it easier to visualize your budget over the long term, compare it to actual performance and use modeling to see how it all might come together. Step 2: Get Your Leaders Involved Early Ensuring your budget is fully aligned with your latest company goals means getting your executive team involved early—whether that be in the strategic planning process or in the subsequent budgeting process itself. Ideally, this will provide the transparency and insights necessary for your team to allocate resources accordingly. But it’s not always as easy as it sounds. So how do you make that executive involvement happen? Advocate for early strategic involvement. By involving finance in the formation of your company’s strategic goals from the start, you’ll have visibility into those objectives before your budget even gets off the ground. This will help you build out alignment earlier in the process and make executive involvement a natural part of the process. Center your budget around data-driven storytelling. By framing your budget within a larger narrative—the future success and growth of your company—you’re making it a key driver in the story your company is trying to tell. Data-driven storytelling can help you showcase that bigger picture, letting you demonstrate how your budget will impact business initiatives and empower success—something already inherently of interest to your executives. Make it routine. To prioritize your budget for your strategic team, make it part of their regular routine—not just a single information dump. Determine how you’re going to interact with each stakeholder and then put it in their calendar so that it becomes a normal business process. That way, you can provide ongoing visibility into the budgeting process, introduce reforecasting processes so that the plan never seems stale and stay available for any questions along the way. Step 3: Measure Your Success and Repeat It Identify the metrics critical to measuring progress on your company objectives to better understand how your budget is helping you achieve them. Both financial and non-financial metrics will be key to understanding how your budget is succeeding—and give you the insights you need to adjust the next forecast or plan and to make rolling changes based on what’s working and what’s not. Visibility into these metrics and successes will also help drive buy-in to the budgeting process and give cause to align it with your strategy. But where should you start? Measure what matters. If you want to tie your budget to actual performance and understand how well it’s adding to your organizational goals, you need to know which metrics to follow to ensure you’re getting it right. You could use a CPM software to keep your measurements in a secure place. Outward-facing metrics—market share, customer satisfaction or your net promoter score (NPS)—can be useful, as can internally focused metrics such as top or bottom line. But depending on your organizational goals, you may also choose to look at more purpose- or value-driven metrics such as lives impacted or jobs created. Tweak as you go. While you should always have an eye on the endgame, the market is going to change and your business goals along with it, providing you with new challenges, opportunities and demands to address. By continuously measuring your budget success, you’ll be able to make the necessary course corrections to stay flexible to change. Versioning can help with that, allowing you to move fluidly from the initial version of your budget to the most recent or from your annual or rolling plan to your longer-term strategic plan—allowing you to see the changes you made, comparing and contrasting and understanding where you may need to make adjustments. Look at team and employee performance. While aligning your budget with your overall organizational goals is always the first step, once that’s achieved, you can also begin to consider linking budget performance to individual and team performance as well. This adds even more focus and transparency to your budgeting process and offers you a chance to course correct—or celebrate success—at the team level. With executive involvement, a view to the long term and ongoing measurement along the way, you’ll be able to build better alignment into your budgeting process and put your company on the right path to strategic growth. Just remember, aligning budget to strategy isn’t just a “nice to have.” It can make the difference in whether your company achieves its larger objectives—and how fast it meets those goals. Find out how Vena can help you build a better budget.

October 7, 2020 |

The Benefits (and Drawbacks) of Zero-Based Budgeting

Zero. Zilch. Nada. However you say it, it’s not where most of us want to be. After all, who wants to begin from zero when you have a chance to start ahead of the game? Yet, over the years, companies from Texas Instruments to 3M have made starting from scra......

October 2, 2020 |

40% of Finance Teams Don’t Perform Scenario Analysis When Forecasting, Survey Finds

According to the inaugural Vena Industry Benchmark Report, 40% of businesses don’t do any scenario modeling before making adjustments to forecasts. The new report draws from the insights of 350 business leaders and finance and operations professionals acro......

According to the inaugural Vena Industry Benchmark Report, 40% of businesses don’t do any scenario modeling before making adjustments to forecasts. The new report draws from the insights of 350 business leaders and finance and operations professionals across industries and from around the world. When asked if organizations engage in a scenario modeling plan before making forecasting adjustments, 40% of survey respondents replied “no,” while 60% said “yes.” This finding raises questions especially relevant during this period of unprecedented change: If you aren’t regularly testing business plans against potential future scenarios, how can you ensure forecasts are as well-informed as possible? And without thoroughly analyzing what might happen in the future, how can business leaders align goals and prepare for what does happen? With business conditions evolving as rapidly as they are today, businesses need to be ready for anything—whether that’s making it through a cash crunch, preparing for resource reallocations or adapting to a new operating model. But if there’s no clear process in place for determining how potential changes will affect the bottom line, it’s difficult to plan proactively based on reliable financial assumptions. That’s why scenario modeling and analysis is such an important aspect of effective finance-led business planning. By testing budgets and forecasts against a range of assumptions and business drivers—both internal and external—you can mitigate risk and better understand how decisions made today will impact the bottom line tomorrow. And even though it’s impossible to prepare for every possible business outcome, modeling multiple scenarios helps you identify your most variable KPIs, measure the influence of changes and then factor that information into your business plans going forward. To make the job of modeling multiple scenarios easier, move away from manually running models in offline spreadsheets and leverage predictive analytics to generate reliable scenario models in minutes. Plus, by providing a consolidated view of company-wide data and conducting variance analysis between previously forecasted periods, you can account for both historical trends and real-time actuals when choosing which scenarios to analyze—ultimately resulting in a more thorough, focused planning process with inputs from every business function. If 2020 has taught us anything, it’s that budgets and forecasts will always need to change at some point. But through agile scenario analysis, you can turn change into an opportunity to re-align your business plans and chart the best course for the future—no matter what that future might look like. Learn more about how you can empower your finance team with scenario modeling so you can make faster, smarter decisions for the future of your business. Download Vena’s Industry Benchmark Report here.

July 28, 2020 |