Frustration with your Annual Budget process? Agile Budgeting.
Companies put 90% of their resources toward the same activities year after year....
Wait a minute. That doesn’t sound right. I mean, we’re told daily that the pace of change is faster than ever. But if that’s true, our resource allocation should reflect the change… and surely it has to be more than 10% of resources.
The same Mckinsey study points out that: "... fewer than 15% of executives consider such macroeconomic trends in making strategy decisions, and less than a quarter even look at their own financial projections and portfolio performance".
That sounds like sleep-walking to me.
So is your organization one that does the budget allocation once a year without re-allocation? What happens when there is a change in the market? Or if your competitors launch a new product? Or the supply changes beneath you?
Well this kind of change is something software developers have been wrestling with for decades and they are increasingly adopting agile methods of development. Agile teams see great improvements in the value they deliver to the business.
Is there something CFOs can learn from these agile software development techniques?
The words “agile” and “planning” or “budgeting” don’t usually fit together too well and we’ve put them all in the same sentence. Are we mad?
Well, we use this language deliberately. The planning and budgeting process is a golden opportunity to be agile, to revisit your activity and key initiatives and to align them with strategy. Unfortunately, most organizations fail to take advantage of this opportunity – their planning process is essentially to fill in the same spreadsheet as last year, but with slightly different numbers. Some progressive CFO have seen the benefits of agile development techniques and applying them to the number crunching.
According to Bob Kitchen, managing director of Catalyze, a world leader at implementing agile planning and budgeting processes, “A structured and objective approach to the planning and budgeting process with a laser-like focus on value delivered can typically let you deliver 30% more value from the same resources.” A study by McKinsey confirms this; companies that deliberately invest in managing their strategic portfolio add 40% more value compared to those that don’t.
Agile planning and budgeting is all about clearly defining your priorities and then aligning initiatives and budget behind those priorities. It sounds simple, but in practice, organizations are often their own worst enemy. According to Kitchen, “Many organizations are very rigid in their processes and org-structure. This gets in the way of making tough, creative and above all agile decisions around resource allocation.”
“We’ve worked with traditional organizations to get around this cultural challenge,” says Kitchen. “You need a process and a set of software tools not only improve the quality of the resource allocation decisions that are made, but they also help overcome internal barriers and dramatically reduce the politics and deliver alignment. Agility in budgeting would be near-impossible without this level of alignment.”
This budgeting season, rather than working through the political headaches, battling back and forth (even trying hand-stands) to get more budget for your project, why not try something new: Agile Budgeting.