By Alan Hart
How different functions in the company have different views on the process
In all but the smallest companies, there are quite a few people involved in the annual budget preparation. While finance generally owns the process, every division and department in the company has something to do with it. As such, many employees are familiar with at least their piece of the process and even though (and admittedly) many loath these activities, they all have their own unique point of view on the process and its purpose.
Let’s start with the division or department heads. These are people generally responsible for the P&L in their immediate area, be it a department, division or profit or center. To them, usually, the process starts two or three months prior to the end of a fiscal year. They are given templates of revenue and expenses to fill out and return to finance or the budget administrator(s) within the finance group. Some companies require a zero-based budget, meaning every expense line must be individually entered and justified – a lot more work for department heads, but we would assume they are accustomed to doing this.
To them, the budget represents the anticipated performance of their business units, such as sales, expenses, profits and losses communicated through the budget; perhaps proposed growth through the release of new products and services, cost savings, etc. Usually, their budget preparation responsibilities end at their department level. During the budget year, they try to perform within the budget constraints hoping performance falls within budget or perhaps even exceeds it.
In companies where periodic analysis occurs, these people are questioned when their business unit’s performance exhibits variances from the budget, and operational changes as well as reforecasting often occur.
The budget administrator (more than one in larger companies) is concerned with releasing budget worksheets or templates to budget participants. They also collect these data and incorporate them in a consolidated corporate budget book. If their company still uses a set of spreadsheets (which we all know by now is a very bad idea) in its budget preparation process, they are in charge of maintaining these spreadsheets, the programming of formulas, functions, links and macros, and most notably, continually troubleshooting these spreadsheets.
If the company is fortunate enough to be rid of their spreadsheet-based budget, these budget administrators are focused on maintaining the budget model, releasing and collecting electronically filled out worksheets from the various budget participants, consolidating the many budget sheets into a corporate budget book and handling all revisions and iterations of the budget until it is approved. Then, some may perform analytics functions, usually based on their system’s capabilities and company mindset.
The VP or Director of Finance, or in smaller companies the Controller is involved in budget reviews and modifications throughout the budget preparation process and then, hopefully, in reviewing the periodic analysis performed during the budget year. Traditionally, their primary concern is accuracy and completeness of the data, and understanding variances of actual performance from budgeted numbers.
The company CFO, together with the CEO Go to the full article.