Our News | Taysols

Four Warning Signs you're getting on the budget Merry-Go-Round

Written by Taysols | Jun 11, 2020 10:15:00 PM

Four warning signs you’re getting on the budget Merry-Go-Round

If you work in any kind of corporate accounting role, it’s likely you’ve had a ride on the budgeting Merry-Go-Round.

We’ve all been on it at some point.

Ever feel like you get stuck in a never-ending cycle of budget reviews, amendments, more reviews and changes, dragging the budgeting process well past its due date?  That’s the budgeting Merry-Go-Round.

Sometimes it’s hard to tell when you’re going for a ride on the budget Merry-Go-Round and before too long, the budget has stretched out months and months and you are already into the new year.

What are some early warning signs you’re going for a ride on the budgeting Merry-Go-Round?

 

Unclear organisation goals / different department goals

The budgeting Merry-Go-Round starts here.

When departments aren’t on the same page, are not up to date with the latest organisational restructures or have different project priorities, budget changes will be stubbornly fought. While it may be in the best interest of the company, any proposed changes to the budget may not align with departmental or personal goals.

Worse still, experienced managers may try to introduce ‘budgetary slack’, deliberately under-reporting revenue expectations or over-reporting expenditure to justify their budget demands, and inexperienced managers may over-estimate revenue and underestimate expenses resulting in never to be met targets in a vain attempt to mask troubles.

When organisations fiscally reward managers and departments for meeting or ‘beating’ the budget, the temptation of gaming the system to beat the budget increases. Long term, this can be incredibly detrimental to the competitive drive of an organisation and can make “trimming the fat” out of a budget incredibly challenging.

Unclear organisational vision can lead to a long, drawn-out back-and-forth budget process, as different departments vie for their own best interest over the collective interest of the organisation, leaving you trying to find space in the budget to accommodate their demands at the expense of the organisations’ operational efficiency.

  

A lack of organisation investment in new systems, training, and standardisation.

This early warning sign is obvious in hindsight.  Unfortunately, it’s often overlooked leading up to the budgeting Merry-Go-Round.

In large organisations with multiple teams, systems and processes may not match up across the company.  How different departments may capture and manage data, or record expenditure can vary considerably.  Inevitably this “bubbles up” to the corporate level, leading to plenty of back-and-forth forensic accounting to solve discrepancies in the treatment of accounts.

A phrase you may hear when attempting to resolve this is “We have always done it this way”, along with the difficult realisation that the only option to ensure the figures are accurate is to conduct an enterprise-wide review.

When we add balance sheet and cash flow budgeting to this conundrum, we’ve moved from the merry-go-round to the roller coaster, because a change in this, impacts another statement somewhere else and all sense of control flies out of the park.

 


Poor inter-departmental communication

When departments don’t communicate clearly with each other, the likelihood of budgetary misalignment increases. 

If one business unit forecasts strong sales growth, the impact of that planned growth needs to be reflected in budgets for other business units, such as manufacturing or distribution.

Clearly established lines of communication can assist progress towards achieving each department’s goals and ensures the budget is able to be adequately resourced.

 

 Budget revision three has just come back to your team

We all dread it, the frantic rush to accommodate the requests, reallocate resources and manage expectations.

When this happens, you really know you’re riding the budgeting Merry-Go-Round.

The budget coming back once or twice with some minor changes is not that unusual. Three times or more? Then you know that someone somewhere is pushing back.

 

In our next blog, we’ll be discussing getting off the budgeting Merry-Go-Round.

If you’d like to learn more about the budgeting Merry-Go-Round and how to achieve budgeting success, download your free Taysols Tip Sheet by filling the form at the top right of this page.