My friend Brad Feld has some important advice budget planning in his recent post on finding and managing the hockey sticks in your budget…In my experience the hockey sticks are relatively easy to spot and manage (if you really want to manage well), but a lot of management teams leave the hockey sticks in the budgets, at least in the initial drafts.
Here are some additional major issues and opportunities with economic modeling and achieving the predicted results of your annual budgets:
– Make sure that you identify the key assumptions that are the most important to your results.
– If you have historical experience, make sure that your key assumptions are consistent with experience.
– Make sure that you understand the sensitivity of the outcomes to key assumptions. This can easily be done by changing each of your key assumptions +- 10 percent and looking at the outcome changes. This will help you to prioritize and focus.
– Make sure that a capable management team member is committed and accountable for delivering against each of the key assumptions throughout the year.
– Make sure that each of the responsible managers have a robust plan for ensuring that the assumptions are met.
– Track and report on your key assumptions regularly so that the team can see how it is doing and make appropriate changes when the results are not tracking against expectations (which is quite common).
Yes, this is economic management 101, but frankly I have yet to meet a company that has executed against ALL of these points really well.