Budgeting and Financial Planning

Budgeting and financial planning are not stand-alone activities. Budgeting or making a budget is the act of quantifying cost or pricing for an item or list of items, and in the case of communications, the list is likely to be a combination of goods and services. The items on the list may be a one-time occurrence or recur on some periodic basis. Financial planning is the process of striking several budgets based on alternative scenarios to arrive at a point where the budget fits within an overall set of financial parameters for the organization. The result of the budgeting and planning processes provide a financial benchmark within the overall business plan. The budget part of the business plan includes revenue, expenses, and net income, or if expenses exceed revenue, a loss, which is a big no-no. During the course of the year, the budget will be used to compare actual results of operations in current and previous periods, and to forecast results in future periods.

Organizational budgeting and financial planning for an organization typically rests within the chief financial officer function. There are two activities to be concerned with. Accounting is responsible for entering transactions into the system and periodic reporting of actual results. Successful budgeting and planning requires contribution, collaboration, and cooperation from department managers and subject matter experts as well. The communications cost management process envisions working closely with both groups. Successful communications cost management depends on a high level of consensus among all three groups, and in turn all the department managers are responsible for creating the budget and managing to success and satisfaction of management and stakeholders.

The purpose is to provide understanding and insight into creating and planning communications operating expense and capital budgets to fit within an existing accounting and financial operations system. However, significant improvement in managing communications cost  is likely to require changes in the way communications expenses are first accounted for and then budgeted in the future.

Recognize up front that changing accounting practices and processes should not to be undertaken lightly because change causes variances when current period performance is compared to previous periods. It can be seen as an inconsistent practice, which is a big flag-raiser with management, auditors, and investors. Getting past the flag requires an explanation. Be prepared up front, and then as the changes take effect and are noticed, be prepared to explain them again. Initially, most of the changes required to realize significant savings involve reclassification of expenses in the telephone expense account. This can be a natural outcome of implementing machine-based invoice validation and establishment of a standard cost system for communications.

Establishing and implementing standard cost and machine-based invoice validation so that each invoice is classified, coded, and recorded prior to being paid provides a basis for analysis, which can in turn support more accurate budgeting and financial planning in the future.

The bottom line is accounting will have to be convinced that the advantages outweigh the disadvantages before changes can be made. There is a two-part message: (1) be convinced and sure of your ground, and (2) be prepared to educate, inform, and convince your colleagues and executives there’s ‘‘gold in those hills.’’