SUCCESSFUL PLANNING | Budgeting and Financial Planning

Successful planning is a mixture of paradoxes at best. First, it’s not possible to judge success until it’s history, or as Yogi Berra would say, ‘‘It ain’t over ‘til it’s over.’’ And once it’s over, we can look back and judge failure, success, or in between. Second, regardless of the circumstances, it’s not possible to go back and change what happened or didn’t happen. History might be re-written, or written differently, but if it is, then it isn’t accurate. Lastly, it’s not possible to predict the future, except in terms of probabilities, such as the typical weather forecaster might say ‘‘a 20% chance of rain,’’ or ‘‘temperatures tomorrow are going to drop into the 80s.’’ In the instant case, it’s not possible to predict or know if our planning has been successful until it’s too late to do something about it.

Successful budgeting and financial planning is one of the keys to long-term success. If your department or organization doesn’t have a plan, then make a plan to make a plan and follow through. You will feel better and improve your chances of success in doing what you want to do. If your organization has an annual business plan, then live by it and as time passes, make adjustments in your day-to-day or month-to-month work to stay on track, adjust or make up for misses, and watch for opportunities to capitalize on. At the end of the year, you can look back and say what you did well, and what needs improvement. Hopefully, along the way, one of the accomplishments was a business plan for the next year.

Once successful budgeting and financial planning has been instituted and seems to be working well for a period of 2 or more years, consideration should be given to longer range planning cycles, sometimes called strategic planning. Large, successful organizations aren’t born, they are made—not overnight—but over many nights and sometimes years. It’s also true that they didn’t get to their present state without mistakes. Sometimes those mistakes were planning mistakes; other times, they were operating mistakes.

One other important ingredient,  is a long-range strategic plan that dovetails with the annual business plan and well-oiled periodic reporting practices. This last part is no small matter; very few organizations practice it well, most are mediocre at it or simply don’t practice it at all.

BUDGETING AND PLANNING FORMS AND PRACTICES

If you’re an experienced budgeting and planning practitioner, it’s likely you use a system that has evolved from a combination of learning by doing and classroom training. However, it seems logical that we should be able to construct a system by simply incrementing it with forward-looking details and minor caption changes.

If we hang on to the intuition to take history and project it into the future, it should be possible to create a foundation from which to make changes and iterate results until we arrive at a point where we have the following:

• Departmental expense budget for communications cost management (CCM)
• Fixed asset account, capital budget, and revised depreciation schedule

Now that we have determined where we want to go, the issue and focus is on how to get there. Experienced budget crunchers have come to learn that once a year, somewhere out of the blue comes a set of instructions and assumptions to prepare the budget. And thereupon begins an annual ritual akin to something between a Mexican hat dance and an Indian snake charmer festival. Typically, the only thing constant, clear, and repetitive is ‘‘don’t spend any more than we have to,’’ or ‘‘cut capital spending by 25%.’’

Well-run, successful organizations breeze through the cycle and complete the annual business plan and budgeting with aplomb akin to a well-run ballet troupe. Why and how do they do this? Simple:

• They have a common-sense, well-adapted internal reporting and forecasting process
• They get management direction in the form of two or three alternative growth scenarios for the next year
• They use clear and simple assumptions regarding availability and use of headcount and capital
• They operate on a no-fear, no-cut, schedule with dates and deadlines for actions by key players

Before undertaking budgeting and planning work, it may help to explain a little more about what’s been going on during the current year so far. Earlier there was a mention of timing of the budgeting and financial planning process. Figure 1 shows key elements and timing with respect to the annual business plan.

 

Figure 1: Financial Reporting Planning Activities and Time Line

Basically, there are four activities taking place during the course of an operational year, sometimes called fiscal year. The well-managed organization begins the year with an approved budget and business plan. Throughout the year, operating results are recorded and reported on internally and externally. Even though the plan is fixed and doesn’t change, operations and results will vary because of several reasons. Moreover, the organization that doesn’t change its way of operating during the course of the year isn’t long-lived. At the root of change is the forecast activity. Properly carried out, forecasting is a powerful tool for driving annual operating and strategic business plans.

Assumptions and Growth Scenarios

First of all, let’s assume for purposes of the exercise, that we are on the receiving end of the assumptions and scenarios. The effort will involve:

• Responding to the request for a plan and budget
• Preparing a budget for the communications cost management function
• Supporting all other departments with communications expertise in the preparation of their operating and capital budgets.

Here are the assumptions provided each department:

• General economic growth remains sluggish to a point or two on the upside
• Industry segment growth: 3% overall
• Inflation between 3% and 4%
• Business growth in accordance with long-range strategic plan
• Delay replacement equipment capital from first to second quarter
• Delay expansion capital from second to third quarter
• Revenue growth: 5% per quarter, 15% year-to-year
• Net income growth: 6% per quarter, 20% year-to-year
• Short term interest rates: remain under 5%
• Cost of capital: 10%
• Headcount additions limited to vacancies in existing positions; incremental revenue; operating cost reduction projects (contractor, until proved out) and capacity growth.

Growth scenarios:

• Expand regional programming from one currently to two or three areas.

One of the more often ill-practiced parts of business planning is making a plan-for-a-plan, complete with dates and deadlines. This is senior management responsibility. But if it isn’t practiced well, and you’re the communications manager that has to live with the situation, you can make your own plan and deadlines and benefit from such action. Table 1 shows an example of how to lay out an overall schedule and plan.

TABLE 1

Step	Start Date	Deadline
Management issues guidelines and assumptions; requests draft plans	August 1	September 1
Management review cycle	September 1	October 1
Revision and negotiation	October 1	November 1
Prepare final plan	November 1	December 1
Final approval cycle	December 1	December 15
Distribute plan	December 15	December 31

Budgeting and Business Plan Schedule

In addition to the information above, each department manager has been provided with current financial summaries and first draft expense and capital budget forms or spreadsheets to use in developing the first draft submission.

COMMUNICATIONS BUDGET AND PLAN STRUCTURE

An organization’s annual business plan consists of several components, not just budgets. The purpose of a business plan is to set out goals and objectives—with great focus on financial targets the organization hopes to achieve in the coming year. Typical practice is to begin working on next year’s business plan and budget in the midto late third quarter of the fiscal year. For organizations operating concurrent fiscal and calendar years, school, and budgeting start around the same time. Usually the business plan and budget goes to the board or owner in December. Well-laid plans get approved; lousy plans become the root of contention and revision during the holiday season. Most organizations don’t enter a new fiscal year without a board-approved operating plan for the next year.

Communications budgeting and planning involves only the expense and asset accounts in the system. This is the time and place to get new inputs into budgeting and operating practices, as well as organize new parameters in operating and capital expenditures. Regardless of reporting structure, it is strongly recommended that communications cost management be accounted for as a departmental peer to other operating functions such as sales, marketing, accounting, management information systems/information technology (MIS/IT), etc. Alternatively, it can be part of MIS/IT if all subaccounts are properly structured and their entries classified appropriately. But care must be taken to keep the two separated and well defined, because of the potential for, and sometimes outright, duplication of resources or empire building. Missing an opportunity to acquire a new operational capability is also possible as well. This is the syndrome known as the left hand not knowing what the right hand is doing.

Good budgeting and planning practice uses previous years’ actual results as a foundation on which to build the next year’s plan. Overall, the process involves studying and understanding previous years’ history, followed by development and analysis of alternative scenarios. Reports of actual expenditures by category, department, and location covering the past year are the critical starting point. These reports should come from accounting on a regular monthly basis.

Excellence in budgeting and planning practice dovetails with and leverages successful long-range business and strategic planning. Gaining a detailed understanding of the content of goods and services making up the numbers may require examination and study of the invoices and contracts that caused the numbers. This is the area where communications subject matter expertise can greatly enhance clarity and meaning with respect to cause and effect of capital and operating expenditures, really purchasing decisions, on individual departments as well as the overall operations of the enterprise. It is important to determine the value of each and every spending transaction. What is the result of providing every single employee with a telephone? What would happen if they didn’t have a telephone, or if they had to share a telephone with another person? Managers in all departments with responsibility need to evaluate and consider the work content of each and every employee. What is their input and output; how much is dependent on 24/7 availability of a telephone for incoming and outgoing calls? The same questions should be asked about their computers, LAN usage, pagers, mobile phones, and other gadgets. Not that they aren’t valuable, but it’s a simple matter of understanding how valuable. And if the value is real, is it being applied to, or used by, all appropriate headcount?

Capital spending should be scrutinized as well. Look at the previous 2 or 3 years of capital spending. What was the cost of each component in the spending package? What was the expected result? Capital spending should either result in savings or profitable revenue growth, preferably both if possible. What was the promised return compared to reality today? Get numbers, because you will (or should be) asked. If you’re not asked, then you should update your resume and watch for an opportunity to move to a job where management asks before you’re forced to because the management you work for might not get supervised by the bank or board before the business isn’t a business any longer.

The budget is only one part of an overall communications plan. Depending on the way the enterprise is organized and conducts its accounting practices, communications budgets, and operating activities may be centralized or decentralized. They may be wholly an internal function or completely outsourced. In reality, it’s highly likely somewhere in between the two extremes and a mix of both. Other key parts of the plan include people and vendor or supplier resources. Communications expense and capital expenditures are significant dollar amounts. We know from experience that opportunities for significant one-time and ongoing savings exist. It is not unusual to realize 8% to 10%, or even 15%, favorable impact on pre-tax profit. Budgeting and financial planning time is the time to create a plan to realize those savings.

In addition to impacting the cost of communications directly, budgeting and financial planning provide opportunities to impact the organizations overall growth rate and the competitive and strategic position in the marketplace. Creation of a website with adequate, but not oversized communications network access and just the right amount of advertising and promotion can be just the ticket for a newly created product or service offering. Expansion of customer support with a new call center located in an area where labor cost is lower is a no-brainer. But structuring the design of the communications network and system required to support scalable growth over a 2-, 3-, or 5-year period requires knowledge of communications technology and commercial products and services to design, build, and operate in a way that enables and does not constrain growth. Competent communications budgeting and planning supports the department with direct responsibility to determine and plan the website. The responsible department describes what they want in the way of capabilities and results; communications management designs the facility and prepares a detailed operating and capital project plan, including budgets for both.

Top 10 (+1) Places To Go Wrong When Planning For And Purchasing A New PBX

Here are the areas where organizations most often go wrong in identifying their requirements:

1. Underestimating time & effort

Underestimating the time and effort needed to do this. What you might save at the front end will be more than offset by the cost of trying to fix things after the fact, if indeed they can be fixed at all.

2. Ignoring the details of how the current system is configured

Failing to develop a complete understanding of how your current system is configured and how circuits and peripheral systems are connected to it. This often results in not buying sufficient capability and capacity with a new system, then encountering costly additions after the initial system purchase. Do not assume that this information is readily available. Someone who knows the questions to ask and can document the answers in a clear and detailed manner needs to lock himself in the telecom equipment room for a day or two with the PBX technician.

3. Not focusing on how your organization is using the current system

While it takes a lot of time to investigate how your organization is using the functions of the current system, this is time well spent. For example, "How do you transfer calls from one telephone to another?" If you only press the transfer button once now to transfer a call and a new system requires that you press it twice, this may be viewed as a step backwards (which it is!). The intercom is another capability that is often overlooked and can lead to disappointment when a new system is installed. Many manufacturers have focused their energy on accommodating "new technology" at the expense of making the system easier to use.

4. Assuming uniform capabilities among manufacturers

Assuming that all manufacturers telecommunications systems pretty much have the same capabilities. They don't.

5. Not completely thinking through Call Coverage

Not having enough discussion and documenting how your organization will cover calls under a variety of circumstances. (i.e. when called person not at the desk, when called person is on another call, day, night, weekend, etc.). You may find that you have purchased a system that cannot accommodate your plans.

6. Planning Call Coverage with Too Much Detail before the final system selection.

Since each different system (even those from the same manufacturer) has its own proprietary call coverage capabilities and uses its own terminology, it is a wasted effort to plan call coverage down to the details of every telephone at every desktop. Trying to change it after the fact can result in a cumbersome call coverage set up that results in poor service to callers and staff.

7. Not communicating your requirements well to the suppliers

Collecting a lot of good information, but failing to communicate it well to the telecommunications system suppliers bidding on your project. It is suggested that this communication be both in writing and in a lengthy discussion to confirm what is in writing, to avoid misunderstandings when it is too late to do anything about them.

8. Falling in Love with Technology

Failing to balance a desire for experimentation with new technology with the need for traditional reliability.

9. Ignoring the Telephone at the desktop

Paying too little attention to the telephone instrument that will sit on everyone's desk while focusing on technology and backroom equipment. Most people judge the system by how well they like the telephone.

10. Not Budgeting Enough

Not budgeting a sufficient amount of money for the purchase, including a variety of professional services skills needed to implement it such as consultants, system designers, programmers, project managers and trainers.

11. Spending too much

Not understanding how much the system will cost, what is needed and what is negotiable. Therefore many organizations spend up to 100% more than is required.