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.

SEVEN STEPS TO PRACTICAL COMMUNICATIONS COST MANAGEMENT

• Invoice validation against standard cost
• Day-to-day order administration—moves, adds, and changes
• Initiating and managing capital projects
• Analysis of spending and resource utilization
• Monthly, quarterly, and annual reporting
• Development of annual budget and business plan
• Development and ownership of technology plan and long-range strategic plan

Invoice Validation Against Standard Cost

The first step in good CCM is validation and verification of all invoices. This requires an accurate, stable cost reference database. This must be established through a process commonly referred to as an audit. Notice that these two steps are independent, yet closely intertwined, and require interaction between accounting, communications technical, procurement, and vendors.

In addition to charges for the service, there are a myriad of service fees, taxes, and other charges imposed on the service by federal, state, and local municipal governments. Further complicating the matter is the fact that contractual agreements covering telephone service are a mix of private one-time agreements, multi-year service contracts, and public tariffs on file with the FCC and state PUCs. Presenting a bill that will be paid on presentation is a balancing act between providing enough information to justify the total amount due and simplifying or summarizing the details so the information will fit onto a reasonable amount of paper or in a reasonable size file, and not seem overly complex.

Telephone service invoices, especially for long distance service, are complex, lengthy, and involve very complex rating, pricing, and tax and other assessments such as access charges and universal service charges. Manual verification of the amounts on the typical number of invoices, and the level of detail is next to impossible. It would be easy to just blame the telephone company for the situation, but that wouldn’t be quite accurate because they are required to collect and remit taxes and assessments levied by federal, state, and municipal governments. The telephone company designs and builds billing systems to generate these complex and massive invoices. Given all the complexity, and the fact that the systems evolved over time, mistakes are highly probable, especially with respect to taxes imposed by so many jurisdictions. Successfully coping with this situation is potentially lucrative in terms of credits and reduction of future charges. The most effective way is to fight fire with fire in the sense that it requires well-written application software, significant computing power, accurate rating tables, and constant maintenance of records.

Day-to-Day Order Administration—Moves, Adds, and Changes

Day-to-day moves, adds, and changes may appear simple, but that doesn’t mean it is. Across the spectrum, it is in reality like leading an orchestra because it can vary from installing a new telephone for a new employee or contractor to moving entire work groups over a weekend, while at the same time managing multiple contractors in one or more capital construction projects. If the work is not planned and coordinated properly, telephones, LANs, and the entire network service capability can seriously impair business operations. One of the keys to saving money and making sure the invoices are validated and paid promptly is solid technical work planning, using standard processes and dependable sources of supply. The level of effort and resources required to support this step is also dependent upon how many service locations are included, organizational or business growth rate, and the amount of time allowed to properly plan the work.

Initiating and Managing Capital Projects

If communications facilities and services can be considered the lifeblood of a business, project implementation has to be the heart and soul of organizational growth. Establishing an operation in a new location after renovation or during new construction starts before the first wall is knocked down or shovel full of dirt is dug. Making sure the wire is in the wall, ceiling, or underground at the right time can cost or save thousands of dollars, and delay the overall project. Making sure the right thing is in the right place at the right time requires good relationships with dependable suppliers, standardized requests for proposals (RFPs), timely evaluation, and due diligence followed by supervision and acceptance of timely deliverables.

Analysis of Spending and Resource Utilization

Knowing where you stand with all facilities and resources in a so-called fast-paced environment requires stopping to analyze where the business is at on a periodic basis. Good management of financial resources requires good budgeting in the first place, but good budgeting doesn’t lead to good performance without constant attention and awareness of needs against available resources, spare capacity, and what’s in the pipeline for both.

Supplier Evaluation and Selection

Serving a customer is about the only thing more valuable than having strong working relationships with a range of competent, dependable suppliers. Achieving the lowest possible cost is best served with competition. Open, fair, and honest competition happens when suppliers are engaged in a balance between informal give- and-take as well as formal RFPs and organized presentations and proposal responses. Suppliers are where the new technology comes from. Understanding their value chain, timing, and content can provide marketplace intelligence that money can’t buy.

Development of Annual Budget and Business Plan

No single department should undertake to strike an annual budget and develop next year’s business plan without consideration of current and possible communications products, services, and emerging technology. Communications technical and accounting professionals can provide invaluable insight and knowledge that will allow the line manager and the entire management chain to understand their competitive position and make rational, informed decisions about changing or not changing the way they do business.

In addition, the CCM function should draw up an annual communications plan that covers the organizations initiatives and plans to communicate internally and externally, and show how it will leverage expense and capital across all the functions of the business—sales, marketing, engineering, IT, as well as public and media interests.

Development and Ownership of Technology Plan and Long-Range Strategic Plan

 For now, just realize that the forces acting on your organization include competition, regulation, and technology. Establishing a credible long-term strategic plan requires a sound knowledge of emerging standards and technology. Technology is at the root of the continuing change and generally drives regulatory and business change, especially changes brought on by competition.

A well thought-out technology plan should be developed in between annual business plans and bridge the current business operations cycle by 6 months. For example, if your organization begins its annual business planning cycle in mid-year and obtains management approval in the last month of its fiscal year, then ideal completion of the technology plan should be coincident with the start of the annual business plan. Bridging technology and real-world business planning and execution is key to long-term survival.