Planning and Budgeting for the Agile Enterprise: A driver-based budgeting toolkit

245 Pages·2007·1.76 MB·English

by  Richard Barrett

×
ElsevierUK Jobcode: AGE Prelims-H8327 17-4-2007 5:49p.m. Page:i Trimsize:165 234MM
Planning and Budgeting for
the Agile Enterprise
Fonts: ZapfElliptBT&Frutiger Margins:Top:48pt Gutter:48pt FontSize:10.5/14pt TextWidth:31pc Depth:39Lines
This page intentionally left blank
×
ElsevierUK Jobcode: AGE Prelims-H8327 17-4-2007 5:49p.m. Page:iii Trimsize:165 234MM
Planning and Budgeting for
the Agile Enterprise
A Driver-Based Budgeting Toolkit
Richard Barrett
AMSTERDAM•BOSTON•HEIDELBERG•LONDON
NEWYORK•OXFORD•PARIS•SANDIEGO
SANFRANCISCO•SINGAPORE•SYDNEY•TOKYO
CIMAPublishingisanimprintofElsevier
Fonts: ZapfElliptBT&Frutiger Margins:Top:48pt Gutter:48pt FontSize:10.5/14pt TextWidth:31pc Depth:39Lines
×
ElsevierUK Jobcode: AGE Prelims-H8327 17-4-2007 5:49p.m. Page:iv Trimsize:165 234MM
CIMAPublishingisanimprintofElsevier
LinacreHouse,JordanHill,OxfordOX28DP
30CorporateDrive,Suite400,Burlington,MA01803,USA
Firstedition2007
Copyright©2007,ElsevierLtd.Allrightsreserved
Nopartofthispublicationmaybereproduced,storedinaretrievalsystem
ortransmittedinanyformorbyanymeanselectronic,mechanical,photocopying,
recordingorotherwisewithoutthepriorwrittenpermissionofthepublisher
PermissionsmaybesoughtdirectlyfromElsevier’sScience&TechnologyRights
DepartmentinOxford,UK:phone(cid:2)+44(cid:3)(0)1865843830;fax(cid:2)+44(cid:3)(0)1865853333;
e-mail:[e-mail]tyourrequestonlineby
visitingtheElsevierwebsiteathttp://elsevier.com/locate/permissions,andselecting
ObtainingpermissiontouseElseviermaterial
Notice
Noresponsibilityisassumedbythepublisherforanyinjuryand/ordamagetopersons
orpropertyasamatterofproductsliability,negligenceorotherwise,orfromanyuse
oroperationofanymethods,products,instructionsorideascontainedinthematerial
herein.Becauseofrapidadvancesinthemedicalsciences,inparticular,independent
verificationofdiagnosesanddrugdosagesshouldbemade
BritishLibraryCataloguinginPublicationData
AcataloguerecordforthisbookisavailablefromtheBritishLibrary
LibraryofCongressCataloguinginPublicationData
AcatalogrecordforthistitleisavailablefromtheLibraryofCongress
ISBN–13:978-0-7506-8327-2
ForinformationonallCIMAPublishingpublications
visitourwebsiteathttp://www.cimapublishing.elsevier.com
PrintedandboundinTheNetherlands
07 08 09 10 11 10 9 8 7 6 5 4 3 2 1
Working together to grow
libraries in developing countries
www.elsevier.com | www.bookaid.org | www.sabre.org
Fonts: ZapfElliptBT&Frutiger Margins:Top:48pt Gutter:48pt FontSize:10.5/14pt TextWidth:31pc Depth:39Lines
×
ElsevierUK Jobcode: AGE Prelims-H8327 17-4-2007 5:49p.m. Page:v Trimsize:165 234MM
Contents
Preface ix
Acknowledgements xi
1 Introduction 1
2 The Re-forecasting Dilemma 7
When to re-forecast? 9
Rolling re-forecasts 10
How far should you look ahead 11
How frequently should you re-forecast 11
The cost–benefit model of re-forecasting frequency 15
Who should re-forecast? 17
Who to involve in rolling re-forecasts 18
What to re-forecast? 19
Summary 20
3 The Logjam with Re-forecasting 23
Debunking the myths about planning and budgeting 26
Corporate resistance to more frequent re-forecasting 34
Summary 35
4 The Limitations of Traditional Budgeting 37
Budgets and rewards 39
Gaming with budgets 40
Basing rewards on relative performance 42
Aligning rewards with the interests of investors 44
Setting targets 45
Executing strategy 47
Managing ongoing business processes 49
Horizontal alignment 50
Managing the business 52
Summary 58
5 Driver-Based Budgeting 59
What is a driver? 62
Different types of driver 63
v
Fonts: ZapfElliptBT&Frutiger Margins:Top:48pt Gutter:48pt FontSize:10.5/14pt TextWidth:31pc Depth:39Lines
×
ElsevierUK Jobcode: AGE Prelims-H8327 17-4-2007 5:49p.m. Page:vi Trimsize:165 234MM
Contents
Other drivers used in modelling 64
Characteristics of drivers 65
Driver-based budgeting and fixed costs 73
Driver-based budgeting and capacity management 74
Driver-based budgeting vs. activity-based budgeting 75
Differences between activity-based planning and
budgeting and driver-based planning and budgeting 81
Summary 83
6 The Pros and Cons of Driver-Based Budgeting 85
Benefits of driver-based budgeting 87
Downsides of driver-based budgeting 95
Summary 103
7 Budgeting for Shared Services 105
How ABC might apply to IT shared services costing 112
Standardized service definitions 113
Options for cross-charging 113
Benefits of using ABC in IT shared services costing and
cross-charging 114
Aligning shared services resource with the business needs 115
Summary 118
8 Assessing the Return on Investing in Budgeting 121
Calculating the tangible benefits 123
So what goes into the calculation? 125
Worked example of estimating the organizational cost of
budgeting and re-forecasting 129
Accessing the intangible benefits 135
Summary 137
9 Systems Requirements for Supporting Driver-Based
Budgeting 139
Common characteristics of packaged budgeting
applications 141
Specific software characteristics for driver-based budgeting 144
Integration with other performance management
applications 149
vi
Fonts: ZapfElliptBT&Frutiger Margins:Top:48pt Gutter:48pt FontSize:10.5/14pt TextWidth:31pc Depth:39Lines
×
ElsevierUK Jobcode: AGE Prelims-H8327 17-4-2007 5:49p.m. Page:vii Trimsize:165 234MM
Contents
Order of implementation for integrated solutions
based on drivers 153
Summary 154
10 Implementing Driver-Based Budgeting 155
Getting driver-based budgeting on the corporate agenda 157
Identifying the project manager 160
Getting started 161
Developing the project plan 163
Execution 166
Post-project support 177
Changing the role of finance 179
Summary 182
11 Conclusion 185
Appendix 1: Peticure – A Worked Example of
Driver-Based Budgeting 189
Appendix 2: Activity-Based Costing 199
Appendix 3: Case Studies 209
Index 225
vii
Fonts: ZapfElliptBT&Frutiger Margins:Top:48pt Gutter:48pt FontSize:10.5/14pt TextWidth:31pc Depth:39Lines
This page intentionally left blank
×
ElsevierUK Jobcode: AGE Prelims-H8327 17-4-2007 5:49p.m. Page:ix Trimsize:165 234MM
Preface
Open any text book on management accounting and typically you will find a
number of highly detailed chapters on cost management techniques, but very
little on budgeting. This is quite interesting, especially when the budgeting
process remains the pre-eminent mechanism for performance management in
most organizations and is the most important interface between the finance
function and the rest of the business. This lack of content may simply be a
reflection of the fact that the budgeting process has not evolved much in the
last seventy years. Inside most organizations it remains much as it was when
it first came into prominence in the early part of the twentieth century.
During this time there has been some pioneering work on new approaches
to budgeting. The Beyond Budgeting Round Table has identified the folly of
rewarding employees for achieving negotiated fixed budgets and suggests bas-
ing bonuses and incentives on relative performance measures benchmarked
against peer-group competitors or previous results. As such the people who
should be paying attention to this message are the board and the human
resources department rather than the finance function. The other notable
advance is activity-based budgeting which grew out of activity-based costing
and is now represented by a number of pioneering publications. However for
most budget controllers, this approach remains complex and impenetrable,
which possibly accounts for its low level of adoption.
Drowning under the plethora of spreadsheets that most organizations still use
forbudgeting,accountantswillreachforalmostanylifelinethatisofferedand
this typically means a packaged budgeting application. Implementing these
provides a ready solution to many of the pain points that the finance func-
tions suffers in the annual round of budgeting and re-forecasting. Yet research
suggests they do little to enable more frequent re-forecasting or to reduce the
amount of time line managers inside the organizations spend on planning and
budgeting. So what is to be done?
The purpose of this book is to offer a way forward. It contains little if any
groundbreaking theory. It does not propose any radical changes in budgeting
practices. Driver-based budgeting still requires the participation of line man-
agers and still results in the usual chart of accounts and cash flow statements.
Ratherthanbeing“big-bang”,itisanapproachthatcanbeimplementedincre-
mentally so that organizations can grow into it as both line managers and
the finance department gain confidence. As such, there is little, if any, risk
ix
Fonts: ZapfElliptBT&Frutiger Margins:Top:48pt Gutter:48pt FontSize:10.5/14pt TextWidth:31pc Depth:39Lines