Communication is inherent in planning/budgeting. The effectiveness of communication within the planning/budgeting process is dependent upon the effectiveness of communication within the organization. Transparency is a major factor in communications that can mitigate the impact of disagreements.
Summary: Effective planning and budgeting is highly dependent upon effective communication. Bidirectional visibility between operating units, upper management, and other stakeholders facilitates this communication. More...
Summary: Large organizations require more emphasis on communication. Visibility promotes understanding and, possibly, trust as decisions are made and results are determined. Disagreements will arise as decisions are made. These are healthy especially when people who disagree can understand the inputs into the decision that was made. More...
Effective communication is important within any organization. The planning and budgeting process can serve as a tool to facilitate communication. Through the planning and budgeting process, organizational units communicate their desired plans/initiatives and the resources required to accomplish them. As budget requests go up the chain for review/approval, upper management can consider these priorities relative to those from other organizational units. Funding decisions are then communicated back down the chain to communicate the priorities for the organization as a whole. This also communicates the organization's priorities to external stakeholders. To accomplish the communication, both internally and externally, the process and underlying information must be transparent so all involved understand the decisions made. (rb)
The larger the organization the greater is the importance of communication. The Planning & Budgeting process is an essential part of the overall organizational communication process as it provides context and a process to make and communicate decisions and promotes alignment throughout the entire organization.
To facilitate communication, the process must provide visibility to both the decision process and decision basis. If the process is robust, participants will gain trust in the process and its results. In contrast, if the process is not sufficiently transparent, there is greater likelihood of bad decisions or that decisions will not be made at all.
Significant visibility is gained as operational and financial data, relationships, and results are integrated with each other. In effect, financial and operational views should be specialized viewpoints into the same data, relationships and results. A purely financial plan or budget cannot attain this degree of visibility or transparency.
As decisions are made, there will be people who disagree with the decision. If there is sufficient visibility, they should at least appreciate and respect the basis for the decision. However, their support cannot be guaranteed where significant change is involved. In these cases, additional change management considerations are required. Disagreements may indicate the need for risk management and/or contingency plans.
There are some people who do not like disagreement. However, in the decision process, disagreement is an essential part of the process that brings out risks, benefits, costs, and other implications. In this respect, training concerning the value and role of disagreement would be appropriate. In an aligned organization, after the decision is complete it must be effectively communicated. At that point, all must support the decision’s implementation regardless of their personal views but there should be communication channels that allow people to offer their feedback. (as)
- Communicate decisions and priorities down the chain and (where appropriate especially for public sector) to external stakeholders.
- The process and underlying information must be transparent so that all involved understand the decisions made.
- The process should communicate to all participants when disagreement is appropriate and when support to the decision made is required.
- Discuss up front the level and timing of critical resource deployments to create more realistic forecasts and more executable plans.
- Provide for, and encourage, disagreement during the process until the decisions is made. Having been heard, the process should then expect support for the decision made.
- Develop risk management and/or contingency plans based on the underlying implications of disagreements.
- The extent to which the business entity emphasizes an open/continuous communication between accounting and production departments
- The extent to which the corporate board is involved in modifying and approving the business entity's budget
- How the business entity reports variances
- How well cost behavior is understood by senior non-finance management within the business entity.
- How well cost behavior is understood by senior finance management within the business entity.
- The extent to which there is a strong relationship between budget and corporate strategy.
- Number of budget versions produced before final approval.
- Total number of FTE days to complete the budget cycle.
Michael C. Mankins and Richard Steele. "Turning Great Strategy into Great Performance." Harvard Business Review (July 2005): Kathy Williams. "Finance transformation: Making progress," Strategic Finance (November 2003): APQC, Beyond Planning: Creating a Strategy that Promotes Alignment, Agility, and Accountability (Houston, TX: APQC Publications, 2004):
- Budgeting serves as a tool to communicate needs and priorities.
- The Planning & Budgeting process offers a framework to facilitate communications throughout the organization.
- The planning and budgeting process may not be sufficiently transparent.
- Lack of transparency in creating a budget can lead to poor budgets or budgets that do not get "buy in."
- .Improved transparency may lead to disagreements during the planning and budgeting process
- People don’t like disagreement but disagreements during the process can help result in a better budget.