Events

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This topic describes the role of events that can impact planning and formulating the budget.

Viewpoint A

Summary: The budgeting process needs a mechanism to deal with event changes that can significantly impact the budget environment. More...

Viewpoint B

Summary: It is not possible to anticipate all future events and conditions - the rule is that some current assumptions and forecasts will turn out to be incorrect. More...

Benchmarks, Resources, Recommendations, Implications


Viewpoint A

The budgeting process needs a mechanism in order to deal with event changes.

Such events that have impact include re-organizations, catastrophic events (economy, war, etc.), being bought out by another company, making new acquisitions/mergers, the entrance of a new CEO/senior leader, environmental events (Katrina).

The planning/budgeting entity should develop broad guidelines on how to build a budgeting system so participants are alerted when these events take place so that the planning/budgeting participants can react.

One solution is to implement a planning directive via a recognized authority for shared assumptions. This directive would communicate before each budget/plan iteration major guidelines, common assumptions to be incorporated, central overhead/planning rates that are to be commonly used, and elements that should be included or excluded by all. This will not only help communication, but ensure the elements are treated consistently across the budgeting and planning system. The solution also provides for one central master source and controller of change configuration via the central planning group.

One must also address assignment of sufficient resources to support an irregular, unforeseen event. These events often have random timing and random but, major monetary impact. This situation would require the use of a budget re-prioritization process. The entities experiencing impact from the event would bring forward their required incremental budget resource needs. The organization should first assess internal mitigations to absorb the increased needs. This may need to come from delay of investments (those not impacting an opportunity elsewhere), delay of technology refresh, non-critical program reductions, etc. If mitigations or reductions in other budgets are not enough to cover the new incremental needs, the organization may have to decide to fund statement of work increase to the budget by decreasing profit targets. The concept is that the planning and budgeting process should accommodate budget re-prioritization for unforeseen events via existing budget mitigations and shifts from less critical elements. This works best in areas where targets and compensation incentives are based on company level success, instead of on individual success in protecting one's turf. (ss)

Viewpoint B

The past is fixed; the future is yet to be written. Planning and budgeting inherently deals with future events both great and small; predictable and unpredictable. The one certainty is that the winds of change do blow – sometimes slow and steady – sometimes forcefully and chaotic.

To assume that the events and their impact can be known and locked down into a planning and budgeting document is folly. In contrast, failing to plan because events cannot be known in certainty is also folly, and perhaps the greater folly.

Our attempt to forecast events and their impact gives us the opportunity to anticipate our capacity to reactive affirmatively to them BEFORE our “backs are against the wall”; before our collective blood pressure is extreme; before valuable resources are wasted.

Basic principles that should be incorporated into the P&B process include: 1. The future will be different than planned for – get used to it. 2. The further into the future, the less we can visualize and estimate. 3. As events approach, the better we can visualize and estimate. 4. Other stuff – both large and small – will happen. 5. Do risk analysis on the big stuff, let the other go on. (as)

Benchmarks

Your input is welcome here

Resources

Your input is welcome here

Recommendations

  • The planning/budgeting entity should develop broad guidelines on how to build a budgeting system so participants are alerted when certain events take place so that the planning/budgeting participants can react.
  • Establish a recognized authority for shared assumptions. This source would communicate before each budget/plan iteration major guidelines, common assumptions to be incorporated, central overhead/planning rates that are to be commonly used, and elements that should be included or excluded by all.
  • The planning and budgeting process should accommodate budget re-prioritization for unforeseen events via existing budget mitigations and shifts from less critical elements. Focus attention on major items, via implementation of a cost impact threshold.

Implications

(1) Winds of change blow (2) Fixed for the year – no recognized business changes (3) Implies accuracy in far future periods


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