Organization Component

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operational A common perception is that too many re-organizations occur and happen at inopportune times in order for the budgeting process to accommodate. Similarly, too many organizational levels are involved. At the same time, it is recognized that budgeting generates re-evaluations of organizations.

Viewpoint A

Summary: The planning/budgeting entity should develop broad guidelines on how to build a budgeting system so you are alerted that organization changes take place and that the planning/budgeting participants can react. A solution is to implement a planning directive which provides for one central master source and controller of change configuration via the central planning group. This can also help enable partnering between financial players and operational players for validation, feasibility, and communication. More...

Viewpoint B

Summary: The structure of an organization may affect participants’ views of the planning and budgeting processes. The organization’s leaders may not have fully considered the impact of organization changes on its planning and budgeting processes. Even without organization change, poor communications will cause participants to assert that too many organization levels are involved in planning and budgeting. It is not only that organizations impact the processes of planning and budgeting, but also that budgeting may influence evaluations of organizations and organizational relationships. More...

Benchmarks, Resources, Recommendations, Implications

Viewpoint A

Similar to the discussion in events, the planning/budgeting entity should develop broad guidelines on how to build a budgeting system so that stakeholders are alerted when organization changes take place. They can then react appropriately.

A possible solution is to implement a planning directive via a recognized authority. 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 also ensure the elements are treated consistently across the budgeting and planning system.

Implications of the budget might lead to an organization change for purposes of productivity, smarter alignment, and/or customer focus. Therefore, the linkage of budget to organization change implementation is critical to be tracked via a directive or guidelines communication process.

The solution also provides for one central master source and controller of change configuration via the central planning group.

One must also address when there is a disconnect between financial players and operational players in the budget process. Both views/parties must be partnered for validation, feasibility, and communication.

When the financial players are integrated partners with the operations budget owners, one can begin to address the issue of too many levels being involved. Those that can provide value-added input to planning and budgeting decisions as well as those that can impact budget decisions should be involved. A clear focal list for each product/service and/or region is a method for ensuring the right stakeholders are engaged, at the right level. (ss)

Viewpoint B

Planning and budgeting occurs within organizations by people. Where people reside in the organizational framework can influence their views of planning, budgeting, and the outcomes of those processes. Therefore, the structure of an organization may affect participants’ views of the planning and budgeting process.

Planning and budgeting is typically a repeated process, although the content of the instances of this process may evolve or change significantly from one cycle to another. Participants in the process rely on the repetition of the steps of these processes, including the data, other participants, steps, and the likely resolution of the process. Since the roles of participants typically are associated with their membership in an organizational component, the stability of the organization allows participants to learn their roles in the organization’s processes and to robustly participate in the process.

There is a tradeoff between changing organizational structures and certainty that provides direction for participants in their roles. Organizational structures may be changed to enhance efficiencies or seek opportunities, but altering those components may be associated with transition costs as participants adjust to the new structure and their role in it. When organizations change, participants may not know how their role in processes like planning and budgeting has changed. In fact, the organization’s leaders may not have fully considered the impact of changes in the organization on its processes like planning and budgeting. If that is true, then the leaders may be making more changes than are desirable to the organization.

Working in organizations on planning and budgeting presents challenges even when the structure is not changing. Multiple layers in the organization, or multiple divisions in the organization, may make it difficult for participants to communicate effectively with other participants. Even in smaller organizations, it may be difficult for participants with very different points of view to communicate effectively and efficiently. Oftentimes, the frustrations that result from poor communications will cause participants to assert that too many organization levels are included in processes like planning and budgeting. Therefore, in even moderately complex organizations, management must ensure robust communications among the participants in widely shared processes like planning and budgeting.

On-going processes like planning and budgeting can also be disrupted when the organization changes structure. Often it is best to alter organization structures at the end of a fiscal quarter or year, if for no other reason than to simplify the tracking of financial data. In any case, though, the organizational change will require tracking the impact of the original plan and budget on the new structure – crosswalks will need to be created that allow managers to understand their targets and results in both the old structure and the new one.

It is not only that organizations impact the processes of planning and budgeting, but also that budgeting may influence evaluations of organizations and organizational relationships. While it is true that reorganizations can present challenges for processes, those processes themselves are often the catalyst for organizational changes to improve operations. This relationship can be constructive. However, it also is a complex relationship, and so repeated changes to organizational structure and components, or modifications to processes like planning and budgeting, can cause the organization or processes to have to change still further. This phenomenon can disrupt the effective running of the organization, especially when it leads to uncertainty on the part of participants. (dz)

Recommendations

  • Establish a recognized authority to establish planning directives to manage assumptions, organizational changes, etc. that are common to all stakeholders in the Planning and Budgeting process.
  • Appoint someone to be accountable for each product, service, business unit, or customer segment to ensure integration of assumptions that may impact multiple areas.
  • Synchronize major organizational changes with the planning and budgeting cycle as these changes could have significant impact on the accounting framework and utlimate stakeholder notices such as government disclosure statements.
  • Ensure the stability of the organization to enable participants to learn their roles in the organization’s processes, implement achievable actions to achieve thier targets, and to robustly participate in the process.
  • More complex organizations must pay much more attention to robust, effective communication between diverse organizational elements.

Benchmarks

  • Your input is welcome here.

Resources

  • Your input is welcome here.

Implications From the "Pain" Statements

(1) Too many organizational levels are involved (2) Too many organization changes (3) There is a correct number of organization changes (4) Budgeting reflects organization priorities (5) Organization changes in the middle of the process (6) Budgeting generates reevaluations of organizations

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