The perspective goes beyond quick wins

In the medium-term (1-2 years after the implementation) it will allow planning and budgeting to not only look at a company from a functional level but it will also make possible the planning and budgeting for cost objects, i.e. for the activities and events that drive the business and decide on its success. So instead of planning and budgeting only for the cost of a ­department, the new approach would put cost budget of that department into relationship with the services, the tariffs and sales channels. ­Effectively, in budgeting the cost of a department and applying the same allocation as described above, operators will obtain a budget for a service, tariff and sales channel, too. And since both are connected in a logical allocation matrix the causes and effects of variations of the business performance at a department level on the service, tariffs and sales channels become clear. What does it mean? Well, first of all, the business controllers will find it much easier to understand the current business performance and complete better projects in the ­future. Second, Marketing and Sales, who are responsible for the cost and profitability of services, tariffs and sales channels will have a much stronger say in planning and budgeting rounds as they will realize how much individual departments and projects contribute to their success or low performance! Third, the planning and budgeting exercise will turn from an exercise that looks only at individual departments to one that integrates the whole business in a way that can be more easily understood by  participants. And instead of simply being a “have to do” exercise that is a black box for most, it will make cost causation very transparent and give those that own the responsibility for profitability (e.g. Marketing, Sales, but also Finance) more power in negotiation rounds to take ­affirmative and controlling actions. 

In the long-term (more than 2 years after the implementation) it can be used to organize the company closer along the cost objects in use for the new planning and budgeting. It will make the company much easier to monitor and to steer, while process redundancy and management conflicts become more apparent and easier to resolve. Having re-organized the company in such a way, performance targets and the incentive systems should also be adapted. So, instead of using only company profitability or revenue as targets, the allocation system could be used to ­develop specific service, tariff or sales channel related targets so these correspond more to the work that individual managers can be really held accountable for and no longer for some undifferentiated top goal. Isn’t that precisely what managers typically criticize in your company’s budget rounds?