Full Sail Partners Blog

Budgeting and forecasting is part art, part science. For too many firms, however, it is also a frustrating process that takes a lot of effort to produce less than optimal results.

All too often, the budgeting and forecasting process breaks down because the two parties involved — the executive management team and the operations side — see the challenge from opposite ends of the same telescope. It may be a gross generalization, but from what I’ve seen, management often tends to be more aggressive and optimistic about goals and forecasts. On the other hand, the operational side sees the nuts-and-bolts challenges and logistics required to meet management’s goals, and tends to be more conservative in terms of what they think can be achieved with a given budget. 

In addition to this fundamental dynamic, another challenge related to budgeting and forecasting is that unless it’s handled well, it can lead to a lack of buy-in on the part of various parties. Even worse, it can result in a budget that ends up sitting on a shelf for the rest of the year, which is not in anyone’s best interest. 

Key strategies for success

Fortunately, there are several strategies that can help an organization improve its chances of a successful budgeting and forecasting process. 

1. Start early. Think about the budget process as one of dialogue and compromise — so allow time for both management and operations to develop their budgets and plans, and then to negotiate an acceptable compromise. If you’re aiming to complete your budget by December 31, for example, consider asking management to commit to establishing and publishing their corporate goals no later than October 31. 

2. Be transparent and clear about the process. If you let everyone know up front that the budgeting process is a dialogue and compromise, there may be more chance that all parties will embrace it and comply with expectations. 

3. Have the management team kick off the process. After all, their vision for the corporate goals and general forecasts should be what drives the organization. In general, it’s a good strategy to use previous years’ results as a baseline, incorporating any relevant data about changing market and economic conditions, new products in development, and so on. Once the management team has published its goals, the operational managers develop budgets for reaching those goals. This is not the order in which it’s always done, but in my experience, it’s a more effective approach and leads to better results. 

4. Have a meeting of the minds. Last but not least, block off some time to bring the two sides together around the budget documents and negotiate a compromise. As in any compromise, it’s critical that both sides understand that they are not going to get everything they want. But by finding an agreeable compromise, the organization can develop a budget and forecast that’s both aspirational and achievable. 

Budgeting and forecasting succeeds when it brings together two very different perspectives of the organization and finds an effective meeting point. Obviously, it needs to help the organization move forward in a strategic direction; but to become a plan that staff can buy into and implement; it also needs to be realistic and achievable. Above all, don’t forget that a realistic, well-thought-out budget is essential to the firm’s financial success.