Continous Budgeting

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“Running an Agile Fortune 500 Company”
Aditya Yadav, aditya.yadav@gmail.com
in.linkedin.com/in/adityayadav76

2. * A Typical Global Company
* Fortune 500/1000
* 200 Divisions
* 40 Countries
* 25000 Employees
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@ Acme Inc.

4. * Original Question “Are we too shortsighted? We
seem to be we are not looking far enough into
the future.”
* The Correct Question - “You need continuous
budgeting, if finance is short sighted then
strategy cannot look far ahead into the
future.”
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5. *
And The Philosophy Behind The Answer

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A lot of my friends in Sales pride in being extremely (i) Focussed, and (ii) Targets
driven
Most of them have daily + weekly + monthly + quarterly + yearly targets which have to
be met
How short sighted are we? We don‟t think beyond a day
We are like a horse in the race which may for small moment have a probability of
winning the race
But in the Wild/Real World will be hunted down by predators in no time. It‟s a losing
proposition
This is pervasive throughout almost each and every organization we have studied
across the world
An average non-founding CXO Tenure is 2-3 years. What do you think he will focus on?
Will he do absolutely anything that doesn‟t have a chance of delivering results in
probably half the time space of his probable tenure?
What happens to long term benefits to the organization? How short sighted are we?
We hope to address this albeit in a small way w.r.t. Budgeting which is the root of all
problems in organizations…
Note: we have already discussed Continuous Accounting earlier…
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A budget is a quantitative expression of a plan for a defined period of time. It may include planned
sales volumes and revenues, resource quantities, costs and expenses, assets, liabilities and cash flows.
It expresses strategic plans of business units, organizations, activities or events in measurable terms. –
wikipedia
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Budget helps to aid the planning of actual operations by forcing managers to consider how the
conditions might change and what steps should be taken now and by encouraging managers to consider
problems before they arise. It also helps co-ordinate the activities of the organization by compelling
managers to examine relationships between their own operation and those of other departments. Other
essentials of budget include:
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To control resources
To communicate plans to various responsibility center managers.
To motivate managers to strive to achieve budget goals.
To evaluate the performance of managers
To provide visibility into the company's performance
For accountability
In summary, the purpose of budgeting is tools:
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tools provide a forecast of revenues and expenditures, that is, construct a model of how a
business might perform financially if certain strategies, events and plans are carried out.
Tools enable the actual financial operation of the business to be measured against the forecast.
Lastly, tools establish the cost constraint for a project, program, or operation.
Lets go through these one by one…
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Conditions might Change and Managers need to account for that
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We will set a direction and not Targets or Goals
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That said we are also not so worried about accountability as discussed in earlier decks. It‟s the team
that Succeeds, with room for Failures and opportunities to Learn. And absolutely little or no Negative
Accountability.
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Focus on Transparency, Visibility, Communication and Collaboration
Budgeting has to be in relationship with other departments
Some sort of control over allocation of limited resources, managing them in the most flexible way
possible
We don‟t intend to evaluate the performance of managers using this mechanism. We have discussed
Success in an earlier deck and this is probably the worst way to measure Success of Failure.
We will focus on Tools
We will…
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Minimize Constraints
Minimize Lost Opportunities
Minimize Gaming of the System
And lets make it Real-time!
And lets make it Continuous!
And address everything stated above!
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Sales volumes and revenues, resource quantities, costs and expenses, assets, liabilities and cash flows
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Hence every projection will be a set of 3 projections, and we will keep all 3 available for analysis but will make
decisions based on the „Likely‟ projection
But our biggest focus is Cash Flows
Every Project/Effort/Business post the Incubation stage has to make 20+ year Cash Flow Projections
Caution: We understand the impossibility of being anywhere close to the reality
Note: We understand the Cone of Accuracy converges as more and more information is obtained and time passes by
Hence any and all Projections have to revisable instantly at anytime in the future
The Actuals are frozen in time and based on the Continuous Accounting principles are virtually real time
Also we WILL NOT use any concept of Probability in our Cash Flow projections, because Maths and decimal places
will blur our Reality (concluded from Empirical Research in the context of Budgeting)
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Worst Case Projection – if everything fails
Likely Case Projection – an Intuitively Median or most likely case
History of Projection revisions
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Best Case Projection – if everything works out as planned
Indicate some sort of Accuracy of Predictions, and
The State of Affairs of Projects w.r.t. Forecasted/Expected
Conclusion: The budgeting is continous, minimizes gaming, lost opoprtunities and has all other attributes discussed
in the last slide.
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10. Aditya!!!
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