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Budget & Capacity Planning: Understand the boundaries, not working within the limits

Published on 01 October 2018

Budget & Capacity Planning: Understand the boundaries, not working within the limits

How would you describe your final signed off budget?
  1. A reflective picture of the numbers required to deliver against all targets
  2. Numbers fixed by finance/senior management which operations have been challenged to deliver targets with
  3. Numbers that do not reflect your requirement or current performance
I asked this same question at a Budget & Capacity Planning workshop where the most common response was answer 2 “Numbers fixed by finance”, with a few unfortunately replying with answer 3 “Numbers that don’t reflect performance”.  No one raised their hand for answer 1!

Budget planning can feel like a full-time job, with multiple iterations to agree a first final version, before starting the re-forecast and quarterly budget cycle.  Too often the end product can feel like limitations to restrict performance and not a set of tools to help exceed performance expectations.  Looking at budgeting simply, there are 3 key factors: Strategy, Process and Assumptions.  A clear business strategy, with an understood budget process using agreed assumptions will result in a budget plan, which costs the sum of the parts.

The strategy is the sum of the actions intended to achieve a long-term goal supporting the values, mission statement or vision.  The strategy should be supported by measurable objectives which will be delivered by the wider organisation.  Crucially these objectives should be aligned to the strategy and support a unified approach.  Conflicting objectives at functional level will undermine the strategy.

The strategy and objectives should consider: Company, Customer and Colleague, with some organisations also considering the Community.  As a company why, what and how do you want to achieve?  What will this mean for the customer?  What will this mean for the people you employ?  What responsibility do you have for the community?  Being clear with your objectives means you can be clear of your purpose and who will benefit.  I would also encourage to document all objectives using a performance record template to make it crystal clear of the type of target, source data, calculation, and frequency.

If your strategy is to achieve an 80% of calls in a 20 second service level each month, then you don’t need to hit service level every 15-minute interval, or by the end of each day, or even by week; as long as you achieve the service by end of month.  Also, you may not want to over achieve the service level, as this could suggest being over staffed.  Therefore, is it critical that you document the type of target, if you are contractually bound to achieve a service level then 80% would be the minimum requirement but what would be the maximum?  If you are not regulatory or contractually bound, then is the target “as close as you can” 78.5% could be better than 85%?

Understanding targets is critical to the success of the budget and the achievement of the strategy.  Too often the failure of the plan is due to the misunderstanding of the targets.

The budget process should be designed to bring together the key stakeholders of the key business objectives to agree the level of performance and the assumptions required to achieve the objectives.

By documenting the budget process, you can identify the right people, understand what data is required and most importantly create accountability.  If budgets are being prepared independently by different people, in different departments maybe using different data sources, working towards different objectives (or goals) then this will cause conflict.  Breaking down the silos across the business creating a way of working collaboratively is critical, not just for the budget process but the ongoing delivery of the budget and strategic plan.

I remember seeing an organisation whose approach to budget sign off could not have been more siloed.  Each team would create their own “pitch” for an FTE number and pot of money, using different models (including “this is what we had last year” and “gut feel”) before meeting with the finance team to see if the numbers matched.  The only teams who had a documented approach were the resource planning team and the marketing team.  This meant that the marketing team’s budget was cut and the resource planning team was challenged and then adjusted down with comments like “could the sickness % drop to 3%?”, “how many people would you require is AHT went down by 30 seconds?”, the power of the “what-if” model was abused.  The result was a budget with not enough in it to achieve the targets set and lots of conflict targets and discussions between departments.   

Agreeing the assumptions and the data which support these assumptions helps educate stakeholders of the data sources, calculations and formulas used.  This also makes any data limitations transparent.  Sometimes the data isn’t available, or it’s not as trusted, validated, or complete, recognising this in an open forum will support future discussions and prevent any cover-up.

Documenting all assumptions is another way of educating stakeholders and the wider business of the importance all supply and demand considerations.  Understanding the benchmark or starting point and direction of travel to the agreed objective can support development plans.  By understanding interdependencies across the business helps each department understand their role in achieving the overall business strategy.

With the assumptions defined you can now create the “what-if?” model and run different scenarios.  Again, this deepens the understanding and importance of the assumptions, and impact of change.  If performance levels need to improve, what needs to give?  Who will be impacted, will it be the customer, our colleagues or the company?  Just make sure that the “what-if?” models reference current performance, or historical performance levels to provide a benchmark; it’s easy changing numbers in a spreadsheet, not as easy to change behaviours of people!

If we squeeze one metric what impact does it have on another? Push staff on performance; sickness goes up? Reduce training; staff leave for development, or quality drops? Quality drops; customers experience suffers and customers leave?  The big question is: do your stakeholders understand this?

The best “what-if?” models are easy to use and provide a clear answer, which needs no explanation.  Think of a graphic equalizer on a mixing desk, as you move the different controls you make subtle or significant changes to the sound by boosting or cutting different frequency ranges.  Create a model which your stakeholders can use, adjusting their frequency range to demonstrate the change and impact to others.
“What-if?” models which require “leave it with me, I’ll come back later with the answer” creates an air of mystery.  As an analyst you may like the fact that no-one understands your model, however the reality is that people will just stop asking you if you take too long and can’t explain in a timely manner.

Ultimately, someone needs to take responsibility for this.  By documenting the processes and assumptions, assigning owners to all measurable objectives, you can start to create accountability and more importantly understanding of the part each team, or function plays.  The reality is that not all objectives will be achieved all the time, therefore something, or someone needs to change.  Working together you can help drive positive change, hanging someone out to dry and forgetting about other key business objectives means you don’t understand the business strategy.

Making the numbers “fit” a budget is a false economy; if you want to deliver your strategy, you’re going to have to pay for it.  Understanding of Strategy and Stakeholder goals is critical for success.  Build an impact & scenario model for the changing assumptions, which becomes a BAU tool for discussion. The assumptions should provide key measurable objectives for reporting and tracking.  Be prepared to challenge up, down and sideways across the organisation hierarchy to gain consensus and shared understanding. Make the reforecast and budget review process enjoyable and insightful providing actionable decisions, direction and fulfilment of a business strategy. 

Wrote by Phil Anderson. If you have any comments/thoughts please share on the Linkedin Article.
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Author: Leanne McNamee

Categories: Library, Planning & Resourcing


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