Fall foliage, the start of the NFL season, kids back in school, and—oh yes—next year’s budget! The dreaded budgeting process is well underway (hopefully), and predicting the future is at hand. With all the challenges facing today’s economists about job growth, new sales and the ever-volatile stock market, we executives are struggling with some of the same issues—growth, expense management, sales projections and staffing needs. While there is little risk to economists in a bad prediction, today’s business executives have a lot on the line in managing expenses. Preparing next year’s budget requires skill, whether you are a mutual organization, a stock company, or a not-for-profit health care organization.
Without some scenario-planning tools to help with the projections, the task can be difficult. And without some level of precision, you could spend the next 12 months answering to your CFO during monthly variance-reporting sessions. This time of year offers a great opportunity to look at total company performance for 2010 and evaluate what will change, what remained the same, and where you expect to have a different look in 2011. It is also an opportunity to review performance to last year’s budget, evaluating not only sales projections, but staffing levels, outside spending (vendor management) on services (i.e., contract programmers) and temporary help against what was planned.
Establishing a well-thought-out staffing plan based on factually engineered metrics provides you with a model to plan for 2011, and you’ll use it throughout the year to monitor the effects of changes in sales and operating performance. This cost model will account for 60% of your total budget. The other critical analysis that needs to be performed is a more comprehensive vendor management model to track and evaluate your external spends. Tightening the reins on outside spend will afford most companies an opportunity to conservatively realize up to a 5% to 15% reduction in overall spend.
Taking this broader analytic approach to the budgeting process allows those financially proactive companies to save money and turn their budgeting process into a model for ongoing analysis.
Dennis Sullivan is Chairman and CEO of
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