“Who ordered this? We don’t have the budget for it!”
I knew our IT budget would be tight this year, so this last $50K upgrade invoice is really throwing my budget totally out of whack. During our last quarter meeting, one of my Project Managers (PM) mentioned this upgrade, but this was not in our original budget nor was it in any approved PO. Hopefully, we can reallocate this to another account, or ask for another budget extension…
This was just part of the the bigger issue. Our 2022 IT budget was roughly $50 million. That included more than 250 projects, all of them forecasted across multiple locations, multiple accounts and expense categories; and moreover, half of these expenses needed to be capitalized. And the best part — we were managing millions of dollars of IT spend from an excel spreadsheet. Seriously?
Confession #1 – No Budget Planning
From the time I asked my Project Managers to start budgeting in August to the end of the consolidation process usually takes 4 to 5 months, which puts us already early in the financial year, running late and forcing early adjustments. This process is so convoluted that nobody really wants to update the budget during mid-year… but the way we do this manually today we have no choice!
Confession #2 – Budgets Out of Control
Then, since we don’t have any way to enforce POs, we have to rely on the invoices to control the spend. And more importantly, on each Project Manager to do the right thing. Our IT staff includes 32 full-time individuals of which 20 are Project Managers. Every time as they get hired or leave us, there are hiccups in the process.
Even though each PM tracks his/her spend on an excel spreadsheet, the only real consolidated view comes from the ERP report we receive on the 21st of the next month. The report is convoluted, too detailed and outdated by the time we get it.
The Solution
So, now I am undertaking an initiative to help us manage our budgets across the organization more accurately, effectively and efficiently using a Budget Management application from Determine. Here are a few goals we want to accomplish to become a best-in-class organization:
- Enable PM to continually forecast/adjust the budget as needed without a hassle: Budgets are dynamic. If you don’t review your budget planning / forecast often, your budget will inevitably be wrong. Frequent budget oversight prevents the budget from getting too far out of hand. For me this means a 5% budget overrun is far easier to correct than a 50% overrun.
- Forecast resource usage on a regular basis: As unplanned work finds its way into our project and billable hours mount, the project budget gets out of control. Chances of keeping the project and budget on track are much greater if we frequently review the resource plan versus if we forecast it and just forget about it.
- Control Spend, before it happens: Maverick expenses and scope creep are two of the leading causes of project overruns. Project Managers must carefully manage scope by creating change orders for work that isn’t covered in the project’s initial requirements. Those change orders, as any other order, should be routed for approval to ensure they can be accommodated within our budget plan.
- Empower the team with the right level of information: Providing each budget stakeholder with the right budget visibility at any given time is essential. The Project Manager should be able to see his/her budget at the time of the requisition, the Director of IT should see it at the time of approving the PO and/or reviewing the invoices, the supplier should be able to see their allocated amount at the time of entering their time in the system. This includes spend that is processed via a requisition, PO, non-PO invoice, expense report or PCard. In the end, budgets need to be aligned with real spend data!!
Conclusion
Budget planning and execution is a critical business process that aligns an organization’s effort, money and resources against its key strategic objectives. Company-wide decisions are undertaken every day based on what was originally agreed to and prioritized in the budget.
And yet today, many organizations (like ours used to be) still manage their entire planning and forecasting process manually in spreadsheets. They have not established a set of tools/internal processes to support the level of strategy and complexity associated with their direction and they rely on individuals who spend massive amounts of time consolidating and connecting the budget dots that shortly after are inaccurate.
It is time for organizations to focus on understanding the value of a good budget planning and execution strategy, and streamlining/automating the process so discussions are not about whether the spreadsheets are all encompassing or accurate, but rather how this real-time information can be used to make better business decisions.
So like old Ben Franklin said – “An ounce of prevention is worth a pound of cure.”