4 of the Most Common Mistakes in Annual Budget Planning
BUDGETING
Jamie-Lee Salazar
CEO & Co-founder of Cobbler
"The reality is, you could overlook key data, forget about it, or not fully understand it due to lack of detail."
It's that time of year again: your FP&A team needs to finalize the annual budget for the company. Everything is looking good. You've allocated a fair share of the budget to each department, and you're confident that your plan will help the business reach its key goals for the next year.
Then, one of your team members brings you some unexpected news. Evidently, your team overlooked one crucial expense in its planning process, and now your entire budget has been thrown out of whack. Back to the drawing board!
If you've ever experienced something similar to the above scenario, then you understand how costly, time-consuming, and frustrating budget planning mistakes can be. As experts in financial planning and analysis, we've stood in your shoes before. In fact, preventing such mistakes was one driving factor behind the development of our product.
Let's discuss 4 of the most common mistakes we've seen in the FP&A planning process, and how you can avoid them.
Mistake 1: Using the wrong version of a file
In many FP&A departments planning is done in Microsoft Excel with files that are emailed back and forth between team members. As a result, you'll often end up with long and complicated file names like "FY22 Budget_FINAL_FINALv11.xlsx."
The problem is, somewhere down the line you may end up using the 11th version of your Excel spreadsheet in your budget planning when you really need the 12th. All of a sudden, you think you have $1 million more to spend than you actually do, and by the time you figure out your mistake and revise the budget, the damage may already be done.
This is one area where Cobbler shines since our collaborative budgeting platform eliminates the need to email spreadsheet files back and forth. Instead, you have instant and immediate access to the latest, most up-to-date version of your budget plan.
Then, one of your team members brings you some unexpected news. Evidently, your team overlooked one crucial expense in its planning process, and now your entire budget has been thrown out of whack. Back to the drawing board!
If you've ever experienced something similar to the above scenario, then you understand how costly, time-consuming, and frustrating budget planning mistakes can be. As experts in financial planning and analysis, we've stood in your shoes before. In fact, preventing such mistakes was one driving factor behind the development of our product.
Let's discuss 4 of the most common mistakes we've seen in the FP&A planning process, and how you can avoid them.
Mistake 1: Using the wrong version of a file
In many FP&A departments planning is done in Microsoft Excel with files that are emailed back and forth between team members. As a result, you'll often end up with long and complicated file names like "FY22 Budget_FINAL_FINALv11.xlsx."
The problem is, somewhere down the line you may end up using the 11th version of your Excel spreadsheet in your budget planning when you really need the 12th. All of a sudden, you think you have $1 million more to spend than you actually do, and by the time you figure out your mistake and revise the budget, the damage may already be done.
This is one area where Cobbler shines since our collaborative budgeting platform eliminates the need to email spreadsheet files back and forth. Instead, you have instant and immediate access to the latest, most up-to-date version of your budget plan.
"Our collaborative budgeting platform eliminates the need to email spreadsheet files back and forth."
Mistake 2: Not getting the data "bottoms up" due to time constraints and "top down" assumptions
Any good budget planning process requires that your FP&A team communicate with all the other business managers. You'll need to get data on their planned initiatives for the coming year, not to mention a record of their current expenditures, and then consolidate all that data into an overarching budget moving forward.
However, if you're working against a deadline, you may be tempted to cut corners. You already talked with the department heads, right? Do you really need to go deeper into the team to hear everyone else's plans? Of course, there's always a possibility that you overlook a brand-new initiative that an engineering manager has been discussing with the CTO. The CTO needs the work done, but didn't account for the infrastructure needed to support it- and now your top-down plan is left in tatters. Oops.
The way to avoid this mistake? In a word: communication. Easier said than done, but absolutely essential. Not getting the more granular information from the managers about each project they are running could lead to missed opportunities for cost optimization or inaccurate planning for the initiative. Better safe than sorry.
Mistake 3: Getting the "bottoms up" data, but not verifying it
Okay, you've communicated with your department heads, and you've received their comprehensive feedback on what they need. You're good to go, right? Well, not quite. Even though their justifications may seem reasonable, you still need to check them against historical data and trends.
For instance, what if marketing forgets to include a big spending increase for their annual user conference? Or what if engineering provides you with their hosting costs without factoring in a reasonable year-over-year increase that takes into account how quickly you're scaling? The point is: communicate with everyone, but also verify everything.
Any good budget planning process requires that your FP&A team communicate with all the other business managers. You'll need to get data on their planned initiatives for the coming year, not to mention a record of their current expenditures, and then consolidate all that data into an overarching budget moving forward.
However, if you're working against a deadline, you may be tempted to cut corners. You already talked with the department heads, right? Do you really need to go deeper into the team to hear everyone else's plans? Of course, there's always a possibility that you overlook a brand-new initiative that an engineering manager has been discussing with the CTO. The CTO needs the work done, but didn't account for the infrastructure needed to support it- and now your top-down plan is left in tatters. Oops.
The way to avoid this mistake? In a word: communication. Easier said than done, but absolutely essential. Not getting the more granular information from the managers about each project they are running could lead to missed opportunities for cost optimization or inaccurate planning for the initiative. Better safe than sorry.
Mistake 3: Getting the "bottoms up" data, but not verifying it
Okay, you've communicated with your department heads, and you've received their comprehensive feedback on what they need. You're good to go, right? Well, not quite. Even though their justifications may seem reasonable, you still need to check them against historical data and trends.
For instance, what if marketing forgets to include a big spending increase for their annual user conference? Or what if engineering provides you with their hosting costs without factoring in a reasonable year-over-year increase that takes into account how quickly you're scaling? The point is: communicate with everyone, but also verify everything.
"Not getting the more granular information from the managers about each project they are running could lead to missed opportunities for cost optimization or inaccurate planning for the initiative."
Mistake 4: Missing key vendor/project data due to offline interactions
If some of your discussions with department heads and other stakeholders are happening offline, or via email, then it can be difficult to consolidate all the data you need into one centralized spreadsheet. The reality is, you could overlook key data, forget about it, or not fully understand it due to lack of detail.
Here again, Cobbler can help. Our users can perform their planning directly within our system, leave comments, and tag their coworkers directly in the plan. The end result? All of your planning details are captured in one central location.
Bonus mistake: Cutting budget in the planning process and forgetting why later
When you're in the middle of planning, you make a lot of hard choices. Often you're huddled together in a meeting room (6ft apart with masks, of course) trying to figure out how to cut out that last $200k so that the plan fits neatly into the envelope. You make some hard cuts, the budget is approved, and everyone moves on. Three months later, the business is throwing everything they have at scaling and they want to know why they can't get the budget to do that one super important thing. You remember talking about it. You remember the business had a sound reason to prioritize something else instead, but the details are a bit fuzzy. Cobbler uses commenting functionality to capture "the why" behind your financial decisions. Review archived comments to see exactly what you were thinking when you made those hard decisions so you don't find yourself spinning your wheels on the same issues throughout the year.
If you'd like to explore in more detail how Cobbler can help you to avoid the annual budget planning mistakes discussed above, contact us today to get a demo of our product.
If some of your discussions with department heads and other stakeholders are happening offline, or via email, then it can be difficult to consolidate all the data you need into one centralized spreadsheet. The reality is, you could overlook key data, forget about it, or not fully understand it due to lack of detail.
Here again, Cobbler can help. Our users can perform their planning directly within our system, leave comments, and tag their coworkers directly in the plan. The end result? All of your planning details are captured in one central location.
Bonus mistake: Cutting budget in the planning process and forgetting why later
When you're in the middle of planning, you make a lot of hard choices. Often you're huddled together in a meeting room (6ft apart with masks, of course) trying to figure out how to cut out that last $200k so that the plan fits neatly into the envelope. You make some hard cuts, the budget is approved, and everyone moves on. Three months later, the business is throwing everything they have at scaling and they want to know why they can't get the budget to do that one super important thing. You remember talking about it. You remember the business had a sound reason to prioritize something else instead, but the details are a bit fuzzy. Cobbler uses commenting functionality to capture "the why" behind your financial decisions. Review archived comments to see exactly what you were thinking when you made those hard decisions so you don't find yourself spinning your wheels on the same issues throughout the year.
If you'd like to explore in more detail how Cobbler can help you to avoid the annual budget planning mistakes discussed above, contact us today to get a demo of our product.
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