The last chance to make a difference in 2011!! Financial target golf and other joys.

As we enter September we are in the last effective session of 2011. This is important for all those who control budgets in companies that use calendar year accounting and have the pleasure of playing financial target golf, ie the need to meet this year’s targets in order to a) register strong performance in 2011 and b) protect/support budgets for 2012.

I have been a participant in this game a number of times as both a business budget holder and as head of a Corporate PMO and it plays out pretty much the same way each year. Let me summarise the path.

In these times of constraint  and competition for resources the budget for a new year is rarely enough to do all that is wanted/needed. As a result we start in January with a situation of over-demand.  Add to this the fact that there is nearly always some hangover from the previous year that will impact the early part of the new period. While there may be some financial accrual, if that is allowed, one cannot accrue human resources. As a result, in order to complete the existing book of work, one has to use current resources (both human and financial). This delays work on the new work, but does nothing to change the total appetite or expectation.

Consequently in the first half of the year there is usually a forecast overspend that is recognised in the detail, but no one wants to adjust the headline numbers. It also means that new, unexpected and thus unplanned items are challenged hard – they will just add to the overspend – and often discouraged, even if they do make more sense that some of the previous planned and communicated items. When one looks at the enterprise level the problem is very clear, but few business managers see past their immediate environment and how their change is absolutely essential to meeting their targets. (We can consider the management of objectives and rewards somewhere else at another time.)

This is usually the situation until May/June. We then hit the double bear pits of summer vacations and annual planning.

Summer vacations usually expose the over optimistic planning that seems to plague many aspects of business, change or BAU, these days. It takes distracts and removes many resources from planned endeavours in an unco-ordinated manner, eg you can rarely control when a key resource from a supplier or support function is away and while there may be cover it is rarely as good or efficient. Of course the natural laws say that the absence of key resources tend to be contiguous (ie adjacent and touching) to yours and each others’ creating an extended period of depleted resourcing. None of this is surprising yet is repeatedly ignored, year after year.

The second bear pit is the redirection of attention and thinking to planning for next year. Many big corporations look to lock down next year’s plan by October/November – we all know December is not a good time to get key Executive focus. This requires contributing plans to be submitted by September, requiring detailed work during July and August. With this happening and the impact of vacations, the current change and BAU continues on a best efforts basis with reduced executive oversight.

So we hit September. The kids are back in school and business leaders are back from vacation and realising how much they have still to do before year end. This is the first time that honesty hits in a big way. There is the sudden(and surprising?) realisation that not everything will be completed by year end. This will leave money unspent! When one is charged with hitting budget by plus/minus 1-2% this is a problem. If unaddressed it will also perpetuate the cycle of left over work from previous years impacting the plans for future years.

What to do? There is usually a scrabble to replan, co-ordinate, re-forecast and anything else that gives a sense of control and doing something. In practice this often has the opposite effect to that which is desired. It creates uncertainty and distraction when one is really trying to regain the traction lost over the summer and rush for completion by the end of November, less than three months away. I say November as increasingly December is a non-delivery month with IT freezes, staff forced to take unused leave and seasonal distractions.

The net effect is usually a significant forecast annual underspend. This does not mean that projects are coming in cheaper, but rather that the business cannot spend that which was budgeted in the time remaining. So now comes the second scrabble to find additional ways to spend money. Sounds nice, eh?

Well it is if one acts promptly. The  problem is that it takes time to spend money these days. In many businesses the primary costs are human costs. Additional resources take time to locate and onboard. When you only have around 12 weeks to spend the money, the loss of even a couple of weeks is significant and in fact it is usually more like 4 to 6 weeks. This presumes that your own governance processes can move fast enough to approve this “new” spend – this is not a given in a modern enterprise.

If one looks to purchase something significant, software, hardware, external consultancy, etc. then there is usually a considerable degree of “due diligence” to go through and this takes time. Of course it can be done, but takes focus and the willingness of many parties. I can of course be a win-win, allowing a supplier to book revenues in times for quarter and year end reporting (and of course commission and bonuses), but often it is more a financial tool that again adds to the over-run of activity into next year.

As year-end approaches the management of this financial target golf gets a little like holding a snake by the tail and trying to predict where its head is. This can become a pre-occupying activity if one is not careful.

So what?

The trick is to act quickly and act decisively. Do not to get caught up in bureaucratic delays, but do have the courage to make/take decisions that will move you in the right direction. What you do may not be perfectly correct, but you have time to fine-tune them if you get them started now.

If you are not perfect what is the worse that will happen? The worst is that you will overshoot your budget, but probably by less than you are currently undershooting. If this happens it will probably balance other undershooting functions. The best is that it gets you to or at least much closer to your target; a position from which a business finance person can probably bridge the gap.

Empower a small, group – they can move faster than a large group – and support them in reviewing recommendations quickly and then implementing them. Protect them from the inevitable politics.

Inaction is probably the worst response as every day of delay shortens the time you have to implement decisions and reduces the impact of those changes. As time goes by the decisions needed will get bigger and more frightening. Can you spot the dangerous spiral?

If you are not in this position, then please take a moment for a smug smile and hope you can achieve the same next year.

If you find yourself here for the first time, don’t be afraid to ask for help from others with experience.