General provisions

In one company, when implementing a budgeting project, this item took about an hour to sort out. The fact is that the developers of the Budget Regulations knew the sad fate of many other documents that had been developed and approved earlier at these enterprises. Therefore, they did not want to work on the shelf again and tried to take into account all the previous mistakes associated with the procedure for introducing the Budgeting Regulations into action and its subsequent correction.

When the budgeting regulation is approved and put into operation, then all support for this regulation falls on the financial directorate. Naturally, this does not mean that the financial directorate can constantly quietly add or remove something from the Budget Regulations.

It is precisely in the general provisions of the Budget Regulation that it should be spelled out how changes are made. In any case, the updated Budgeting Regulations go through the stage of coordination with deputy general directors in all functional areas and are approved by the general director.

As for the development of the Budget Regulations from scratch, that is, the first version, the most effective solution to this problem is to form a temporary working group (TWG) for setting up budgeting, which should consist of representatives of all main divisions of the company.

An enlarged description of the mechanism for implementing budgeting, including the development of the Budgeting Regulations, is presented in Book 1, “Budgeting as a management tool.”

A detailed description of the methodology for setting up budget management in companies and groups can be found in Book 8, “Technology for setting up budgeting in a company.”

Goals of the budgeting system

So, you need to clearly understand that budgeting goals are not the company’s goals. In addition, the company's goals may change every year, but the goals of the budgeting system may remain unchanged. Of course, budgeting is used to achieve the company's goals, but, nevertheless, these are different things. In addition, some companies achieve their goals even without a budgeting system.

The goals of the budgeting system essentially define the basic requirements that the budgeting system must satisfy. In principle, there is a more or less standard set of budgeting goals. However, a company can define its own set of goals and specify a standard set with the required degree of detail. It must be clearly understood that all subsequent sections of the Budget Regulations must follow from the goals of the budgeting system.

It's like a company's mission, which defines all sections of the strategy. Only unlike the mission, goals should be more clearly defined. The goals of the budgeting system were discussed in detail in Book 1, “Budgeting as a management tool.” When developing the goals of its budgeting system, a company can take this set as a basis and, if necessary, modify it accordingly.

It should definitely be noted that, unfortunately, quite often this section of the Budgeting Regulations is skipped and considered not important at all. For example, when a budgeting project was being carried out at one enterprise, the financial director supervising this project, at first, after carefully studying the project plan, insisted that this item should be completely excluded from the plan.

He said that all this is already clear and has long been written in all books on budgeting. But then, when completing the budgeting project, it took two weeks, because... everyone had a different vision and understanding of what budgeting is, why this management tool is practically needed and how exactly it will be used to manage this company.

Participants in the budgeting process

Therefore, the Budgeting Regulations must provide a clear list of company positions that will be directly involved in the budget management system. In addition, for each participant in the budgeting process, a clear list of budgeting functions must be defined for which he must be responsible. At the same time, the Budget Regulations have a corresponding section that defines the responsibility of participants in the budgeting process for performing their functions and the Budget Regulations as a whole.

Budgeting objects

To understand why this or that financial and economic state of a company is achieved, it is necessary to understand what is happening at the level of business processes, projects and the Central Federal District. When analyzing these objects, in fact, you often have to go down to objects at an even lower level, but, as a rule, they are no longer regulated as part of the budgeting process.

For example, if we are talking about the company's products or customers, production units, etc. If we descend to these objects, then we are already moving into the area of ​​management accounting. It is clear that in practice it can be very difficult to draw boundaries, and besides, it doesn’t matter what or how to call it, the main thing is that the built system really allows you to effectively manage the company, and the question of what goes where is already more secondary and to some extent more scientific than practical.

Budgets

Quite often it happens that a company determines a set of budget documents, but when they begin to develop a methodology for filling out budget items (see Book 3 “Financial Budgeting Model”), then in addition to budgets, many different intermediate calculations appear that are not considered budgets, but They actually significantly determine the values ​​of the indicators that will be reflected in the budgets.

Therefore, at least at the initial stage of budgeting implementation, it is recommended to regulate these intermediate calculations. In any case, when developing a budget classifier, you need to remember one simple rule. Any budget should be used for very specific purposes. When developing budgets, you should not try to make them as large as possible or, conversely, as small as possible. The main thing is that each budget has a very practical use.

Budget formats

Developing budget formats in practice can be time consuming. In addition, as a rule, no one manages to immediately develop budget formats that would not be changed later. Changes in budgets often lead to changes in the financial budgeting model, which in turn can lead to changes in the Budgeting Regulations. Therefore, in practice, some companies, before approving the Budget Regulations and financial model, first test them for a certain period. Such trial operation can be carried out as part of a budgeting project (see Book 8, “Technology for setting up budgeting in a company”).

In addition, budget formats can change not only during the search for the most successful options, but also when certain company parameters change. After all, the company itself can change. For example, the organizational and functional structure of the company, the company's strategy, areas of activity, etc. may change. All this can lead to changes in budget formats. In any case, there should be a very specific procedure for changing budget formats. This also applies to other sections of the Budget Regulations.

Organizational and time regulations for budgeting

Therefore, as a rule, the section of the Budgeting Regulations, which prescribes the organizational and time regulations for budgeting, consists of the following blocks:

Budgeting functions

When describing functions, you can use various approaches to their structuring. As a basis for structuring budgeting functions, you can choose a classifier of budgets used in the company. As practice has shown, it is better to tie budgeting functions to budgets, that is, so that you can clearly understand who and how is involved in drawing up all budgets, collecting factual information on budgets, conducting analysis and monitoring the execution of budgets, that is, throughout the entire management budgeting cycle (see. Book 1 "Budgeting as a management tool").

Since the issue of regulating budgeting functions is very important from the point of view of practical implementation, this issue is discussed in detail in the series of books “100% Practical Budgeting”. For example, the budgeting functions that the financial directorate must perform will also be presented in more detail in Book 5, “The Role of the Financial Directorate in Budgeting.” The budgeting functions that the company's CEO needs to perform are also discussed in detail in Book 6, "The Role of the CEO in Budgeting." The budgeting functions of divisions are presented in detail in Book 2, “Regulations of the budgeting system,” as well as in Book 4, “Financial structure of the company.”

Who is responsible for what

Half the effectiveness of budgeting as a management tool depends on how the process of preparing and approving budgets is organized (see Book 1, “Budgeting as a management tool”). The second equally important part of budgeting is monitoring and analyzing budget execution. Mistakes made at this phase may lead to the fact that no decisions will be made based on the results of the analysis.

In one company, for example, an ineffective organizational and functional structure was built for analyzing budget execution. Consolidation of budgets in the financial directorate was carried out by one employee, and analysis of their execution by another, and the latter was not aware of how the plans were made and how they were approved.

Therefore, when conducting the analysis, this employee needed to understand how budgets were built, which took some time. Well, since there was no integrated financial model (see Book 3 “Financial Model of Budgeting”), some of the changes that were adopted by the budget committee may not have been reflected in all budgets. Therefore, it could be that there was an original version of the budgets.

At the budget committee, these options could be adjusted, but when analyzing some budgets they could rely on the original figures. This construction company had several production divisions that were scattered throughout the area. Consolidation of the budgets of these production divisions and control of their execution should be carried out by the same employees of the financial directorate. While there are not many departments, this can be done by one employee.

In the future, if management reporting and the frequency of its presentation increase, there may be an increase in employees involved in this task, but the task of consolidating planned information and monitoring its execution should still be handled by one person. For example, all production departments in this example can be divided among employees. In this case, the employee will coordinate both the planning process and the process of monitoring the activities of the production unit. This does not mean that the departments themselves do not take any part in the process of preparing budgets.

Naturally, divisions draw up their requests for the next planning period, but the same employee of the financial directorate should control the preparation of these requests and consolidate the budgets of divisions. When forming regulations for the analysis of the Central Federal District, some companies assign the Central Federal District to economists. Therefore, economists regularly conduct analyzes of the Central Federal District assigned to them together with employees of the Central Federal District (see Book 5 “The Role of the Financial Directorate in Budgeting”).

In some companies, when implementing budgeting, detailed instructions are created for each participant in the budgeting process, which determines what he must do.

Budgeting periods

In this case, as a rule, it is not possible to effectively manage the financial and economic condition of the company. Therefore, it is better to draw up budgets for a year with a monthly breakdown, or for six months or, in extreme cases, for a quarter. The maximum period is determined by several factors. Typically, the main two factors are: the ability to plan for the long term and the company's operating cycle.

Although it should be noted that the first factor is more subjective than the second. The ability to plan for a long period, of course, also depends on the external environment in which the company operates, but to a greater extent this is determined by the company’s behavior strategy in this external environment. If a company takes a position in which nothing depends on us, and everything is determined by the external environment, then such a company will not be able to plan anything for a day and will work in crunch time every day.

Deadlines for preparing budgets

The results of plan-fact analysis, as a rule, are presented in analytical notes, which are prepared for planned and actual budgets and are considered by budget committees, which are held respectively to approve budgets and approve the results of plan-fact analysis of budget execution.

Typically, the Budget Regulations contain a table consisting of three columns: a list of budgets, preparation deadlines (plan/actual), and those responsible for preparation.

It is very important to organize the document flow of approved documents. All approved budgets must be stored in a special folder in the financial directorate. The CEO needs to make photocopies of approved budgets so that he always has them at hand. The original budgets must be kept in the financial directorate, but all users must have photocopies of the relevant budgets.

Such regulations, by the way, can eliminate possible “inaccuracies” when conducting plan-fact analysis. In one company, for example, at that time the document flow in the budgeting system was not yet sufficiently streamlined. Once, during a budget committee meeting, the financial director proudly reported that over the past month the company had exceeded its profit target by 10%. It’s good that the general director had a very good memory and remembered the main figures when approving budgets. After we figured it out, it turned out that in fact, the profit plan was only fulfilled by 87%.

It turned out that there were several versions of the budgets. At the same time, during the plan-fact analysis of budget execution, the financial directorate was guided by the option in which the main indicators were lower, and the general director was guided by the option in which the same indicators had higher values. It is possible that some technical errors were indeed made in the calculations, but, nevertheless, the lack of proper document flow allowed such a situation to occur and the budget committee had to waste time restoring the events of a month ago.

It is necessary to draw the reader's attention to such an important point as the timing of the preparation of factual information on budget execution. If you ask about the deadline for preparing factual information on the execution of budgets for the month and for the year, then most enterprises will answer that reports for the month are approximately by the 20th of the next month, and reports for the year are somewhere in February-March of the next year . Under no circumstances should such a situation be allowed to happen.

In fact, the bulk of the reporting information can be ready much earlier if the accounting regulations are properly structured. After all, this is how most accountants work at our enterprises. Every day the primary comes. Instead of immediately processing these documents, they are put in a pile. It is not clear what they are doing (in fact, of course, it is clear - they are doing the work that should have been done much earlier). Then, when the month ends, they start looking for a bunch of papers and gradually fill it all up.

It is necessary to introduce the following rule: if you go home and do not complete some documents, then a certain fine will be imposed. With this approach, it is quite possible to ensure that the actual data for the month is ready before the 5th. This may not be absolutely accurate data, but absolute accuracy is not needed in budgeting. Promptness of information with acceptable accuracy is important. Some companies even consider two facts: one operational (managerial), and the second absolutely accurate (accounting) and even introduce acceptable deviation values ​​for these two facts.

Responsibility for implementation of the Budgeting Regulations

For example, one company introduced such a rule. For untimely and poor-quality preparation of any budget, the responsible participant in the budgeting process is fined in the amount of 1000 rubles. Practice has shown that if responsibility is in no way associated and in no way connected with money, then we can safely say that there is no responsibility in the company. When such regulations were introduced in this company, everyone felt that the company simply came to life. Nobody wanted to fall under the system of fines for failure to comply with the Budgeting Regulations. There were significantly fewer cases of violation of regulations, and after several budget periods this simply did not happen.

On the one hand, such a drastic decision can cause an extremely negative reaction from the staff, but on the other hand, sometimes the same staff simply needs periodic shake-ups. In addition, company employees will immediately understand that the budgeting function has now been given a high status, that is, this is not a game of filling out signs, but a truly important management process.

One director, when introducing financial responsibility for the implementation of the Budget Regulations, even jokingly said that if budgeting is not implemented, then at least I will save on such a cost item as wages. It is clear that such a statement indicates that the company has a very low degree of regulation and the director is absolutely sure that at first any regulations will be violated.

A strict system of responsibility for the implementation of the Budget Regulations

But we can’t stop there either. If such a system has been introduced, then we can now begin to improve this system. A company may have a simple scheme: if you fail to meet the deadline by which a document (application, budget, etc.) must be submitted, you will be fined a fixed amount. Here you need to pay attention to the possible disadvantages of this approach. With this scheme, if someone is late, then he no longer has any incentive to hurry up and do as quickly as possible what he did not have time to do. Anyway, the fine has already been earned.

Therefore, the violator may no longer be in a hurry and will further delay the deadline for submitting the document. To prevent this from happening, a more advanced approach can be introduced. The essence of this approach is that “per-second billing from the 2nd minute of a call” should be used. That is, if the deadline is missed, the responsible executor will be fined a fixed amount, and for each additional day of delay, penalties will also be charged. Then the violator, if he does not meet the deadline, will try to make sure that the delay is as short as possible.

Quality control of execution of the Budgeting Regulations

Therefore, if operating budgets are prepared late, then financial budgets will also not be prepared within the required time frame. At the same time, the financial management will also be punished. In fact, such regulations will encourage the financial directorate to more effectively perform its functions as the main coordinator of the budgeting process. After all, being a process manager does not mean just sitting and waiting for the process to complete itself successfully. In practice this never happens. Therefore, the financial directorate will need to learn how to organize the budget management process. At the same time, educational measures may also be used in relation to linear units.

For example, in one company, which at that time only had monthly budgeting, it happened that some budgets were submitted to the financial directorate on the 1st or 2nd of the next month. They were told that all budgets had already been approved. Those who were late “scratched their turnips” in bewilderment and wondered how they could do the calculations without our data. To which the financial directorate, throwing up their hands, answered that that’s how they calculated it. “Well, what is my budget there now?” asked the violator of the regulations. “Well, please,” the financial directorate politely answered him and gave him a budget with their own version of the values ​​of financial and economic indicators. The latecomer now found out how his budget was cut. Well, the only thing left to do is to fulfill this budget. Of course, the financial directorate will not be responsible for implementing the budget.

Yes, perhaps such a regulation is a little cruel, but on the other hand, next time there will be fewer latecomers, and if you’re lucky, there will be none at all. After all, if the financial directorate chases after all those who are late and only asks all participants in the budgeting process to comply with the regulations, then delays will be inevitable. This has been confirmed more than once by practice. In this case, the financial directorate has a completely effective tool for managing the budget process.

In such a situation, in fact, a rather logical regulation emerges. Departments are actually interested in doing everything on time so that budgets are approved, which should guarantee their funding. The financial directorate is also interested in receiving all budgets faster in order to carry out the necessary consolidation to obtain financial budgets. This desire is also supported by responsibility, that is, the departments and financial management will also be responsible for missing deadlines. Therefore, if the financial directorate, as in the above example, gets out of it in a similar way, then this should only encourage divisions not to violate regulations.

Glossary

The company must, as they say, “force” these terms. They should come from the company's practice, and not from books or the Internet. It is better to start forming such a glossary gradually, while completing a project on setting up budgeting (see Book 8, “Technology for setting up budgeting in a company”).

All terms in the glossary should be clear to all participants in the budgeting process.

Note: the topic of this article is discussed in more detail at the workshop

Fig.1. Regulation of the budgeting process

Directly related to the budgeting system are the Regulations on budgeting, the Regulations on the financial structure and the Regulations on the budget committee (if the company has one) (see. Rice. 2). Here it should immediately be noted that, in principle, a company can have only one document regulating the budgeting system, and it does not matter what it is called, but all budget management procedures must be spelled out in it.

Fig.2. Budgeting regulations

At one paper mill, for example, all budgeting regulations were spelled out in one document, which was called the Planning Regulations. It is clear that in this case the term “planning” was considered in the broadest sense of the word. Planning, of course, was not limited to anything at this enterprise. There was accounting, control and analysis, that is, the budget cycle was completely closed (see Book 1 “Budgeting as a management tool”). Also, planning was not limited to financial planning.

This Planning Regulation also regulated the planning of activities at the departmental level, and planning for all main functional areas (marketing and sales, production, supply, etc.) and, of course, all this was consolidated into financial budgets. The general director of this enterprise jokingly said that after this Regulation was introduced and the planning regulations were adjusted, now he could not appear at the enterprise for weeks and there were no disruptions in work, and after he returned the managers in turn with a smile They were indignant that they would now be prevented from working again.

The division of budgeting regulations into several documents is due to the fact that in practice they will be more convenient to use. In this example of structuring the main budgeting regulations, some of the most important budgeting functions are included in separate documents (see. Rice. 2).

If you describe the budgeting process in detail, then the Budgeting Regulations can already be a voluminous document, so if you also include motivation schemes for the Central Federal District, detailed regulations for holding meetings of the budget committee, etc., then it will be very large and will not be convenient to use .

We also need to pay attention to this aspect of regulation. In the above composition of budgeting regulations there are no documents that would describe the budgeting methodology itself, accounting policies, etc. All this, of course, can be contained in the Budgeting Regulations, but as practice has shown, it is much more convenient to put this in a separate document. There are several arguments for this decision.

Firstly, the methodology, as a rule, exceeds the regulations in terms of page volume, so there is no point in increasing the Budgeting Regulations. In addition, the Budgeting Regulation is an organizational document and it serves to control the budget management process itself.

Secondly, regulatory documentation determines who should do what and when. At the same time, the regulations do not necessarily have to describe in detail how to do it. The question of how to do it is already answered by the methodology.

Thirdly, budgeting methods can change much more often than budgeting regulations. That is, the regulations, as before, may say that, for example, the sales budget is prepared by the Marketing and Sales Directorate by a certain date. At the same time, the methodology for drawing up a sales budget, that is, filling the sales budget format with specific numbers, may change. These changes will be reflected in the description of the financial model (see Book 3 “Financial Model of Budgeting”).

Budgeting Regulations

The scope of this Regulation depends on the size of the company and on the complexity of the budget system architecture that the company chooses (see Book 1 “Budgeting as a management tool”). The point here, of course, is not the number of pages, but the fact that these regulations actually work. There are examples when the Budgeting Regulations fit on 5 pages (without taking into account budget formats) and budgeting actually worked in the company, but there are also examples when the company seemed to have a very well-developed and verified regulation on 55 pages, but it did not work. Book 2, “Budgeting System Regulations,” discusses in detail the causes of failures in regulations.

Naturally, if these reasons are not eliminated, then even an ideal regulation will not work. Nevertheless, it is still recommended to make the most elaborate and detailed regulations possible. This is especially important for those companies that are only taking their first steps in budgeting. The development of budgeting regulations can take several months, but the most difficult thing is not to develop, but to implement budgeting regulations (see Book 8 “Technology for setting up budgeting in a company”).

Regulations on the company's budget committee

As already noted, in principle, these functions can be regulated in detail in the Budgeting Regulations. Moreover, if the company is small and does not have a budget committee, then even more so the company may not have such a document. But if the company has a budget committee, then it is better to regulate the functions of approving budgets in a separate document - the Regulations on the Budget Committee.

The budget committee includes top managers, and they, as a rule, do not use voluminous documents, so it is better that the volume of the Regulations on the budget committee should not exceed several pages. The budgeting regulation can be a voluminous document, but if you remove from it the functions related to the approval of budgets, you will get a rather compact document.

This document will describe the procedure for budget committee meetings step by step, and this document at first (the regulations have not yet been worked out) can be used directly as an agenda for budget committee meetings. The Regulations on the Budget Committee are discussed in more detail in Book 7 “Company Budget Committee”.

Regulations on business processes

Without them, a company can, in principle, exist and make a profit. For example, some companies live without the same budgeting. Management business processes are designed specifically to ensure that core business processes are performed more efficiently and the company’s financial results increase. Provisions about core business processes do not actually relate to the budgeting system. But if the company has identified such budgeting objects as business processes, then they must also be regulated like the business budgeting process.

The Budgeting Regulations specifically regulate the management business process “Budgeting”. The company's core business processes need to be regulated for several reasons.

Firstly, so that they are implemented more efficiently and, accordingly, make a greater contribution to the financial and economic condition of the company.

Secondly, in more regulated companies there is less dependence on specific people. In addition, when a new employee joins a regulated company, he can get up to speed much faster and, accordingly, begin to benefit the company faster. Well, thirdly, this is directly related to budgeting; business processes need to be regulated in order to make it easier to manage their financial and economic indicators. Managing means planning, controlling, and achieving the desired results.

One of the functions of the financial directorate is to control the financial and economic condition of the company, including in the context of allocated budgeting objects. There are situations when employees of the financial directorate have insufficient understanding of budgeting objects and, in particular, business processes. A logical question arises about how you can control an object with very little knowledge about it. Naturally, effective control will not work. Regulation of business processes can partially alleviate this problem. Naturally, it is impossible to reflect 100% of the information about the regulated object in regulations; however, regulation can remove a significant layer of problems. Therefore, the implementation of budgeting is much easier if the company has already regulated business processes and, accordingly, there is a description of these business processes, but this is extremely rare in practice. There are a large number of different formats for describing business processes. In fact, it doesn’t matter what specific format a company chooses to describe its business processes.

The main thing is that this format is understandable to employees and convenient to use. As a result, the company must have Regulations for all business processes that are highlighted as budgeting objects. A mandatory element of the description of business processes must be financial and economic indicators of business processes, because they will serve as the basis for functional budget formats, and another important attribute of the description of business processes is the structural units of the company (services, departments, groups, etc.). In addition, documents can be used as another attribute of business process descriptions, this is especially important when modeling management business processes. It is necessary to draw the reader's attention to the selection of priority business processes for regulation. It is clear that ideally all business processes should be regulated, but, as a rule, in all companies resources are limited, so you need to act according to priorities.

This means that first of all you need to concentrate on those business processes on which the financial and economic condition of the company largely depends. That is, first of all, you need to regulate priority business processes, and then gradually regulate all the company’s business processes.

Regulations on development projects

There is also no strategic plan, so we have to develop a system of strategic indicators for the company. In addition, the company may not yet have a project management system, which is necessary for effective management of investments and development of the company, so it will be necessary to implement such a system. If this is not done, then no investment budgets will work in practice, even if you try to introduce them into the budgeting system.

Therefore, if a project management system is not implemented in the company, then development and investment management will proceed as before, which means that budgeting will apply only to current activities. But as has already been noted more than once, the results of investment activities will significantly influence current activities, but this influence will appear in later periods and then, as a rule, nothing can be changed.

So, the Regulations on Development Projects must necessarily define a number of important positions related to the implementation of the company’s investment development program (see Fig. 2.3). Firstly, this is the order in which development projects arise in the company. The procedure for initiating development projects, as well as the rules for their planning and approval, must be clearly defined. In addition, an important part of the regulations is the mechanism for implementing development projects, that is, it must be determined how the projects should be implemented. The final part is the regulations for completing projects and transferring results to ongoing activities.

This regulation may describe more or less typical development projects, which could be, for example, the purchase of new equipment, entering a new market, launching a new product, creating a new branch or store, etc. For all such projects, their goals and results can be determined in advance, as well as the main stages of the project and what financial and economic indicators they will be characterized by, which will form the basis for the formats of investment budgets for these development projects.

Regulations on financial structure

The main thing should be to clearly define how many central federal districts are allocated to the company, which divisions are included in each central federal district, and who will be the head of each central federal district. It is also necessary to classify each CFO, that is, determine what type of CFO it belongs to (cost center, income center, profit center, investment center). The motivation schemes themselves should be described in more detail, since the variable part of the salary of employees of the Central Federal District depends on this.

When performing a plan-fact analysis of the execution of budgets of the Central Federal District, the principle of flexible budgeting should be applied, according to which the planned indicators of the budget of the Central Federal District, which are influenced by other Central Federal Districts, should be recalculated taking into account this influence. Only after this should deviations of the actual values ​​of indicators from the indicators calculated according to the flexible plan be determined (see Book 3 “Financial Budgeting Model”).

The regulation on the financial structure is a mandatory document, if the company has decided to implement a complete budgeting system that includes the entire system of goals (see Book 1 “Budgeting as a management tool”), in particular such a goal as the interconnection of the budgeting system with the motivation system, then there is a definition of the real responsibility of the Central Federal District for the financial and economic results of its work.

The Regulations on the financial structure are discussed in more detail in Book 4 “Financial structure of the company”.

Regulations on the financial directorate

The scope of studying budgeting methods by employees of the financial directorate, of course, depends on the current state of this issue, but, as practice shows, this is the simplest part. It is much more difficult to teach budgeting technologies to other divisions of the company. There are two main factors that have a negative impact here. Firstly, as has already been noted more than once, this is the opposition of the majority of company employees to the introduction of budgeting. Secondly, this is insufficient knowledge of the elementary fundamentals of economics and financial management. Therefore, employees of the financial directorate will have to explain in a very simple form all the main points related to the budgeting methodology that will be used in the company.

As for the organizational component of the development of the financial directorate, the movement in this direction is most difficult, since it requires the development of the employees of the financial directorate in a plane that is a little unusual for them. It is necessary to become not only great analysts, but also managers. Otherwise, the financial directorate will not be able to effectively perform its function as the main coordinator and controller in the budgeting process.

Quite often, the implementation of budgeting forces the consolidation of all financial and economic divisions into one directorate, if this has not already happened. In this case, a serious breakdown of the existing order occurs. In particular, this is due to the introduction of the position of financial director. Moreover, such an introduction is not a formality; it also requires structural restructuring.

The financial director should become the chief financial officer (CFO – chief financial officer), to whom all financial and economic services, including accounting, should report (through the relevant managers), which often does not happen in practice. And then the company has, as it were, two chief financial managers, and this will certainly lead to problems, including a strong impact on the effectiveness of the budget management process.

The Regulations on the Financial Directorate should reflect not only budgeting functions, but also all other functions that must be performed in financial and economic departments. More details about the work of the financial directorate and the regulation of this structural object can be found in Book 5, “The role of the financial directorate in budgeting.”

Regulations on divisions

The following trend can be noted. Recently, there are more and more companies that have regulations on divisions. But the problem is that in practice these regulations are not used. That is, formally they exist in the company and some employees (and not only from the personnel service) even know about their existence, but for these Regulations to be implemented in practice, it may not come to this.

Quite often, something like the following happens. The director instructs either the head of the personnel service (if there is one) or the heads of departments to develop regulations on departments and job descriptions in the hope that after this, work efficiency will increase when everyone knows what they should do. In most companies, the majority of employees have no interest in making their work more transparent and regulated.

Therefore, if the regulations are developed by the heads of departments themselves, then often the result is simply an unsubscribe. If this work is carried out by the head of the personnel service, then he simply may not be aware of what each department is doing. In general, what each department does, of course, may be clear, but at a more detailed level such an understanding may not exist. In this case, it is necessary to collect information from its sources, that is, managers and employees of departments.

In this case, for the same reason as in the first case, information can either be distorted or provided in a truncated form. Again, the output of this work may be a mountain of paper, but there will be no real benefit from it. Thus, the development of regulations on divisions, as well as other regulations, must be taken very seriously and the development mechanism itself must be thought through in detail (see Book 8 “Technology for setting up budgeting in a company”).

Description of the financial budgeting model

Therefore, everything related to financial modeling of budgeting is presented in a separate book in this series (see Book 3 “Financial Model of Budgeting”). Approaches to developing, describing and using a financial model are discussed in detail in this book. There are also examples of financial models of various companies. Although, of course, if the company is very small, then perhaps a description of the financial model may be included as a separate item in the Budgeting Regulations. So, as a rule, the description of a financial model includes:

Finally, when drawing up budgets, it is also necessary to be able to build certain hypotheses and assumptions regarding the further development of events.

Everyone who draws up budgets in practice knows that without using hypotheses it is not possible to draw up financial plans. Therefore, you need to learn to work with hypotheses.

Note: the topic of this article is discussed in more detail at the workshop