Free The Mobile MBA: 112 Skills to Take You Further, Faster (Richard Stout's Library) by Jo Owen Page A
Authors: Jo Owen
than ever. You know your unit better than anyone else, so you have the advantage here.
• Strike early . The later you leave it, the less room for negotiation you have. Starting early means starting before the formal planning or budget process has started. As soon as the first set of planning guidelines have been issued, expectations have been set and you have lost negotiating room.
• Talk to the right people . The right people are the decision makers and influencers: your boss, the CEO, and any planning group.
• Be relentless . Keep on hammering away with your analysis and your carefully selected facts. Eventually the planners will go away and search for easier victims.
• Stay positive. You need to be seen as the positive manager who will heroically overcome the daunting challenges which your unit faces. If there is any gloom, it is about external factors only. The outside world is the problem, you are the solution.
----
Of course, if you are setting budgets, then the rules are largely reversed. You have the advantage that you have seen all the game playing before and you have probably played the games before. You should also be reasonably familiar with the budgets, economics, and personalities behind each budget. As a budget setter, you need to apply five tests to each budget.
----
The five budget tests
1. What are the key assumptions? Numbers are simply reflections of assumptions, so test the assumptions not the numbers. This is routinely missed by managers who like to argue that the budget is too high or too low. That is an emotional debate that can only be defused by testing the key assumptions.
2. How does this compare with last year? This is where game playing becomes a real problem. But you should know the history of the unit and all its special circumstances, which you have had to adjust to. Newly appointed managers do not know this history and are most vulnerable to the game playing.
3. What is happening in the market? Budgets are by definition internal documents. Part of your job is to connect internal perceptions to external market reality. If sales and share are declining, then even HR and IT should take their share of the pain.
4. Is productivity rising or falling? Productivity measures the amount of work done for the amount of resource used. Even support functions such as HR and IT should be able to offer some measure of productivity. Inevitably, this will involve a degree of management judgement, but managers are paid to have and to use judgement.
5. What is happening to unit costs? Check the cost per unit: the cost per employee or the cost per tonne of raw material. Fight the inevitable inflationary assumptions which are built in.
----
Managing your budget
This is where prudence and practice part company, even though they share the same destination: you must make budget. Failure to do so is a career limiting move. Prudence and practice are two different routes to the same destination.
Prudence says you manage your budget conservatively. A simple rule is the 48/52 rule: aim to spend 48% of your budget and achieve 52% of your sales (or tasks) in the first half of the year. Once you have worked out what this means for the first half of the year, then apply the 48/52 rule again to the first two quarters of the year.
a simple rule is the 48/52 rule
The prudent approach means you give yourself a chance of beating budget. Just as important, it enables you to deal with any crises and unexpected events which may occur later in the year. You build in a safety margin into your operating performance.
The problem with the prudent approach is that it makes you a prime target for the year end squeeze, which comes around as regularly as Christmas but rarely brings any presents. The squeeze occurs because there are always some units that overspend or underdeliver: everyone has to be squeezed to make up the shortfall. By the time the year end looms, it is too late to make up ground in the marketplace, so
• Strike early . The later you leave it, the less room for negotiation you have. Starting early means starting before the formal planning or budget process has started. As soon as the first set of planning guidelines have been issued, expectations have been set and you have lost negotiating room.
• Talk to the right people . The right people are the decision makers and influencers: your boss, the CEO, and any planning group.
• Be relentless . Keep on hammering away with your analysis and your carefully selected facts. Eventually the planners will go away and search for easier victims.
• Stay positive. You need to be seen as the positive manager who will heroically overcome the daunting challenges which your unit faces. If there is any gloom, it is about external factors only. The outside world is the problem, you are the solution.
----
Of course, if you are setting budgets, then the rules are largely reversed. You have the advantage that you have seen all the game playing before and you have probably played the games before. You should also be reasonably familiar with the budgets, economics, and personalities behind each budget. As a budget setter, you need to apply five tests to each budget.
----
The five budget tests
1. What are the key assumptions? Numbers are simply reflections of assumptions, so test the assumptions not the numbers. This is routinely missed by managers who like to argue that the budget is too high or too low. That is an emotional debate that can only be defused by testing the key assumptions.
2. How does this compare with last year? This is where game playing becomes a real problem. But you should know the history of the unit and all its special circumstances, which you have had to adjust to. Newly appointed managers do not know this history and are most vulnerable to the game playing.
3. What is happening in the market? Budgets are by definition internal documents. Part of your job is to connect internal perceptions to external market reality. If sales and share are declining, then even HR and IT should take their share of the pain.
4. Is productivity rising or falling? Productivity measures the amount of work done for the amount of resource used. Even support functions such as HR and IT should be able to offer some measure of productivity. Inevitably, this will involve a degree of management judgement, but managers are paid to have and to use judgement.
5. What is happening to unit costs? Check the cost per unit: the cost per employee or the cost per tonne of raw material. Fight the inevitable inflationary assumptions which are built in.
----
Managing your budget
This is where prudence and practice part company, even though they share the same destination: you must make budget. Failure to do so is a career limiting move. Prudence and practice are two different routes to the same destination.
Prudence says you manage your budget conservatively. A simple rule is the 48/52 rule: aim to spend 48% of your budget and achieve 52% of your sales (or tasks) in the first half of the year. Once you have worked out what this means for the first half of the year, then apply the 48/52 rule again to the first two quarters of the year.
a simple rule is the 48/52 rule
The prudent approach means you give yourself a chance of beating budget. Just as important, it enables you to deal with any crises and unexpected events which may occur later in the year. You build in a safety margin into your operating performance.
The problem with the prudent approach is that it makes you a prime target for the year end squeeze, which comes around as regularly as Christmas but rarely brings any presents. The squeeze occurs because there are always some units that overspend or underdeliver: everyone has to be squeezed to make up the shortfall. By the time the year end looms, it is too late to make up ground in the marketplace, so
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