The Importance of an Annual Budgeting Plan

PSMJ Resources, Inc.
Posted on: 10/08/19
Written by: PSMJ Resources, Inc.

Many architecture and engineering firms are challenged by the amount of non-billable time that goes into the annual budgeting process. And then, because there are so many variables at play in firms all the time, the best laid plans are useless a month later.

Common frustrations with the annual budgeting process are that it’s not only time consuming, but also that the goals are often unrealistic; there’s too much focus on the numbers; there’s no tie between the numbers and the strategies; and the plan is inevitably overtaken by events. 

So, the question remains: Why bother planning when unforeseen events always undermine the plan?

The answer:

There is no excuse to not do planning! The annual budgeting process is an opportunity to get out in front of your financial performance. Of course, when you do accounting, it’s backward looking: You produce the financial statements for September by October 15, for instance. You can’t change September; it’s gone. Instead, you must invest a significant amount of effort influencing and predicting what’s going to happen at the end of October, November, December.

And whenever the crystal ball starts to get cloudy—generally based on your hard backlog and the size of your projects—you have to look forward at financial management too. The strategic plan, your budget, whatever you call it, is your opportunity to start getting ahead of the game and start saying, “Well, if we keep going on this same path, our year is going to end…” You can fill in the blank: well, badly, way below budget, way above budget, whatever the case may be.

The problem with a lot of business planning is that it’s only about metrics, and there’s not enough behaviors discussed. Or it’s all about behaviors and there’s no tie to the actual metrics. Often, financial managers produce the financial statements with all of the metrics, but they don’t get looked at or talked about. Then, the strategic plan happens in a vacuum.  There has to be some accountability that comes out of a strategic plan or you’ll never know whether you’ve accomplished it or not.

 

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