Budget

The first recipe to gain some agility with numbers is to train in assessing your realizations versus budget, after integrating “all things being equal” as in your budgeting hypotheses, the so-called underlying results…taking into account the exchange rates used at the time of initial budgeting, and exclusive of any evolution in raw material prices and other external factors, especially any one-off items or events. To make it easy to explain, you can show your underlying results through a very nice colored graph, bridging the gap between the budget and the actual achievement figures. You know that you are becoming an expert once you always show an underlying realization better than budget.

At times, to prove that your realizations meet budget, you may have to resort to some dissimulation…  For example, if the “all things being equal” trick fails, you can try to fix the definitions…Figures don’t match? – Change the definitions! Year after year, the stratagem is universally implemented…Then, you will be regarded as an expert in numbers, because you will refine your numbers to match the new definitions: just to mention a few examples, what is included in SGA? Or, what is an “adjusted” EBITDA? Or, how to compute a ROCE?

To gain practice in agility with numbers, try to change definitions regularly, and see what it gives…This also has the merit of drawing a veil over numbers you cannot justify.

The third way to attain excellence in budgets and numbers is to compare your realizations not only with the year’s budget (as restated), but also to with previous years realizations (as restated) and previous (restated) strategic exercises.  This method only pertains to confirmed budgeting experts because, in fact, you need to restate everything retroactively, and based on a given set of assumptions and definitions, whereas each previous year and each previous strategic exercise had been based on their own different set of assumptions and definitions.  It makes it a top-level exercise.  Once you master it, you will unmistakably be able to justify that you met the budget.  That will be your Holy Grail!

With years of practice, you’ll have your numbers say about what you want them to say.  But don’t get it wrong!  Nothing here is against the law…  A budget is just an inhouse tool.  It is your GPS to head to the right direction through the current financial year.  What is your crime when you play with budget numbers?  At best, you are securing a bonus by means of rightful arguments (there’s nothing you can do about exchange rate or raw material price evolution…).  At worst you’re masking failures from hierarchical watch by magic tricks…when it comes to numbers, it is not yet common view within corporations to consider failures as a vital part of how we learn and change.

When I became Human Resources generalist, I felt quite uncomfortable with the fact that my action could no longer be measured. I was completely wrong. I have never counted as much as when I was Human Resources Generalist. To be in charge of Human Resources is a very good path for becoming a controller.

You “count your headcounts”: how many employees.  You count yearly working hours.  You measure absenteeism.  You count how many quit.  You count how many join.  You count training hours dispensed.  You count salary mass.  You assess employment cost rises versus salary increases.  You assess liabilities stemming from the corporation’s pension engagements.  You assess the cash requirements for a lay-off plan.  You count…

Comparing workforce and employment cost evolution against Budget is probably one the most important task in a crisis period. It is an art. It is also a science.

One of the longest budget preparations I ever witnessed was FY2009 budget.  How the subprime crisis would impact my corporation, and my own function, and… myself personally, and so deeply…

At the end of the summer of 2008, it became quickly obvious that the crisis would have huge negative consequences for the global economy in general and the steel industry in particular. Once this became clear, it took only a few days to come out with a radical cost-cutting plan.  We had not seen this crisis coming, we had to move fast to abate its effects.  But this was not the end of our difficulties.  As usual, the budget exercise had been launched before the summer and everything had to be revised later.  From a plan by which we were expanding, hiring, growing, we had to come to a new plan where we were reducing, firing, shrinking.

Budget is normally validated in November. The exercise of lessening went on forever in iterations and was finally considered as validated when the concerned year was already running, somewhere end January. The longest ever Budget exercise preparation. From an expansion of +20% in its initial version, it ended up with a shrink of about 30%. 

This story tells how the system’s perversion impacted so dramatically the life of a Human Resource leader in the steel industry, involving weeks and weeks of difficult decisions and actions. How we had to “count the headcounts” every week.  How Human Resources teams had become better than controllers to check numbers, and to fix budgets.

It is probably at that time that a boss proposed my name to be included in the succession plan for an operational role. I remember his statement in front of the Career Committee members: “If you are good at controlling costs, you can run a plant”.

In difficult times, you often find the best opportunities to learn: personal development opportunities you would never have thought of before.  There is serendipity in any crisis.  And one thing is sure: budget is an art, and a science.  And “BUDGET” is the mantra word!