Bottoms up to Bottom Up Annual Planning

As you reach the end of your annual planning cycle raise a glass with me to Bottom Up Annual financial planning, I really think it can work.  Be honest though, is your Company’s annual plan a bottom up plan, a top down plan or a plan that started out as a bottom up exercise, lurched through a few iterations of that and finally ended up as a top down plan.

I have to confess that I have been involved in the annual planning cycle many times and whenever we embarked on a bottom up approach we always ended up with an imposed top down plan.  So, “Why”, I hear you asking, “was that?”

Well, it centres around the human condition whereby each departmental cost/revenue centre head thought it best to submit a budget with revenues set at conservative levels and costs pitched in on the high side.  Finance aggregate and share the results, which quite obviously look ridiculous, to the Executive who politely request everyone to do much better.

2nd iteration.  All departmental heads now know they’ve got to do much better, but hold on a minute, each of them thinks to themselves, if I just make a modest improvement I can then rely on all of the others to put in a realistic plan (as they’ve been told to do) and when it’s all put together the Executive will have the plan they’re looking for. 

Ok, now we have to see how patient our Executive is.  Some are very impatient and go top down there and then.  Some are more patient.  In one of my planning cycles we began in July and the plan finally got signed off the following March, just a few days before we hit Q2 and even then it included a central revenue budget of around £50m for which no management responsibility was allocated.

You can imagine how much effort, time and money gets wasted on this fiasco, and the worst of it is that you end up with a top down plan that, at best, is just as bad or at worst, worse.

So for bottom up planning to work (for Companies that find it isn’t working for them) I believe you need to start with a big shift in the cultural mindset of Executive Officers (feeding through the ranks) whereby there is no longer an edict that every department must automatically be expected to achieve x% more in the succeeding year and that this should be supported by a planning process that requires departmental management to fully explain in budget submissions the reasons for line by line movements from current/previous year that, in turn, are audited by individuals capable of assessing if performance expectation is realistic when set against market conditions.  Allow one iteration only, the only decision the Executive has to make after that, as the following years performance unfolds, is whether they have the right person at the helm in any particular department/division.

Oh, and just to help that little bit more, include the quality of the annual planning submission in the department heads annual objectives (if a 2nd iteration is needed, other than minor tweaks, it has to be a failed objective ........ doesn’t it?).