A healthier approach is to fund capacity in different service areas and closely monitor the value delivered, ensuring a good return on new investments and efficiency improvements elsewhere, coupled with an ability to flexibly and rapidly respond to changing needs during each financial year.
Budgets can take over an organisation with the most important thing becoming whether a group or project “sticks to the budget” – which completely ignores whether the budget was realistic, accurate or has been overtaken by events.
Rather than endure pain just to meet budget, it is healthier to implement rolling funding of capacity, insist on incremental delivery and re-assess budgets incrementally as new information becomes available.
A focus on costs without equal consideration of value risks poor decision making where investment and capacity are reduced through a well-meaning search for ever lower costs.
Truly transforming service delivery costs requires an end-to-end approach (rather than local optimisations which can cause bigger costs than they save downstream).
Having a well-understood numeric basis for value allows costs to rise where investment is needed for much greater return.
The key is to keep it simple and define a handful of key measures that are reported regularly.
It is often unhelpful to compare different departments because their different roles lead to vastly different cost profiles. Instead, compare different end-to-end services which will have a lot more in common (although will still differ in the details).
This can frequently become lost in a world of artificial internal rate cards and complex cross-charging between projects and teams.
This is pure waste and “make work” and the best remedy is to simplify, fund team capacity and measure against end-to-end service output rather than at the individual role level.
What matters is the overall performance of the company’s services, not whose budget should pay for 30% of Joe Bloggs’ time.
Having a standardised numeric method for capturing value as well as costs allows a Finance department to report the whole picture and better quantify investments (albeit with some unknowns) which are traditionally difficult to justify to external parties.
A healthy mindset for Finance is one of entrepreneurial investment within the business, looking for opportunities and tracking ROI.
Unfortunately this can be anathema to accountants who are trained to focus almost exclusively on costs and controlling risks through spending (rather than through data, evidence and experimentation – spending a little to learn much more).
Developing a detailed strategy will also depend on local circumstances. I’d welcome the opportunity to work with you to define a specific approach to your department.
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