What is the problem?
Any executive knows the yearly hassle of getting through the budgeting cycle, a tedious series of discussion rounds and iterations, alignments and semi-decisions, consensus-searching and politics. Budgeting used to be easier when businesses were predictable. Every year was similar, so every year incrementally changed budgets could be allocated, slightly adapted to current reality. Unfortunately, this premise of predictability is no longer true for most of the organizations around. As business environments are evolving faster than ever, organizations are moving towards adopting agile principles empowered business lines and bottom-up decisions, highly reactive and adaptive teams to do what’s right in the competitive environment throughout the year. By design, an intrinsic uncertainty and complexity enters the budgeting process, making the ‘easy’ budgeting technique obsolete.
Why is the solution not trivial?
Over the years, we have seen organizations use multiple methods to tackle this challenge. Most of them fall back into three conventional approaches each with major flaws:
1. Central power play
In this set-up, one central executive management team takes the final call about the division of budget across the different lines of business, product lines and functional cost centers. Most certainly, this leadership team has a strong overview of the strategic big bets vs. the tactical must do’s and is capable of making the decision. However, they might lack some weaker signals that could influence the trade-offs made and above all they did not seek buy-in and commitment from their teams to deliver upon the given targets. It’s a pure top-down play.
Democratic voting is another well-known technique where people in the investment committee get the mission to use their vote in the best interest of the company. While this is perfectly imaginable, one cannot rule out the ‘political’ effects of non-balanced functional ‘fractions and parties’ (i.e. the lines of business and functions), coalition formation to gain the upper hand, interpersonal conflicts, etc. There is simply no leveled playing field that can be easily formed.
3. 'Objective’ financial business cases
If people dynamics can’t solve it directly, then let’s try a more objective way via financial business cases and NPV/IRR prioritization. However, we’ve all seen ‘calculate yourself rich Excel case’, inflated hypotheses, double counts and forgotten synergies in this approach…
What we propose is more powerful
There is no magical solution here that solves this conundrum at the push of a button. However, we have developed a technology-enhanced approach that provides following 7 clear advantages, keeping some of the strong aspects of known methods, while compensating the pitfalls:
1. Balancing act
Once the group of decision makers is defined, we start by creating a leveled playing field across the different fractions and parties, to rule out the primary pitfall of democracy (more votes, more gains). This levelled playing field is achieved by assigning a level and a number of ‘votes’ to each decision maker. Throughout the design of these levels, we also make sure that a central power play by the lucky few is omitted in such a way that the risk of a small central team taking over the decision making dynamic is avoided.
2. Anonymity to ensure individual decision making
During decision rounds, all decision makers make up their minds in an anonymized way to ensure that fear of divergence, hierarchical effects or other influences are ruled out. This way, all decision makers can effectively make their decision in the best interest of the company.
3. Simplicity of decisions
We ask the participants to make singular decisions individually. Modelling the dependencies and implications of coupled decisions allows us to get an automated view on the portfolio of decisions, as a direct consequence of the individual decisions.
4. Intuitive metrics for decision
In order to ‘land’ a decision, we use simple metrics as ‘priorities’, ‘consensus-levels’, ‘% allocated budget vs. requested budget’ to structure the decision making process. When for instance, topics or programs receive high priority from decision makers and a high consensus is reached about the allocated budget, which deviates not too much from the requested budget, we consider this ‘a decision made’ and move on to other topics with less favorable metrics.
5. Group transparency
These insights in the progress of the decision making are discussed during intermediary workshops in between individual decision making rounds. During these group discussions, transparency is provided about the absence of consensus vs. priority level vs. scope/requested budget of a program. The discussion leads to a ‘guidance’ going for the next iterative individual decision round.
6. Personal guide & bonus system
After each discussion round, the ‘guidance’ insights are summarized and provided to each decision maker, in relation to his/her individual choices. This helps to accelerate convergence or to highlight different viewpoints (which should then be discussed again in the next group discussion).
7. Ripple down the dynamic
As the decision making progresses, it may well be that for a certain perimeter of the portfolio a more detailed level of prioritization and decision making might be required. This is feasible by allowing a different audience of decision makers to repeat the 7 steps on the more focused perimeter of the portfolio, as described above. This enables management commitment and decisions to be rippled down from ‘investment theme’ to ‘business lines’ (or tribe) to ‘roadmaps’ (or product owners).
The entire process is facilitated by our proprietary digital platform, deployed as a service and integrated in the professional workplace (e.g. as part of the MS Teams for budgeting), complemented with business consulting to drive and orchestrate this new way of working.
Do you want to know more?
“The feedback from the colleagues is unanimous: this really adds value to the group decision making process, triggering both commitment and authentic decision-making behavior.”
Who is Venture Spirit
This piece of insight is banking on Venture Spirits core capability of using TECH to thrive business and people. Venture Spirit uses TECH for strategy and culture development in 4 domains: collective intelligence, data intelligence, group dynamics and problem dynamics. The fundaments of this budgeting approach originate from the group dynamics. How can we make better, faster decisions as management, despite growing agility and hence uncertainty moving forward.