Sound budget practices
group performance >v'"tsWi",s
The budget planning process for 1999 reflected the heavy turbulence
experienced both within the organization and on all of the markets in which we
do business. The thrust into investment banking, the general volatility in world
finance, our preparations for the transition to the euro and the millennium, and
an increasingly demanding regulatory dimate combined to place extraordinary
demands on a largely decentralized budget-setting technique. The outcome: a
spate of substantial and entirely unacceptable cost overruns.
Setting parameters
Forecasting developments
Cutting back
Staying informed
Open communication
C iven all of last years' many
Vjuncertainties, the offices were
largely obliged to do their own planning,
which left head office in the position of
having to consolidate the rather
uncontrolled result,' says Alison
Straszewski, head of control Rabobank
International (RI). Ambitious budget
proposals from throughout the network
were way off scale in relation to the
revised budget figures overall - some 30
percent above target - and by late last
year it became inescapably clear that the
organization's flexibility and self-discipline
were floundering in the stream of rapid
developments. The failed experiment with
bottom-up budget-setting provoked a
more centrally directed response involving
substantial imposed cuts. This was known
as the 'norm budget.'
Inevitably, this process was difficult.
While some offices were able to comply
with the disciplinary regime, others could
not. The result was an extended period of
budgetary turmoil and debate. 'With
hindsight, it's no surprise that the
formulation of 1999's budget was more
than usually fraught,' Straszewski notes.
'Everyone was trying to project plans for
an organization undergoing enormous
change. But we have now resolved most
of the outstanding issues. We have a
detailed budget that sets income and
costs, per entity, establishes a clear set of
solvency limits, and ensures that the
overall result falls within the centrally
established parameters. Our next task is
demonstrating in clear and unambiguous
terms that, as a network, we are capable
of operating as a single entity and sticking
to our commitments with respect to the
Rabobank Group as a whole.'
Control R1 considers information
management a key to success. However,
the existing information resources across
RI are insufficiently transparent and need
to be improved. 'We would like to play a
much more proactive role forecasting
developments and helping managers
throughout the organization pinpoint
their sources of cost and profit as well as
plan their business trajectories in far
greater detail,' Straszewski says. Looking
ahead, the budget process will be
substantially less decentralized than it has
been to date. It will be based on more
clearly defined procedures, more specific
targets, and more detailed, timely, and
direct guidance from head office. The
trend is to move from aggregate to more
granular and timely data on cost and
income developments: this will be used to
produce better projections and greater
managerial flexibility in the setting of
strategy and tactics.
The challenges, if anything, will intensify,
Straszewski notes. 'It's never easy to
move from an expansionary phase into
one of consolidation. All around the
world, difficult markets including Asia
have forced banks into a period of
painful self-examination, underscoring
the need for rationalization. Within RI, a
new freeze on the use of solvency is
driving a further substantial move away
from corporate lending; solvency will
henceforth be targeted towards our
customer focus areas to the exclusion of
other business.' Headcounts, likewise, are
to be stabilized, not least through a new
set of procedures under which human
resources will keep a tight control over
new hires.'
To meet these challenges in the year
ahead, head office needs to be more fully
apprised of the existing situation at any
given moment so that its ultimate
decisions are feasible, viable, and
sustainable. Success will depend on how
well management profit-and-loss (P&L)
information is collected and disseminated.
'We are now very busy trying to design a
more coherent P&L system with clear
Alison Straszewski states the facts
timetables and unified specifications. All
relevant information needs to be gene-
rated according to a consistent scheme,'
Straszewski says. 'The key word here is
relevant. Offices are flooded with requests
for data from different parts of the
organization. We don't intend to add to
this burden but to streamline the process
and make it more rational. Everyone has
different information needs - people in
the food and agribusiness need different
data than those in operations and IT. Our
task is to is design a financial information
system that will meet all their needs.'
To attain this goal, control RI is initiating
a process of dialogue and consultation
with the offices. 'This is one area where
you really can't manage from the top
down. You need to take a careful look at
what information you have, identify
where gaps exist, and design a
comprehensive new system that will
ensure that both head office and all of the
entities throughout the network can
actually talk with each other in the same
language and coordinate their work from
the same information base.'
