How GHD’s FP&A team streamlined their budget process through closer collaboration with the business

The annual budget process can be one of the biggest pain points in finance. However, GHD’s Financial Planning and Analysis (FP&A) team have found value in shifting away from the traditional ‘bottom-up budgeting’ approach to a ‘budgeting-as-a-service’ model.

CFO Magazine A/NZ recently had the opportunity to hear from Marc Armstrong, Group CFO at GHD to discuss how GHD’s FP&A team streamlined their budget process through closer collaboration with the business using IBM Planning Analytics (TM1) and working closely with local technology partner, Cubewise.

GHD is a global employee-owned technical professional services firm, founded out of Melbourne almost 100 years ago. The company delivers innovative solutions in engineering, sustainability, and infrastructure, specialising in water, energy, environment and transport.

Today, GHD employs more than 11,000 people, including a finance function of over 350 employees spread all over the globe.

CFO Magazine – “What are some of the biggest challenges you see CFOs and FP&A teams face when it comes to traditional ‘bottom-up budgeting’”?

Marc Armstrong – “Budgeting consumes far too (many) resources and far too much time. It’s not uncommon, particularly in a dispersed multinational business, for budgeting to take many months.

“I always start with the premise that a budget is never right, because no matter how much effort you put into the detail and how deep you go, it’s often based on assumptions, and so it’s inherently wrong.

“So therefore, a budget for me is – rather than a very detailed build-up from the bottom, where you do get so caught up in debates around micro decisions – more (about) asking:

‘What do you as a business or business unit or a division want to deliver next year and why, and what makes good sense?’

“And then, you go as deep as you need to be able to create some meaningful analytics in the year that’s ahead. But starting from an absolute blank spreadsheet and then building up is so time-consuming, and I find it gets conversations caught in small corners of the P&L (Profit and Loss Statement) and of the business that really don’t add value.”

“Was there a specific tipping point which prompted the need for change”?

MA – “It was a combination of two things. One was joining a business that was expanding and becoming more complicated by the year.

“When you’re talking (about) a very dispersed business across multiple time zones, the inefficiency of information being passed back and forth and budget iterations just felt so incredibly inefficient.

“Then when I combined that… with the fact that we’d reached a level of maturity and stability in both our systems and the volume of data that was in there, I just couldn’t help but think to myself if we put the right parameters into TM1, I’m certain it could produce a draft budget that was 90/95% right, based on history repeating and us giving it an assumption of escalation or growth factors.”

“You’ve described GHD’s new approach as, ‘budgeting as a service’. What does that mean in practice”?

MA – “Whilst we were shifting to a very systemically driven budget process, what I did not want it to look or feel like was the centre telling the business or the divisions or the regions what their budget was for next year.

“I didn’t want to divorce ownership from the business into the centre, but rather to have the centre provide a service… that was going to take a lot of the pain and a lot of the time consumption out of the budget exercise.

“It was not corporate top-down budgeting and delivering a budget to the business, but rather:

‘We’ve got this system we all know and trust. You use it for your reporting and dashboards every month, and the system, as facilitated by the centre, is going to have the first run at your budget for you’.

“And then the service that we’ll provide is we’re going to sit alongside it and we’re going to co-critique and tweak that budget in the system live, and then it’s a lockdown, it’s done.”

“How did you secure buy-in from the wider business”?

MA – “You’ve got to lay the groundwork first. It’s getting on a phone call… with leadership teams, with divisional or regional leadership teams, and saying:

‘We’re looking to change the way we go about (budgeting) and this is why it makes good sense for us. This is why it makes good sense for you, and this is how it’s going to operate, and we’re going to be alongside of you all of the way.’

“Set the scene, get the buy-in. Do it verbally.

“Then, (with) the first draft of the budget, not producing it and pushing it out, but rather producing it in the system, scheduling meetings, opening up the system live and saying:

‘Right, here (are) the numbers that the system has produced based on these parameters. Let’s review it together.’

“So, partnering right the way through in terms of the why, the how, the doing and then the sign-off.”

“What have been the most noticeable improvements for business leaders engaging with ‘budgeting as a service’”?

MA – “It’s certainly created the thinking of, ‘end result back’.

“If a clear sense of performance next year is not being matched with what’s coming out in the system, then you ask yourself:

‘Well, why am I thinking differently to what the data and history is projecting I should be doing’?

“It very much creates a performance-based mentality rather than an inputs, mechanics-based process.”

“Do you see ‘budgeting as a service’ becoming a new standard for CFOs and finance teams? Or is it only suited to certain types of organisations”?

MA – “I don’t think it’s quarantined to an organisation type.”

“As we continue to move into this world that is data-rich and system-driven, I still very much believe that annual budgeting cycles are important. They do take leadership through a journey of what should and could next year look like and why? And who are our stakeholders and what would be an appropriate level of performance and return to those stakeholders?

“But the mechanics of budgeting, I just sit here and think, with so much data and so much systemic capability, why should humans be sitting in front of screens with Excel spreadsheets constructing what a system in today’s world has to be capable of being able to do?”

For further resources on how IBM & Cubewise support CFOs & Finance Teams visit:  www.Cubewise.com.au & https://www.ibm.com/products/planning-analytics/financial-planning-analysis