The age-old fairy tale Goldilocks and the Three Bears is admittedly an unlikely source for budgeting best practices. Yet FP&A professionals who are looking to transform their budget process would do well to revisit the main theme of this familiar story.
If you recall, Goldilocks ventures into the Three Bears’ house, and through trial-and-error, eventually strikes upon the food, seating, and sleeping arrangements she deems “just right.”
Getting to a budget that is “just right” for the needs of your organization can prove a painstaking and daunting task. But by following a proven approach developed by Jeff Epstein and Byron Deeter, you can establish a transformative budgeting practice that enhances communication and collaboration, better informs planning, and can even help drive growth. In other words, it’s “just right.”
The budget challenge—too hot or too cold
So carrying through the Goldilocks theme, the reality is that most organizations currently budget at two extremes.
Too hot: At these organizations, intense pressure for rapid growth from senior leadership or directors pushes finance to develop an overly aggressive budget. That may keep the peace in the short-term, but increases the likelihood that actual performance will fall short of budget projections—leading to tension and distrust down the road.
Too cold: Hyper-conservative budgeting is rife with a different kind of risk. Setting the bar too low eliminates the aspirational potential of a budget, possibly thwarting needed investments and useful stretch goals on the revenue side, which could be essential for driving growth and maintaining a competitive edge.
Whether you’re too hot or too cold, typically moving away from one of these extremes is tough without a viable strategy to initiate lasting change. The Goldilocks Budget offers that strategy, and a logical and systematic path to a more balanced approach.
The key catalyst that drives a Goldilocks Budget? Applying probabilities to the budgeting process. By relying on this probabilities-based approach, you can develop scenario based budgets that can be both accurate and aspirational.
Benefits of the Goldilocks Budget approach
The payoff from adopting a Goldilocks Budget approach can be considerable and lasting, and can help you achieve three clear goals:
- Motivate your teams to perform and achieve at their highest levels.
- Invest resources in the highest priority projects.
- Protect the company if things go wrong or unforeseen challenges arise.
Beyond those measurable goals, the Goldilocks Budget can also go a long way toward enhancing the relationship with your board of directors, shifting the budget conversations from confrontational to collaborative.
The bottom line—the Goldilocks Budget is no fairy tale. It offers a proven approach to driving better results while enhancing communications, confidence, and transparency with your Board and senior leaders.
Want to learn how to get your budget “just right?” Watch the webcast: The Goldilocks Budget: Getting to Just Right.