You have every right to work this way. We think that regional offices have the authority to independently make decisions in such cases, as long as you stay profit-centered. However, when it comes to strategic issues, you need to report them to higher-level management and ask for instructions. Strategic issues often sacrifice short-term interests in exchange for long-term interests.
If you do not ask higher-level management for instructions, who will subsidize your short-term losses? In addition, strategic issues are not that urgent, and you have plenty of time to report them, so you must follow certain procedures. I believe that good numbers are a result of good work; good numbers cannot be faked.
We must focus our energy on analyzing the market and serving our customers. The planning system on the front lines is designed to facilitate business operations, not to report back to HQ. The regional office and product line plans have the same purpose. Frontline departments must have a clear direction and the right strategy for success. Regional offices that fail to reach the average compound annual growth rate of the company can focus more on fine-grained management.
Departments that do not work on the front lines must provide high-quality services to the front lines by continuously improving themselves through fine-grained management. We should first choose small countries to develop highly competent, lean teams.
These countries are too small to maintain large teams anyway, so all of their resources have to come from back offices. That will make it easy for small countries to call for support. The key issues we need to address are: Who will provide the support? And how will it be accounted for? We should run a pilot program in small countries. We can correct any problems we might run into during the process of calling for support. Once the pilot program is successful, we can work out a model and apply it in medium-sized and then big countries.
Whether big countries should have an independent platform can be talked about later. Our market investment budgets should continue to be based on relative numbers. Business departments work hard to achieve their sales targets. We can therefore use these targets as a reference for resource allocation, but they should not be the sole basis. We should not rigidly allocate resources based on sales targets, as this may cause waste. Business departments should make commitments based on practical goals and get the resources needed to achieve those goals.
Resources needed to achieve stretch goals should be allocated to business departments in phases rather than on a one-off basis. Otherwise, business departments will set lower targets for their KPIs. Otherwise, things will get complicated. If your department is in a strategic domain, we will grant a budget to you. Those who are in charge of strategic domains have to take an oath, pledging to achieve strategic goals.
They should have a timetable for everything they do. Any modifications to business plans should be clearly explained, and money should be well spent. When a department applies for a budget, they must clarify their responsibilities and contributions.
After approval is obtained, the results they deliver and the responsibilities they assume will be used as the most important basis for performance appraisals. We should gradually put in place an outside-in, profit-center-based budgeting and final accounting system. Investments in BGs and SBGs 3 are determined by their output, and investments in functional departments at HQ are determined by the total output of the company. Representative offices should be our accounting centers.
All expenses must come from representative offices. The authority to prepare and approve budgets cannot both be in the hands of HQ. Otherwise, HQ will become increasingly bloated. When we shift our focus to representative offices, HQ should help representative offices win key projects.
They can even send people over to representative offices. In this way, they can earn money from representative offices, and the extra labor hours claimed by representative offices will come back to HQ.
Budget committees must comprise of people from both business and finance departments. Our current problem is that tasks often cannot be completed even though we are spending money on them. We must clarify how compensation packages are generated.
For example, how much should packages be based on where we are in executing a plan? Compensation packages should be based on business results, and then HR can further divide the packages. During total budget management, we must be very clear about our stance against the following conduct: making irrational final sprints to achieve KPIs, intentionally covering up business results for accounting or incentive purposes, and voluntarily giving up opportunities to achieve better results.
We must create the right values and encourage teams to work hard and forge ahead. Business resources are primarily allocated and managed in two ways. First, we have a resource allocation plan. The total resources of the company are fixed.
Those who contribute more will receive more resources. Second, resources will be allocated based on profits. We have different profit requirements for different businesses.
If we want a business to develop faster, we will reduce its burden by setting lower profit requirements. If a business is too risky and inflated, the profit requirements will be higher. We will calculate the business results of profit centers based on the profit and cash flow requirements set for each BG and BU, and strike an overall balance between collecting profits and investing resources within the company.
The Finance Committee will manage the end-to-end process in a closed loop by focusing on the total amount of investment, the opportunities created by such investment, and the results achieved.
When we build our business strategic reserve pools, we should develop vertically rather than horizontally. Otherwise, we will have to cut projects and waste money. Elite teams should participate in global projects to seize the strategic high ground. If they win, their costs can be charged to projects. If they lose, they have to take care of the costs themselves, with the budgets provided by HQ.
We will implement a new management system to delegate more authority to field offices. The purpose of this is to greatly increase our work efficiency and make sure field offices command back offices. We now make it clear that executives should command field teams when it comes to strategic issues; for tactical issues, field offices should command back offices, and back offices should provide full support to field offices.
If back offices cannot provide services to field offices, they have no reason to exist in the first place. Strategic issues should be decided upon by executives at HQ because these issues normally involve sacrificing short-term interests in exchange for long-term interests. Such sacrifices should be reflected in the financial statements of the beneficiaries and be backed up by executives. If an overly rigid approach is adopted in performance appraisals, strategic goals will be affected.
In the future, we will specify our strategic positioning in our general principles. We must plan and set strategic goals, which should be assessed in phases. We should improve our capabilities in mid- and long-term strategic planning and strategy management at the company level as well as in BUs, marketing units MUs , 4 and functional units FUs. This will better guide executives to focus on long-term strategies, perform regular strategy reviews, and arrange for work reports.
It will also help regional offices, product lines, and other departments better collaborate with each other to ensure that strategies are well aligned and actions are consistent with strategies. Closed-loop management for SPs and BPs should be linked to performance appraisals of executives and financial planning of the company to ensure that the SPs and BPs are executed.
We must adopt different budgeting models for product investment to support strategic products and control products that are not in the core business.
For non-strategic products in our core business, resources will be allocated based on annual budgets. HQ does not have its own budget, as all resource budgets are in projects.
Once the field calls for resources, we will deploy resources there, whose costs will be charged to the field. We need to change the current budget allocation method by granting the budget to the field. HQ has to get the budget it needs from projects by providing services. This is the only way we can downsize HQ. We need to separate functional department budgets from project budgets, and keep the expenses of functional departments as low as possible. The goal of functional department operations is to ensure that we promptly deliver high-quality products and services to customers at affordable prices.
When functional departments support a project, they need to ask the project manager to pay for their work, and this payment can be deducted from the project budget. By taking this approach, functional departments will try to have the project manager pay for expenses, and the project manager will try their best to control project expenses through the efficient use of resources from functional departments. This will result in conflicts, but a balance will be achieved in the end.
The purpose of establishing such a mechanism is to make sure HQ provides services to the field and charges them for these services. Currently, our budgeting is about granting funds to functional departments. Those who have budgets have authority. We must be clear about the sources and recipients of budgets and how budgets can be used to support strategy execution.
They think if they had a budget the previous year, they should have one this year too. Now both resources and money are in the hands of functional departments. However, departments that fight on the front line do not have money, and they have to ask functional departments for budgets. We started to change this practice last year. Instead, they will first be granted to the IRB 6 and IPMT so that budgets can be allocated to projects that can create value and execute strategy.
As for accounting, we have to define our accounting units first, as that will make many things clear. We must transform our budget management system based on responsibility centers. Customers and projects must be the focus of our budgeting work, and our budgets should also be prepared in a way that helps create sustainable value and make contributions. By preparing budgets, we aim to execute business strategy and achieve business goals while aligning authority and interests with responsibilities.
This approach will help us gradually establish a mechanism through which resources are channeled to strategic domains and valued customers. We will optimize our rules for managing resource department budgets so that they only have budgets given by HQ. Other resource department budgets must be earned by supporting projects that request their resources.
In this way, budgets will be used to facilitate business operations. These decisions only need to be approved by those who have budgets. Adopting this approach will allow our operations to shift from being function-centered to being project-centered.
We stress that projects should have management authority and that resources come with a cost. When preparing plans and budgets, we must prioritize field teams and projects. Project planning, budgeting, and accounting must be accurate. All project managers must take planning, budgeting, and accounting seriously.
Effectively using projects as the basic unit to manage planning, budgeting, and accounting is the foundation of managing and appraising regional offices as profit centers.
Project accounting units can be broken down into regional offices and product lines. We must ensure that after project planning, budgeting, and accounting are effectively managed, regional offices, product lines, and HQ departments can build on and support such work. This is why we need to develop a planning, budgeting, and accounting system at both field and back offices.
Since our profits come from customers, our budgets should also come from customers. Only when we create an accurate budget for customer-facing sales teams can we break the budget into reliable, accurate annual budgets for product lines and regional offices. The rules for budgeting and accounting should be the same. When we use a certain rule for budgeting, we also need to use this same rule for accounting. This is how we achieve closed-loop budget management. We need to break plans down to those who implement them and ensure they understand their tasks.
Only when information is passed down accurately can we ensure effective execution at all levels. Managers must make their goals, intentions, methods, standards, and measures understood by their subordinates. The forecasts made by our planning system are not curves. Data cannot be fully relied upon to make completely accurate forecasts. During execution, we can adopt a breakdown method to get a complete and rational plan.
However, forecasts and high-level management of plans rely on intuition. Sometimes, for example, it is based on an understanding of politics. Reliable contract forecasts must be based on estimations, tracking, and analysis. Our employees must become more sensitive to the factors involved. How can we achieve fine-grained management? The key is to have a reasonable plan and avoid being blind.
Proper planning can significantly reduce freight costs and travel expenses for engineers. Those who make plans must understand our business. Regional offices need to establish a planning, budgeting, and accounting department, which must be headed by someone who knows our business. Plans and budgets can then be corrected and measured through accounting. If we have a good plan and raise the proportion of our ocean shipping, our freight costs will go down.
The key to reducing backlogs at customs and warehouses lies in developing accurate and objective plans. Regional offices and representative offices must step up efforts to build their planning system. As such, it's crucial that leaders allocate adequate resources for accountability training to ensure their workforce is accountable for and committed to meeting budgeting goals throughout the year.
Let's go back to the three elements of successful project execution: quality, speed, and budget. All three can be honored with an accountable workforce. Quality happens when a high level of accountability delivers promised results.
Speed happens when there is a high level of resiliency and agility within an organization. And finally, budget integrity happens when communication, promised results, resiliency and agility all come together.
Evidence-based training that teaches the steps to positive, principled accountability seeing a problem, taking ownership for solving the problem, proactively developing a solution for the problem, and delivering on promised results allows leaders to successfully build a culture of increased accountability -- and thus, stay on budget.
Top Stories. Top Videos. Getty Images. Sponsored Business Content. If you base your budget on your business plan, you will be creating a financial action plan. This can serve several useful functions, particularly if you review your budgets regularly as part of your annual planning cycle.
Comparing your budget year on year can be an excellent way of benchmarking your business' performance - you can compare your projected figures, for example, with previous years to measure your performance. You can also compare your figures for projected margins and growth with those of other companies in the same sector, or across different parts of your business.
To boost your business' performance you need to understand and monitor the key "drivers" of your business - a driver is something that has a major impact on your business.
There are many factors affecting every business' performance, so it is vital to focus on a handful of these and monitor them carefully. Any trends towards cash flow problems or falling profitability will show up in these figures when measured against your budgets and forecasts. They can help you spot problems early on if they are calculated on a consistent basis.
To use your budgets effectively, you will need to review and revise them frequently. This is particularly true if your business is growing and you are planning to move into new areas. Using up to date budgets enables you to be flexible and also lets you manage your cash flow and identify what needs to be achieved in the next budgeting period. Your actual income - each month compare your actual income with your sales budget, by:.
Analysing these variations will help you to set future budgets more accurately and also allow you to take action where needed. Your actual expenditure - regularly review your actual expenditure against your budget. This will help you to predict future costs with better reliability. You should:. Our information is provided free of charge and is intended to be helpful to a large range of UK-based gov. Because of its general nature the information cannot be taken as comprehensive and should never be used as a substitute for legal or professional advice.
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Click on one of the two buttons to access the content you wish to view. COVID Remote personalized support Our physical offices are closed, but our advisers remain at your disposal to help you plan the resumption of your activities. Guide Budgeting and business planning Share on:. Planning for business success The benefits What to include in your annual plan A typical business planning cycle Budgets and business planning Benefits of a business budget Creating a budget Key steps in drawing up a budget What your budget should cover What your budget will need to include Use your budget to measure performance Review your budget regularly.
What are the projected sales for the budget period? Be realistic - if you overestimate, it will cause you problems in the future. What are the direct costs of sales — i. What are the fixed costs or overheads? Share on:. Need help?
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