Planning and Budgeting: what are they? what’s the difference? What they have to do with BI?

What’s the difference between the two terms? It is not simply a semantic question, they’re strictly interlinked, and they all relate to BI.

Budgeting is a process, that is, something that involves input, output and some magic in the middle. The budgeting input are the targets supposed to be attainable by the company stakeholders. The output is a book (not necessarily made of paper). A book where, for each working area and in different business terms, are outlined the targets that the company has given to itself. That book is named “budget”.
In the budget you have how many new customers are going to be acquired, how the freight cost must be lowered, how many new hires and how many layoffs are going to happen etc. All these points, all tied together, all harmonized together, will aggregate in the income statement, the balance sheet and the cash flow.

Budgeting is not: sketching some numbers for the bank or the investors, defining the monetary value of sales, a top down process to give targets to the workforce.

Planning is a process as well. If budgeting has to do with targets, planning has to do with how to reach the targets. Example. Given that sales have to rise by 5%, this will be attained by adding sales force, to add sales force an head hunter contract is required, to manage the contract, some time will be subtracted by sales activity to screen the candidates. All of these activities will have an impact on budget parts other than that you’re working on.

Planning is not: forecasting what you’re going to do on the base of your desires, an impediment to doing the actual job, a tie to your freedom of action.

These processes are the two sides of a coin named control. Control is a process itself. It is the process of knowing what’s going on in the company and sparking the actions appropriate to reach the company targets. Those targets are defined at every level, not only in financial terms, defining key performance indicators. They are time sensitive because the final target should be the last of a row of intermediate steps. Planning describes what is going to be done to reach the targets. Planning talks in terms of projects or actions planned.

The Budget book should be a reference manual for managers, suggesting them  what to work on.
While the Budget for the year x is usually prepared in the last month of the year x -1, control is a continuous process, to steer the company course according to the real operations. This means that the book must be periodically revised.

So, the final question: is the current Business Intelligence model geared to support the control process? My answer is not, as I already said.

What do you think about?

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