Play Defense and Offense in 2024 Plan Build-ups with Constraint-Based Budgeting
From the very start of the Q3 Roundtable Series, The CFO Alliance and strategic partner, First Water, have been advocating Constraint-Based Budgeting (CBB) as a way to build more solid plans in a volatile economy. As the roundtable roadshow continues its cross-country tour with the aptly chosen theme of “Budgeting in a Constrained World”, CFOs and finance executives participating in the events are saying they are trying to mitigate the effects of softer market demand, higher energy and labor costs, talent voids, and the cost of financing. So, as expected, planning assumptions related to the cost side of business models are being pressure-tested to the hilt in the effort to nail down costs tightly in their 2024 plan build-ups.
The downside? What’s likely to be constrained because of all these causals? Growth enablers.
However good CFOs can get in forecasting the cost side and establishing the mechanisms that ensure cost stabilization throughout the coming year, it’s the top line that needs a double-down level of attention. CFOs know revenue growth solves a lot of ills, and they have to find a way to make sure growth is not a casualty of over-biasing cost containment in their strategy. And this is exactly where CFOs can play a more strategic leadership role in the cost-growth balancing act.
The very label, Constrain-based Budgeting, implies restriction – in essence, playing defense against planning assumptions that could go south as soon as 2024 ushers in its version of variables with velocity. Given the latest deep dive into 2024 economic indicators (and minus the whitewash of certain media for political or reputation management purposes), a defensive posture is prudent. In part.
CFOs can also use Constraint-Based Budgeting as a tool to create a better offensive strategy. Let’s look at it this way; the same isolation and scrutiny given to the cost side can also be applied to growth investments. Just as Constraint-Based Budgeting can assess and build out one or more constraints with driver connectivity and data detail, it can be used to rationalize and even prioritize investments. This is exactly what every plan needs. CBB builds in accountability and likely better efficacy from the start. The cause and effect dynamic of investing or not investing becomes more visible because CBB is a what-if engine. Done right, even elasticity associated with a factor is exposed by changing a driver’s value up or down. In the end, CBB should help enterprises get better control of the variables and set performance expectations more correctly.
Go Deeper into CCB with the Largest Finance Peer Community – The CFO Alliance
We will be sharing best practices and innovative approaches to streamlining the 2024 budgeting process as we delve deeper into CCB in the upcoming Q3 Roundtable Events. For information on the event schedule and locations, follow this link. See you there!