COVID-19 has turned many aspects of our lives upside down. But it has also taught us some important lessons - particularly about planning. Arguably, the financial services sector has fared better than most because of the lessons learned from the banking crisis. The rules and guidance rolled out following the crisis had required regulated firms to put in place disaster recovery plans, capital adequacy and scenario testing, as permanent items on the agenda. While few could have predicted the impact of the pandemic, those that paid close attention to preparing for a once in a lifetime event were better equipped to minimise disruption and adjust accordingly.
As all businesses address future uncertainties, the 2021 annual budgeting and planning process would have been particularly challenging, but vital. Traditional budgeting techniques that were dependent on using the preceding year’s results as a basis to budget for the forthcoming year now have limited credibility in 2021.
The current situation presents you with an opportunity to make a clean break away from traditional high-level methods to a more agile approach. This technique will encourage you to think outside the box, and focus on trying to predict the unpredictable. It’ll essentially be a mind-set change in how budgets have historically been prepared. Budgets should now be viewed as strategic management tools used to help drive the firm’s success, rather than just a financial planning mechanism.
The primary goal of budgeting is to identify the full range of possibilities and risks facing an entity. Going forward, the budget will become a living instrument, that should be reviewed and updated periodically to reflect changes in the business environment. Furthermore, you can spend less time obsessing over the current income statement, as the budget process will be seen as a vital tool for value creation.
An effective budget can provide a benchmark to evaluate if your firm’s strategy is appropriate and effective. It should also direct attention away from short-term results and towards longer-term strategic goals and the firm’s specific objectives, taking into account the operational and personnel requirements needed to support it.
COVID-19 has turned many aspects of our lives upside down. But it has also taught us some important lessons - particularly about planning. Arguably, the financial services sector has fared better than most because of the lessons learned from the banking crisis. The rules and guidance rolled out following the crisis had required regulated firms to put in place disaster recovery plans, capital adequacy and scenario testing, as permanent items on the agenda. While few could have predicted the impact of the pandemic, those that paid close attention to preparing for a once in a lifetime event were better equipped to minimise disruption and adjust accordingly.
As all businesses address future uncertainties, the 2021 annual budgeting and planning process would have been particularly challenging, but vital. Traditional budgeting techniques that were dependent on using the preceding year’s results as a basis to budget for the forthcoming year now have limited credibility in 2021.
The current situation presents you with an opportunity to make a clean break away from traditional high-level methods to a more agile approach. This technique will encourage you to think outside the box, and focus on trying to predict the unpredictable. It’ll essentially be a mind-set change in how budgets have historically been prepared. Budgets should now be viewed as strategic management tools used to help drive the firm’s success, rather than just a financial planning mechanism.
The primary goal of budgeting is to identify the full range of possibilities and risks facing an entity. Going forward, the budget will become a living instrument, that should be reviewed and updated periodically to reflect changes in the business environment. Furthermore, you can spend less time obsessing over the current income statement, as the budget process will be seen as a vital tool for value creation.
An effective budget can provide a benchmark to evaluate if your firm’s strategy is appropriate and effective. It should also direct attention away from short-term results and towards longer-term strategic goals and the firm’s specific objectives, taking into account the operational and personnel requirements needed to support it.
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FCA Regulated Businesses
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The FCA releases its second IFPR consultation paper (CP21/7)
