Most of us have been building annual budgets forever. First on paper spreadsheets, then with electronic spreadsheet like Excel, and now with software budgeting tools that amount to little more than more convenient spreadsheets. But a budget is typically all numeric built with trending and last year’s information. Usually the CEO provides a growth and earnings expectation and we build the budget to make the math work. If you have a system that can also provide rate risk analysis and draw detailed data from your core system, you really have a great system. So, what’s the problem?

The problem is the math may work, but the real question is, will you let it happen? And hope? Or will you make it happen by taking control? Most of us feel really good when it all comes together and the budget shows we’ll hit the earnings and growth target. But if the budget is built on trends, then what will you do if the trends are disrupted? For example, loan demand slackens, deposits move to a competitor, or rates change? You’ll probably wait until it happens and devise a new forecast based on some new action.

The real questions you need to answer are:

• How will we actually get to our goal?
• Who will be responsible?
• When will they start and how long will it take to implement?
• What is the execution plan?

The budget is actually the target, not the map. Actions take time to fully implement. Execution is the reason we do a budget. Your plan (actions that will bring results) provides the organization with the steering mechanism, the control, and the response to changing conditions.

For example, do you know how much you need to grow a loan portfolio? Not just the net change from beginning to end, but when prepayments, maturities and defaults are considered, how many new loans do you have to make? While your balance growth may be showing $10mm, the actual may be $12mm or more.

Hopefully, your software shows this, so use it to answer these questions:

• How are we going to find these new loans?
• Is there a marketing/sales plan in place?
• What must be done each morning to find the amount you need that day, week, or month?
• What resources are needed?
• Who will orchestrate this effort?
• What will it cost?

Tracking this plan is critical. We all do a variance analysis on financials, pointing out differences from the month and YTD targets. But do we do a check on the action plans and their timing that will lead to the target? Tracking results as well as the plan keeps us on track. Problems are more quickly identified and can be addressed, like steering your car. If done well, tracking is reviewed in a group session where the group helps solve a problem. People prepare for group meetings.

Finally, if you have a system that calculates your interest rate risk, it should be able to show not only the rate risk position at the end of last month, but also the future risk position you will be in at some point in the future. This provides the information you need to make the corrections now rather than after the fact.

If you’d like to learn how Plansmith’s suite of solutions can help you build a Playbook for executing your plan, click here to schedule a discovery call.