Plansmith Blog

Are you really planning, or are you just budgeting?

By this I mean, are you filling out the numbers on a spreadsheet or planning the actions needed to make it a reality?

It’s always gratifying when all the numbers come together in a neat package showing expected growth and earnings for next year. And, there were likely many contributors who verbally expressed their goals and plans on how they are going to reach them. The compiled financial targets are then presented to and accepted by the board, and your monthly comparisons begin. Budget “predictions” are compared to reality. Variances from “budget” are explained, and business continues as usual. In essence, that’s budgeting.

I’m often asked, “What are the differences between a plan, a budget, forecasting, reforecasting, what-ifs, and stress testing?” Although some of the actions are similar and often intermingled in conversation, it’s their purpose that defines them. If you’re a client, most even involve similar keystrokes using your Plansmith software navigation; yet each plays a unique role within your organization’s total planning process. Let’s discuss.

Budget

To start, everyone’s familiar with a budget, but let’s make sure we see it for what it really is. A budget is a prediction or forecast of a financial position at a set time in the future, typically one year. A budget represents a desired financial outcome and requires consent by your board of directors. Most often a Budget is primarily thought of as cost allocations, but when combined with ideas regarding new business, you will often hear it referred to as a Plan. Once approved, the Budget Plan never changes. It is ‘set in stone’ for the duration of your selected time period.

I’m often asked, “What are the differences between a plan, a budget, forecasting, reforecasting, what-ifs, and stress testing?” Although some of the actions are similar and often intermingled in conversation, it’s their purpose that defines them. If you’re a client, most even involve similar keystrokes using your Plansmith software navigation; yet each plays a unique role within your organization’s total planning process. Let’s discuss.

Budget

To start, everyone’s familiar with a budget, but let’s make sure we see it for what it really is. A budget is a prediction or forecast of a financial position at a set time in the future, typically one year. A budget represents a desired financial outcome and requires consent by your board of directors. Most often a Budget is primarily thought of as cost allocations, but when combined with ideas regarding new business, you will often hear it referred to as a Plan. Once approved, the Budget Plan never changes. It is ‘set in stone’ for the duration of your selected time period.

As technology evolves and consumer trends are affected by outside social influences, including the COVID-19 pandemic, financial institutions are faced with ever-increasing competition. It is critical then, that organizations adopt new strategies to excel within their respective markets.
One of the best ways to do this is to incorporate peer analysis into your organization’s planning process.

Peer analysis is an impactful way to evaluate your bank’s performance within the context of your operating environment and business model. It can help you identify new opportunities, manage competitive pressures, and address regulatory hurdles. There are many facets to quality peer analysis but the most meaningful analysis hinges first on selecting the right peers.

Eliminate the ‘Yeah, buts’

At Plansmith, we focus on not only helping our clients with preparing an annual budget, but identifying the action items involved in making the plan come to fruition. When you work all week helping banks and credit unions do a better job of planning, it’s probably not uncommon to take a step away on the weekend and refresh the batteries.

But do we ever really stop planning?

Last year, shortly before COVID hit, I was making plans (there’s that word again) to attend a concert at Chicago’s Thalia Hall. Since this was a general admission show, my goal was to arrive early in order to be relatively close to the stage. If you’re a bank or credit union CFO, think of this as my desired ROI.

Oh, Autumn. The changing of the leaves, the crispness of the morning air... and the crunching of numbers?

Yep. We're bankers. It's what we do. And fall, it's the perfect time for some of our favorite - and most crucial - banking activities.

Here are the 3 game-changing activities Plansmith recommends starting as early as possible in the fall:

If COVID-19 has taught us anything, it’s that plans change.

For example, I had a cruise booked and paid for, including excursions to play with sea turtles and visit Mayan ruins this spring. Two of my close friends and I were set to venture from Tampa to Cozumel, Belize, and Honduras – live our best tropical lives, if you will. We were supposed to set sail April 19^th and return April 26^th.

As Plansmith’s ‘budgeting software’ evolved from its onset in the early 1970s, it became referred to as a ‘profit planning model.’ This distinction was made because it was much more than just balances on a spreadsheet or basic historical trends cast forward for the next year.

Plansmith believes in the power of planning to help manage the future.

Our mission has been to provide the best tools and services to strengthen execution for sustained growth and quality earnings. Over the past 50 years thousands of financial institutions have benefited from the tools we build and the services we offer.

In the current crisis there is no better time to rethink the use of complicated and confusing systems in favor of an easier, more flexible and a more understandable way to avoid the risk of bad decisions. Plansmith provides resources including dedicated people, expert advisors, educational offerings and great decision technology components for managing your future.

Banking, like Yogi, is a unique bear. If you haven’t worked in the trenches, you probably just don’t understand it. It’s an industry best served by those who have lived it.

As unique as the industry is – you guessed it – your budgeting solution should be just as unique.