Come together: how to marry strategic & financial plans for a more flexible, accurate budget.

The budgeting and planning process can be a persistent challenge for all businesses. But for an organization like the Zoological Society of San Diego, which runs one of the world's largest zoos, the process can be mission critical--in more ways than one.

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As an audit senior manager with KPMG, and later as a senior financial officer with ITT, I saw how corporate entities were driven by certain acronyms, like ROI and IRR. And, the Zoological Society is no exception.

However, a unique requirement of working for a private, not-for-profit corporation is that we also are interested in our ROM--return on mission. In a sense, our shareholders are the more than five million people who walk through our gates every year and the future generations who will benefit from our conservation efforts.

MISSION IN MIND

We take a long-term view about our goals, and financial decisions are matched against our mission statement: The Zoological Society is a 90-year-old conservation, education and recreation organization dedicated to the reproduction, protection and exhibition of animals, plants and their habitats.

So we ask questions like "Have we been effective in assisting condors to continue?" Or "Have we been effective in saving elephants from being culled in Swaziland?" It's a much different approach than that taken by typical corporate entities and requires a budgeting and planning process that goes well beyond the next quarter's earnings.

Our budgeting and planning process also has been hastened, as our conservation efforts--the science of the zoo, closely linked with our animal collection--become a larger part of our mission to meet the expanding conservation needs in the world.

Specifically, we now link high-level strategy to the budgeting process, uniting the strategic plan with the financial plan. And in addition to several budgeting and planning process improvements over the last few years, we've added a monthly re-forecasting process to keep our budget more flexible and projections more accurate.

ACCEPTED WISDOM

The budgeting process is just one aspect within a larger planning process that is multi-year, strategic and visionary.

There is a formality to an organization's annual budgeting process that includes developing a strategy in terms of where it wants to be over the next year and then determining how that goal fits into a five or 10-year plan.

Budgeting can be done from the top-down or from the bottom-up. The top-down approach begins with an organization's global targets that are then pushed down to the various elements of the company. The bottom-up approach allows each department to build its own budgets, which are then compared to the corporate goals.

Each approach is an iterative process, involving much deliberation as staff seeks to make its preliminary budgets fit into the organization's strategic goals.

BUDGETING HURDLES

But there are several budgeting hurdles unique to an organization like ours that necessitate straying from staid budgeting and planning theory. The business of what we do--conservation, education and recreation--is diverse, and consequently, we have complex needs.

The rise in our conservation needs can be seen in a few recent projects. In November 2001, we opened our center for the Conservation and Research of Endangered Species, a $20 million project. A few years before, we built one of the world's state-of-the-art veterinary hospitals, a $22 million project.

In addition, we are working to conserve species in 13 other countries.

One of our most compelling budgetary considerations is determining what our conservation center is going to do over the next five years--what species, in what countries, will we be working with? And how does that decision align with our plan for the animals and plants that we will be exhibiting?

In addition to the big ticket items, we have so many other moving parts--145 departments spanning education, pathology, marketing, food service, architecture and construction, to name a few--that it's like running a small city. And for this city to continue thriving, our budgeting and planning process needed to be optimized.

Optimization is often a question of unification. In our case, the key has been marrying the financial plan with the strategic plan, linking budgets to strategy.

STRATEGIC AND FINANCIAL PLANS COME TOGETHER

When I became CFO of the Zoological Society in 2001, the strategic plans were reviewed and updated every few years. Budgeting was done annually. But the two processes were disconnected. For many organizations, the strategic and financial plans are too often viewed as separate entities--the strategic plan a narrative theory, the financial plan full of budgeting variables "and never the twain shall meet."

Because of the organization's evolving needs, the budgeting process and the strategic planning process have been joined together. Our goal is to ensure that our conservation efforts can become more economically viable. To do this, we needed to unite our growing conservation needs with the recreation and education sides of the business. In short, we needed to tighten the link between the Zoological Society's resources and its mission statement; between corporate strategy and departmental budgeting.

Three years ago, we revamped the strategic plan to incorporate a financial plan. We reviewed our vision to make sure our strategic plan had a 10-year financial plan closely associated with it. We took the narrative of our corporate goals, what we planned to accomplish over the next 10 years, and said, "How are we going to make this happen financially?"

And therein lies the key--uniting those two plans.

The strategic and financial plans have to be spoken of in the same breath. The 10-year strategic plan is the map to your destination, and the financial plan is the checklist of resources and steps required to get there.

RE-FORECASTING

Another key to helping us achieve greater efficiency at the bottom line and more accurately track our progress toward our financial goals is the inclusion of a monthly departmental re-forecasting process. Each of our 145 departments now provides a monthly forecast that allows us to look forward with more accuracy and identify course corrections sooner rather than later.

Our monthly financial statements are intended to inform the organization about our financial performance and serve as a tool for gaining knowledge about what each department thinks is going to happen in the immediate future.

Financial statements are sent to every department seven to 10 days after a period closes. Included in that financial statement is a streamlined, department-specific forecasting template. Shortly thereafter, the departments send their forecasts back to us.

In the past, department forecasts would span the rest of the fiscal year. But that span is a false truncation. For example, though it's now November, the world will not end Dec. 31. So why should projections stop at that point? In fact, just as we look back a year for comparative purposes, it is a natural cycle to look forward for another year.

This 12-month rolling forecast helps to bridge the timing gap between the budget and the 10-year strategic plan, allowing the organization a certain flexibility and sensitivity to change to re-allocate resources on the fly if needed

To accomplish this, we had to bridge another classic corporate gap between the operational units of an organization and the higher-level finance functions. Department heads often view the budgeting process as a bureaucratic exercise with little practical value. And it's important to be sensitive to these attitudes when designing budgeting and forecasting tools for departments.

Making the process as user-friendly as possible, customizing the templates in department-specific language and communicating the importance of the process can go a long way to optimizing the B&P process.

KEEP IT SIMPLE

We knew the process had to be user-friendly to ensure buy-in from all levels of the organization.

The sheer extent of the organization's departments makes this customization a complex exercise, and the diversity of the departments add to the challenge. Some departments, such as merchandising, food service and admissions, are fiscally aware. But other departments, such as veterinary, pathology or applied conservation, are more technical in nature, staffed by scientists who are more intent on what they're studying than fiscal matters. You don't want to burden a biologist, for example, with too much financial number crunching.

The trick is to design a budgeting process that is embraced by all operational units.

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UNITING FINANCIAL DATA

Technology played a big part of our re-engineering of the budgeting and planning process, specifically in creating department-specific templates. We have different systems and software platforms running in different departments, and we needed a centralized data warehouse to unite this information.

We invested in a spreadsheet-based software that was fast, flexible and secure, allowing for a quick assessment of new data so that we could make decisions that have an immediate impact.

The software provides an inexpensive data warehouse, a common ground that allows us to unify the data from all of these disparate platforms. We can extract data, such as payroll, food service and attendance information, from this general ledger with our report-writing tool. Capitalizing on the tool's flexibility, we designed a template that provides customized information for each of the organization's 145 departments.

While gathering the data requires a significant effort, the analysis, interpretation and decision-making can be more difficult.

To accomplish this, we've designed analytical review tools and processes that help us to understand "What's going on in this area? What do we need over there?"

CUSTOMIZED FORMS

To make the budgeting and planning process more user-friendly, we designed each budget template in that department's language. It was a daunting task, but once you put that initial effort in and have a few diverse templates to work with, the rest fall in line with some maintenance and tweaking.

We thought it was important to limit the number of line items required in each report. We didn't want to burden any of the departments, especially those who view finance as a foreign language.

When you send a template about month-end results to a scientific department, nobody knows that area better than they do. But they don't need to articulate their budget down to the third decimal point. They don't need to have 50 line items, and then comment on each of those items, to be able to tell us their forecasting story. A department really may need only to comment on five or six line items to bring the projection into focus.

In addition to limiting line items, it's also helpful to offer training in budgeting basics, to demystify the process for those unfamiliar with finance.

COMMUNICATE

When embarking on a large-scale re-engineering of the budgeting and planning process, you have to make everyone aware of the fact that by bringing together the strategic plan and financial plan, you are guaranteeing economic viability and the mission's survival.

No matter how user-friendly the process is, if people don't believe the process has value, you won't have buy-in. Our new process was met with skepticism at first. But we were persistent and communicated the future benefits of the exercise. Within a year, the forecasting process became a part of our organization's culture.

It's vital to show departments that their budgeting efforts are creating good results and that their input is affecting positive change in the organization. It's important to communicate that as a result of each department's budgeting and planning, they're able to do more, their science is able to continue or the organization is able to build more exhibits or produce more educational programs.

FLEXIBILITY

Revamping the budgeting and planning process has painted a more accurate picture of the future and has allowed the organization to be more flexible and have an increased sensitivity to change.

For example, the wildfires in Southern California two years ago had a profound impact on our attendance. Moreover, we were worried about our collection as the fires reached the borders of our 1,800-acre Wild Animal Park.

Knowing that we weren't going to have the kind of attendance that we projected, we made some budgeting adjustments. We had to adjust our expenses and devise creative ways of raising revenue. It forced us to be more innovative.

Sensitivity to change fosters an environment of innovation by focusing on the future. That's one of the biggest strengths of this new budgeting and planning process--it stimulates innovation by instilling a forward-looking approach.

Through this unification of the strategic and financial plans, the implementation of a rolling re-forecasting process and the customization and simplification of department budget templates, the budgeting and planning process can become a seamless circle.

BY PAULA BROCK, CPA 

Paula Brock, CPA, is CFO of the Zoological Society of San Diego. You can reach her at [e-mail].