There is a concept called “anchoring.” It’s a trick your own mind plays on you where a concept sticks in your mind and you can’t help but include it in your thinking, even when you’re convinced that you’ve disregarded it.
As the Harvard Business Review points out in their piece on the subject, anchoring can impact how you think about your budget. Even when you have big plans, your budget may look the same year after year.
How do you break from anchoring? Research suggests that the only way to break from one anchor is to replace it with another – a process called “re-anchoring.” When you’re creating a budget, that means approaching your forecast and planning in a completely new way, like with intelligent budget planning. Doing this, however, requires new tools, and a new approach.
Start From Somewhere New
Many times, companies begin the budget process by copying the old budget and then adjust what they think the difference will be from the last year to the next. There are two reasons for taking this approach – it’s solid ground to start from and, if you’re using something like Excel for building your budget, it’s easier than starting from scratch.
The problem with this strategy is that it doesn’t break you from your anchored thinking. Instead, come at your planning from a different angle. Set aside the historical budget and use your data to guide you. Instead of asking “What were our sales last year?” instead ask “What is the market opportunity this year?” or “Can our production process handle all of the sales we could potentially get?”
Use Data to Validate Your New Model
Re-anchoring doesn’t mean you should make up numbers and hope for the best. It means starting from a new place and using relevant data to guide you in the direction of a new model.
Forecasting tools that can pull in data from across the company is a powerful companion in re-thinking how you approach your planning. Being able to view data from multiple departments and compare it to outside data – like market potential – can give you a fresh look at what you can do, not what you have done.
Create a Scenario-Based Budget
Once you have a new approach and have validated it against a wide swatch of available data, you can begin to build a new budget to see the potential. This may not be the budget you end up using, but it will help to remove your anchors and open your mind to something more than incremental changes.
If you’re using Excel for budgeting, creating a completely new budget to test your model may seem daunting. Dedicated planning tools, however, allow you to build new budgets quickly, and even tweak those scenarios endlessly so you can find the right combination of new thinking and company direction that results in potentially expansive planning potential.
Stretching outside of your traditional budget can prevent you from being shackled to incremental growth. If you’re using a planning tool that includes data analysis and the ability to rapidly create new budgets and budget scenarios, you’ll have the potential to catapult your business forward. If you’d like to learn more about what our planning tool can do for your intelligent planning efforts, contact us today.
Centage Corporation’s Planning Maestro is a cloud-native planning & analytics platform that delivers year-round financial intelligence. With Planning Maestro, Centage offers the sophisticated features needed by small and mid-market organizations to integrate budgeting, forecasting, and deep data analysis within one easy-to-use, scalable SaaS solution. For more information on how to modernize your office of finance with intelligent planning, view our product demonstration video, or call 800-366-5111.