Making Budget Decisions Less Painful

By Dr. Andrée K Bates

Why is the annual process of planning and allocating funds so contentious and ire-worthy? Planning and budgeting may often be unrealistic or irrelevant, a result of corporate culture and wishful thinking. Executives may push Managers to deliver more results with less budget each year, making the whole process seem detached from reality. Managers can respond by under-committing and over-performing, preserving their jobs and their bonuses at the expense of any real company growth.

With marketing, the potential for unrealistic or unhelpful budgeting may be even more prominent, with the well-trod difficulties of providing return on investment. We have so many unknowns, including customer response, marketing effectiveness and competitive activity. It’s no wonder that budgeting increasingly seems a task to simply stumble through, with numbers that may or may not be meaningful, and results that may or may not equal actual company growth.

Ironically, as budgeting becomes more and more dreaded, it simultaneously becomes more and more crucial. Returns are decreasing, the economy is worsening, and management and shareholders are sweating. Plus, any actual growth may be setting the company back. There’s a big difference between revenue growth and shareholder value growth. Ideally, these two major goals go hand in hand, but this is not always the case. When they don’t - when, for example, revenue growth does not deliver growth in economic profit for investors - results are disastrous for the company.

The bottom line?

Budgeting as it exists today may be contributing to company decline. However, when prepared correctly, budgeting can alleviate your business woes. It can plan for actual growth, and support the Marketing Department and Marketing Managers in the process. Effective budgeting is something that is possible, and that can eliminate the pain of that yearly task.

How can the annual budgeting planning cycle be used to effectively plan for growth?

For marketing, it involves setting the right goals and strategies, using a little thorough review of tired tactics, a little hard thinking about marketing targets, and making some tough choices. It also involves justifying your budget to the bigger brass. And all this may be easier than you think. With analytics, such as Eularis’ Accelerated Growth Program Analytics, you can set all these factors and see the results you would achieve from them in revenue terms. You can also compare various scenarios and use this as an evidence-based argument for specific budgets. The good news is that our clients, who have been using our Budget Allocation Tool, have had impressive growth from application of the tool. Should you use this tool, you can feel safe that the decisions you made will work to grow both your brand revenue, your profit and your career.

We recommend that when planning your budgets for 2014, marketers follow the following steps to get significantly more ‘bang for their buck’.

Focus on Your Sales and Profit Goals

Without focusing on what you want to achieve, how are you going to know how to get there? Figure out your goals in terms of both top and bottom line growth.

Create an Analytic Framework

Yes, I know…an experienced marketer can tell a lot from gut feel. However, the environment is changing, and what your gut tells you is often based on your experience. The world is not as it used to be. The blockbuster model is failing, doctors don’t want to see reps like they used to, social media use is exploding, and customer empowerment and knowledge is greater than it has ever been. You need to remove as much emotion out of the process as possible and make all assumptions used very explicit. Finally, you need to use analytics to figure out how to reach your goals accurately.

Use Simulation

The more variables you can account for in a simulation, the more you’ll understand the full impact of your marketing dollars (and promote marketing credibility with finance and the C-Suite). There never is only one answer in any budgeting process. There are a series of overlapping risk and opportunity evaluations that must be made, and a variety of different combinations can lead to a successful outcome. What if you increase this, and decrease this, what will happen?

Anticipate the Competitors

How do you know what your competitors are doing and how they will respond? Understanding how you expect to use your marketing resources to create and defend a competitive advantage is critically important in building your case for getting them in the first place. Marketing does not need to be an expense that has to be managed but an investment in the future. How can we invest in it appropriately and thoughtfully to gain competitive advantage? If we can’t do this, then we shouldn’t spend.

Refine your Activities Based on Results

Sometimes your competitors may do something that causes you to reassess the way you are doing things. Don’t get stuck in a rut, rehashing something the same way over and over if the results are not what you want. Modify your activities regularly based on your results.

Conclusion

For every budget planning cycle, every Marketing Director is presented with a number of critical questions about their assumptions, and they have a responsibility to build into each year’s plan an appropriate set of data, tests and analyses to provide the answers. Without these, resources will be drained and growth will be stunted, especially in light of the changes in the Pharma environment. Marketers must keep the following in mind when planning their 2014 budgets:

  • Know your market share or sales as well as profit objectives
  • Figure out what you need to know to get there
  • Figure out what analytics you can get that answer these questions and do these now so they can feed into your planning cycle
  • Prioritize marketing plans on the basis of value of the result versus cost
  • Develop action plans to achieve the results

Pharmaceutical marketers have been doing a lot of the same things for a long time. You may know that if you propose a 5-10% budget increase for your marketing activities, you will get a “yes”, but if you use analytics appropriately, you can show an evidence-based argument for how much budget will get you what result. Marketers should be able to propose budgets on the basis of business goals and get support from Senior Management. The only way to win that support is by using sophisticated analytics that are not tied to historical data to show you the evidence.

For more information on this topic, or what types of analytics can help you, please contact Dr Andree Bates at Eularis: http://www.eularis.com

 

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