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Overall budget management is a way to guarantee an enterprise’s survival. Neusoft Group’s CFO Zhang Xiao’ou explains how it works in practice

This article was first published in Edition 8 (January 2014) of Accountancy Futures, ACCA's insight and research journal.

In the industrial city of Shenyang in north-eastern China, three entrepreneurs emerged from university in 1991 with a dream. Some 20 years later, with courage, wisdom and a little luck, they have built Neusoft Group into one of the country’s leading IT solutions and services providers. 

Through the years, the group has built up a customer-oriented organisation, goal-oriented strategy execution, excellence-pursuing business processes and a lasting value-creating customer management system.

Neusoft’s rules of survival have embraced not only open innovation in technology and business, and an effective sales organisation, but also its operation and management system. And overall budget management is an integral part of the company’s entire management system. 

In China’s emerging IT market, there are about 50,000 software companies. Sometimes it is mere details that determine the difference between success and failure. In this context Neusoft’s overall budget management system is invaluable. It can help the group optimise its global allocation of resources, improve operational quality, strengthen risk management and control, and facilitate strategic development and operational goals. In essence, it acts as the guarantee of survival for the group.

The great integrator

Management expert David Otley once declared: ‘Overall budget management is one of the few management control methods that are able to integrate all the key issues of an organisation into one system.’ Overall budget management is a modern enterprise management method that combines systematic, strategic and human-oriented concepts. It is increasingly gaining attention and is widely used by Western companies.

A lot of outstanding companies regard overall budget management as their tool of choice for maintaining vitality and creating core value. But combining the management philosophy with a company’s own characteristics is a huge challenge. After years of practice, Neusoft has found a way to align overall budget management with its organisational structure, creating multidimensional and dynamic strategic management thinking, and set up the overall budget management system and framework for budget preparation, implementation and evaluation.

Dynamic strategic thinking 

Neusoft has created three dimensions for the dynamic strategic thinking of overall budget management: time, space and value. And it achieved the overall operational planning and dynamic control of the company, enhanced its strategic management capability, realised efficient use of resources, effective monitoring and evaluation, and improved its ability to manage operational risks and to make profit, through paying attention to three factors: the budget cycle, the organisation of budget, and budget resources.

In the time dimension, strategic goals and values are classified as growth stage, medium term or short term, and KPI (key performance indicator) targets are set for all the business units according to the stage (initial, growing, maturity stage, restructuring) they are at.

In the space dimension, the company’s businesses are divided by vertical business line, horizontal regional line and customer, forming a multidimensional matrix and matrix nesting. The complex, multidimensional and multilevel business structure produces deeply tangled levels of organisational interests that are highly correlated with each other. Because of their share-ability and complemental qualities, the whole is bigger than the sum of the parts.

In the value dimension, strategic plans are broken down in the value chain of every business process in terms of operating budget, investment budget and financing budget. And the operational indicators that relate to production, research and development, sales, management, etc, are refined. The company’s operation objectives and its resource allocation are quantified and realised through budgeting, using a scientific management model.

system and framework

Overall budget is a management system that involves all staff, all businesses and all processes. On the basis of the business environment and internal targets, Neusoft defines its corporate strategy and takes effective measures to realise its strategic goals and performance targets, and to complete the preparation, execution, modification and improvement of the budget.

Neusoft fully considers all the changes and develops a flexible budget, paying close attention to the tight connection between the budget system and the operational system, making sure that the budgeting is always strongly connected to the company’s strategy. It also focuses on the design of strategic resource allocation, while combining cost control with budget and linking incentives with performance indicators.

Neusoft took into consideration its own characteristics, and built the framework of its overall budget management, with forecasting, programming, planning, budgeting, reporting and performance appraisal closely connected and coordinated through the target system. Under the framework, the budget targets, from macro organisations to micro organisations, are broken down and the economic responsibilities assigned to every department and link, or even every team, project and person, forming a comprehensive budget execution responsibility system.

Annual budget 

The preparation, execution and evaluation of the annual budget helps Neusoft guide the business operation for every fiscal year. The company has drawn up an annual budgeting process guide that clearly defines specific aspects such as budget preparation, execution and evaluation, as well as how the different business aspects relate to and interact with each other and form a business cycle, achieving effective control over the overall economic activity of the company.

Neusoft’s overall budget management starts with setting marketing strategy and goals. This lets the company optimise the allocation of production resources according to the marketing plan, strengthen the implementation, and adhere to a global operational tracking system that pursues excellence, forming a systematic tracking and guarantee mechanism for budget management. 

Combining its annual plan with budget and rolling production and sales plans, and using quarter, month and day for measurement, Neusoft analyses and evaluates the performance of each budget unit according to their corresponding targets, and studies the reason for any divergence between actual performance and the budget. It then tries to iron out the difference in the future by making timely adjustments to operational activities, achieving a dynamic control through appropriate budgetary controls. 

Neusoft has a budget management chain made up of responsibility centres and the company’s decision-makers. Through variance analysis and a summary of forecast data, Neusoft can make budget decisions, allocate resources and assess different responsibility centres according to the related indicators.

Neusoft’s overall budget management system is an all-around management model that puts all business units, personnel and links into one system. It is also a guarantee system that can dynamically integrate the logistics flow, cashflow, information flow, and HR flow in multiple dimensions.

Zhang Xiao’ou joined Neusoft Group as finance director in April 2000, becoming senior vice president and financial operating officer in 2008 and senior vice president and CFO in 2012. He has an MBA from the Northeastern University and an EMBA from China Europe International Business School.

Last updated: 29 Jun 2016