Asset management is responsible for achieving returns. Finance is responsible for being in control. That can lead to a (logically) critical attitude by finance towards feasibility in order to keep control of the returns. These different approaches create friction in the cooperation between finance and asset management.
In this blog, I emphasise the importance of good cooperation between the asset manager and the controller based on the budget process.
Budget process and the different role of finance and asset management
The budget process supports the company objectives: being financially in control, promoting predictability and obviously achieving the targets in terms of returns. The key players in this process are the asset manager and the controller. The real estate properties are the source in this process.
These two players both fulfil different but important roles in this budget process. The asset manager will always play an active, signalling role. The asset manager is responsible for fulfilling the requirements in terms of the returns. Optimising the returns is made possible by providing insight into all the variables by updating the property data, lease contracts, expiration, mutation and costs. Insight and control are therefore crucial for this role.
The controller, on the other hand, plays a supporting and controlling role in this process. They manage the process and monitor the completeness, accuracy and the workflow. That gain requires budget control from Finance. As a business consultant, in practice I see that the budget process is a time-consuming and error-prone process. The budget setting process and justification of the figures as well as the monitoring are often organised inefficiently. This unfortunately regularly leads to misunderstandings and friction among the parties involved.
Searching for an optimal process
How do you reduce this friction between both parties? Search for an optimal process whereby:
- there is clarity about each other’s responsibilities;
- the workflow is clear;
- there is a consistent approach to processing property data;
- there is a uniform method for calculating KPIs;
- there is a uniform method for determining the budget.
To clarify this with an example: the term gross rent must be uniformly established to ensure consistency in the budgets. This will ensure that gross rent has the same content and meaning for the controller and the asset manager. That makes everything much easier! In the same way, all elements in the budget process must be uniform and clear for the parties involved.
Removing noise and interference
But then there’s still the question: how do we achieve the optimal process? Good coordination between the asset manager and the controller plays an essential role here. If this is good, then it is clear which real estate assets need a budget, on which data the budgets are based and what income and expenditure are expected for the coming years.
In my view, software plays a facilitating role here, because it eliminates a lot of interference. Software is the ‘single point of truth’. Because there is only one source, one truth, with which both finance and asset management work. There can be no confusion (and thus possible friction) about calculations or about which version has been submitted as the budget. This is all established because the software secures the budget and workflow data of approval and comments are known, thus promoting transparency and being in control.
Long-term consequences of optimisation
In the long term, optimisation leads to an iterative process whereby the quality of the budgets improves. In an optimal situation, we also see that the budget process is repeated more often than once a year. By continuously checking the status of your real estate portfolio, you can respond faster to changes such as a pandemic or a tenant’s bankruptcy. And as an investor, in the current dynamic playing field you want to keep an eye on the ball and be agile.
Bridging the gap between finance and asset management in the budget process
Linking finance and asset management builds a bridge from financial implementation to asset management performance. Good software helps bridge the gap between finance and asset management. It creates uniformity of definitions and makes cooperation effective!
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