With the Australian financial year drawing to a close, it is time to prepare the budgets for the year ahead. This is the time when the finance department, operations and executive management battle it out to lock down a set of numbers that will set the platform for the organisations performance over the next year.
Organisations develop budgets in order to monitor progress toward their goals, help control spending, and predict cash flow and profit. But wow! What a frustrating and long winded process it can be.
In many organisations, the people working in operations don’t want to know about the budget. The finance department struggles to get the information it needs to put together a meaningful set of numbers, and the executive leadership team set expectations based on a wet finger held to the wind, then send the first draft back for “re-cutting”. Sound familiar? 
Setting a meaningful budget is about knowing your business – what it costs to run, trends in your industry, your competitive advantage, the talents of your team, your customers’ expectations, and it requires you to make accurate assumptions relating to future revenue and expenses. If not done well, you will lose money, possibly costing yourself and others’ their jobs.
Regardless of whether you work in a SME, NFP, government agency or global corporation, nearly all organisations operate to a budget. The budget process filters through the whole organisation and if done effectively, sets specific goals and action plans to achieve them in the process. If done poorly it can be draining, overly time consuming and kill your strategy.
How relevant is your budget?
Personally I dread budget time. Trying to predict revenue in the recruitment and HR consulting field is extremely difficult to do with laser like accuracy. Making assumptions around recurring revenue streams such as temporary recruitment revenue or ongoing licenses is relatively easy, however when it comes to anticipating permanent revenue or consulting fees it is much trickier because there are so many variables to consider… economic/employment conditions, government policy, internal staff movements/turnover, client restructures etc.
I must admit to getting it wrong in the past. It is extremely deflating having spent time and energy putting together a budget that seemed conservative at the time, only to have it blown away and become obsolete within the first quarter of a new year due to unforeseen circumstances. This is why budgets need to be updated and renewed regularly to adapt to changing market conditions. As the former Executive Editor of Forbes, Brett Nelson stated “… you don’t win by carving assumptions in concrete”.
Although predicting the future is difficult, a rich understanding of the lead indicators that directly impact results is an important consideration in setting a budget. Results won’t happen and budgets won’t be relevant unless certain activities are performed well, with regularity and by everyone.
Who knows about the budget?
Despite my fear of this time of year, it is also brings a sense of wiping the slate clean to develop a brand new set of goals. Tying numbers to operational activities does have a sense of rationale to it that is often drowned out by the cacophony of emotive behavioural factors involved in operations (unreliable suppliers, inconsistency in staff performance, morale issues etc). It also clarifies the specific activities that need to be conducted with skill and consistency to achieve the necessary results outlined in the budget.
But if the people who are responsible for delivering the results aren’t involved in the budget process or don’t know what the budget is, their performance is unlikely to align with it. Getting others involved in the budget setting process will more likely result in them taking ownership of their budget and doing what it takes to achieve the goals. Conversely, budgets developed by the executive team and handed to each department with a smile and wishes of “good luck” don’t get those responsible for delivering the results terribly excited or motivated.
Employees hold the keys to organisational performance. They live and breathe day to day operations, they interact with customers, they solve problems that crop up, they know who to go to for advice, they know where the waste occurs and they have ideas and opinions… many of which could improve the organisation massively. They are critical to the running of the organisation. And they want to be heard. They have a tremendous amount to offer in the budgeting process and by being involved, they will more likely be motivated, empowered and engaged to deliver the results.
Most managers (and often whole teams, departments or organisations) are measured, at least in part, by their performance against budget. Performance measures should be much broader than this and evaluate a whole range of performance metrics, however the budget is usually right up there on the list. So getting it right and engaging others in the process must be good for everyone.
Presenting the budget with credibility – The Bush method
If, like me, you are tasked with developing a budget this year, there will come the time when you must present your numbers to the boss (or perhaps the board) for scrutiny. I know the uneasy feeling of presenting a budget that you’ve looked over fifteen million times to ensure it makes some sense. However, if the reader’s response to your presentation is dismay, confusion, anger, frustration or amusement at your pitiful attempt and they ask you “what on earth is this?” you can look them squarely in the eye and quote former President George W. Bush… “it’s clearly a budget. It’s got a lot of numbers in it!”.
Ben Walsh – General Manager; Recruitment