A budgeting process


Dave Kinnear 1-On Leadership

Employees watch where their leadership team spends its time and the corporate monies. It is critical to the credibility of the corporate team that ALL the signals they send are in fact in concert with the messages of the Ethics Process, the Mission and Vision statements, and the stated management objectives given to the employees to implement and achieve. The integrity of the budgeting process will be perceived in light of how well and consistently it supports the rest of the messages.

If, for example, one of the moral values espoused by the corporation is that “people are our greatest asset,” (and what the company isn’t saying that in one form or another?) and when things get tight the first thing the leadership team does is cut training, cuts conferences, and lays off employees to “make the budget,” then we know that the integrity of the budget as well as the credibility of the leadership team is suspect. Another common disconnect are the usual statements about being a “good corporate citizen” and then providing little or no time, money, or effort into philanthropy, service, or participation in the communities in which the company operates.

The budgeting process itself has to support the statements being made about the value of employee participation. If, for example, we ask the managers in the various departments or groups to participate by developing a “bottom up” budget, but then provide no logical explanation for revisions by the leadership team, then there is no perceived value in doing such a budget. Explanations of the invariable cuts, rearrangements, eliminations and additions are critical to the integrity of the process. Communication on exactly how the budget supports the stated goals and values of the corporation ensures that the budget process will be viewed as integral to the life of the corporation. Anything less causes managers and employees to assume that the process is only window dressing, unimportant, and does not require much effort or thought on their part.

Nowhere is this budgeting process more important than on the setting of the revenue budgets for the sales and marketing teams. If budgets that are set seem truly unreasonable (beyond the normal “negotiating stands”), then again they will become disincentives and de-motivating for those remunerated on those goals. Of course stretch budgets are necessary to motivate people to grow the business base at each customer and to gain new customers where possible; but if the budget is set too far out of reach, it will quickly become a negative incentive.

The budget must become part of the measurement culture of the company. Once goals are set, then the periodic review of those goals becomes a requirement to reinforce the significance of those goals to the corporation. What gets measured and reported gets done. The progress toward meeting the budget needs to be highly visible to those responsible and accountable for reaching revenue and cost budgets. The same is true of all resource allocation from raw materials to finished goods.