The CommitteeManager Blog

Avoid the Budget time blues...

Are you running a calendar year budget or starting early for next fiscal year? 2015 is fast approaching. You may have started your annual process or perhaps not...

Now is a great time to sense check how you need to run an efficient and effective process and drive your organisational goals forward.

Here are 6 tips to get the most from your budget experience.

  1. Define the "strategic intent" for the year ahead - are you growing, consolidating or something else. Understand the consequences of this decision on your budget and get-buy in from key stakeholders in the organisation.
  2. Set your target headcount based on your strategic intent, and be sure to discuss this directly with managers. Headcount discussions should be kept confidential and managers need to be aware that this is early in the process and things can change. However, headcount is a key driver to organisation activity and managers need to know what they are working with.
  3. If you're doing the enviable "bottom up" budget, it is good to send out a guidance note to your individual budget managers outlining any expectations so as not to waste time and effort.

    For example a simple email or letter stating expectations such as:

    • Your overall strategic intent from item 1 above.
    • Administration costs - are you capping at 5%, do you want to see a drop of 5%, ot keep them flat. Key items here are often travel and consultants.
    • No buckets of costs held in accounts such as "general expenses" - set an acceptable cap for these types of account codes.
  4. Don't just issue a profit and loss statement to your board, provide an assumptions pack. These are very easy to prepare and make budget approval much easier.

    An assumptions pack lets you draw out key issues for discussion and bring key issues to the attention of the Board. For example:

    • List out any 'global' assumptions applied throughout your budget. These are easy things such as your assumptions around inflation and wage increases.
    • If you run different departments, perhaps provide a slide on each showing key assumption changes from previous years.

      For example, Department Alpha is relocating offices this year and will incur a one off $50k cost. Department Beta has secured additional funding of $100k from Government Department for Beta project

    • You are looking to pull out the key drivers of change from previous years under the core categories of revenue, expenses, capital expenditure and even tax. At the end of the day your bottom line is primarily driven by one of these four categories.

    • Do you run a budget process for your balance sheet? It is normally the poor cousin of the annual process, though some balance sheet planning is important.

      Look at working capital assumptions - how are your annual leave provisions looking. Do people need to take some holidays?

      Now is a good opportunity to have a review and get a better understanding for audit time.

    • Try to avoid phrases like "revenue will be down 25%" - instead, state the underlying change such as "Government funding for Project Neptune ends in Q1, in line with original funding agreement. The effect of this is a 25% reduction in overall department revenue".

      This explains the cause rather than just the consequence and allows board members to ask appropriate questions, such as "Do we need to get more funding?"

  5. When presenting your budget numbers to the Board for approval, it is helpful to show last year's budget, last year's actuals, along with your proposed budget for next year.

    These three columns provide a valuable reference point for sense checking data and provides a sense of:

    • What did we say we were going to do this year?
    • What did we actually do (or expect to do) this year?
    • And now what are we saying we are going to do?

    Does everything line up?

  6. Use the budget as an opportunity to drive organisational behaviour.

    You might have the manager from that perennial under-performing part of your business front up again with that loss - Take the opportunity to reject the budget and force the tough changes in the organisation. If allowed to continue, a bad example is set and behaviours can deteriorate rapidly

A lot of work goes into an annual budget, so why not make the most of it?

Take the time to think about your organisation, challenge your current assumptions, and communicate your strategic goals and values. And don't forget - use the opportunity to try and drive positive behaviour as well.

Are you communicating your organisation's strategy effectively?

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Welcome to the CommitteeManager blog

We are a team committed to helping people work together efficiently and productively.

So much of our lives are spent working with teams and committees; meetings, group emails, conference calls and project planning sessions. But most teams struggle to get the best out of their members due to a lack of organisation and a lack of focus.

This blog has been set up to provide helpful, practical advice on getting the most out of your meetings and groups. We will be covering topics ranging from efficiency tips, new ideas you may want to explore, to long term strategic planning.

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