Budgeting – Best Practices and Lessons Learned

Developing an annual budget is a challenge for all organizations and an area where improvement is continuously desired, but rarely achieved. A well-done budget is a realistic prediction of future operations and should be used as a tool for planning and monitoring the achievement of organizational initiatives. The budget cycle is a time to look into the rearview mirror regarding where the entity has been, but more importantly, should identify the routes and resources necessary to arrive on time at the next stops along the entity’s strategic pathway. Here are some suggestions to consider as you navigate through the budgeting process:

  • Mirror your strategic plan: Ensure how you are spending your money in your budget reflects the strategic plan and goals of the organization. The board of directors or governing body should play a key role in setting the course for the future. Without the big picture view of the entity’s strategic goals, it is easy to get lost in the details of individual expense line items. Something as simple as presenting the budget in a functional expense allocation can help show those connections. If your organization does not have a strategic plan, use this year’s annual budget to start to be strategic and looking beyond one year. The key point is to use this one-year planning opportunity to identify a few initiatives that are achievable but warrant special fiscal focus.
  • Engage the entire organization: Because of the tie to the operational planning, consider engaging the entire staff of your organization in the budgeting process. If you solicit staff involvement as an opportunity to have a voice in the future of how your organization will operate, you will see more engagement and involvement. Chances are virtually everyone at your organization has ideas and opinions about how programs and services should work, what they would like to change and most are happy to share those ideas. However, be careful to manage the process to help participants understand the time constraints regarding the process and why their suggestions may not have been implemented through review of the final budgeting conclusions.
  • Be careful of “stretch” budgeting: There is a fine line between setting challenging goals and those that are unrealistic. The best way to combat this problem is with solid data and by holding process owners accountable for the achievement of the budgeted goals. Consider including key performance indicators (KPI’s) or variables that are key assumptions in the budget within individual employee annual goals. These KPI’s could be metrics such as achieving member retention or development rates, event attendance statistics and new product sales. The individual process owners or teams that will be called on to execute the strategic initiatives must be aware of their roles and must “buy-into” the process. Personal or team goal setting is a great way to tie organization-wide initiatives into individual actions. These goals should be monitored on a periodic basis, such as quarterly or semi-annually during your organization’s personnel evaluation cycle.
  • Consider licensing or purchasing budgeting software: While it may seem expensive at first, budgeting software can pay for itself in the reduced time and effort of your staff.  Excel spreadsheets can also lead to errors that are missed because a formula has been changed or a link has been erased. Many of the budgeting software packages also allow for collaboration within sections of the budget to allow process owners to draft their sections for submission and approval. These features allow for version control but allow multiple users to work simultaneously.
  • Start early: Making sure you have enough time for proper review is key. Account for the fact that you will likely need to run multiple budget scenarios based on feedback you receive – starting too early is a good problem to have!
  • Challenge: If you are doing something a certain way because that is how you have always done it – take a step back and challenge if it really makes sense. Do not let internal politics or “guarding turf” (i.e., keeping a budgeted activity simply because it was spent last year) from suggesting change to a part of the budgeting process that can be improved. Looking in the rearview mirror has a purpose and can help ensure you avoid the bumps in the road you encountered last year, but by focusing on the road ahead your budget can be a tool to identify the routes and resources necessary to arrive on time at the next stops along the entity’s strategic pathway.

We hope you can take these ideas to your organization and adapt your processes accordingly to save you time and effort while improving the quality and output of your budget.

We would like to thank David Akridge (Deputy Director, American Inns of Court Foundation), Brian Green (Vice President, Finance and Operations and Chief Financial Officer, Consumer Healthcare Products Association) and Stephanie Murphy (Chief Financial Officer, Air-Conditioning, Heating, and Refrigeration Institute) for their contributions to this article from their experiences leading the budgeting process in their organizations.

Josh Keene
Josh Keene | Partner