Remove drama from budget cycles

Taking the drama out of budget cycles

Nobody has ever written an opera about organisational budget cycles – but given the amount of human drama they generate, perhaps someone should. The typical budget process is a grim and drawn-out cycle of power games, nagging, resistance, resentment, dread, despair and wasted effort. And all of it, in keeping with the best traditions of high drama, is entirely avoidable.

It begins innocently enough, with our heroes in the finance department preparing spreadsheet templates and sending them out for completion by cost centre managers; and yet the seeds of conflict are already sown, because the spreadsheet is a marvelous tool, but a poor messenger. It is not designed to facilitate the complex and sensitive negotiations that are the real substance of a budget process. Our heroes have an inkling of this and try to compensate with elaborate design; but they can always only respond to the problems that surfaced last year, which inevitably causes a whole new set of problems.

Meanwhile the cost centre managers, on the front lines and grumbling about their generals, do their best to fill in the numbers based on their best estimate of what the future holds. The process is stressful because few of them have much financial training and the spreadsheets can be intimidating, and so in many cases the task falls to the bottom of the priority list until the nagging finally pushes it into the category of ‘urgent’.

As the returned spreadsheets accumulate back in the finance department and people try to compile all the information into a single coherent picture, it becomes clear that there are errors. Our heroes, now growing frustrated and impatient, send them back out again with requests for clarification or changes. Cost centre managers make some corrections, but leave other things unchanged because yes, that is really what they meant. Resentment begins to fester.

After a few rounds of this, with a final deadline looming and everyone at odds, the finance department gives up and makes some changes of its own to bring everything into line. The final budget is not what the cost centre manager asked for, but the reasons for the numbers have got lost; and so they roll their eyes at the waste of time and move on.

Some time later, when told they’re over budget, they retort that they’re exactly on target with what they originally asked for -- if some bean counter decided to override them, that’s not their problem.

And so the circus rolls on: Cost centre managers are disempowered, feel no sense of ownership over their numbers, and resist any attempt to hold them accountable because they are being governed by decisions made over their heads. Instead of being a useful planning and decision-making tool, the budget has become a bureaucratic exercise that feels like a meaningless waste of time.

It really doesn’t have to be this way. In my experience most people really do want to do their jobs well, and they want to be empowered with the knowledge, skills and tools they need to achieve that goal. When it comes to budgets, individual cost centre managers have the best knowledge available in the organisation of what is likely to come their way in the next year – and so they need to be given the leeway to make budget decisions that will be respected. That may involve argument and negotiation, but those are vastly preferable to decisions imposed from outside.

Instead of a vicious cycle of nagging, resistance, disengagement and surrender, it’s possible to build the opposite – a virtuous cycle in which empowerment and clear communication build accountability and a sense of ownership.  It doesn’t make for high drama – but then nobody actually wants to live inside a soap opera.

As published on AccountingWeb  - 24th September 2019