Six Ways to Succeed at Budgeting
We all look forward to paying our taxes, right? It’s always nice to know that our hard-earned dollars are going to be used responsibly. Or are they?
A search for ‘government waste’ on Google returns more examples than you may want to know of how American tax dollars are spent. In fact, an Oklahoma Congressmen, Steve Russell, publishes a quarterly Waste Watch report in an effort to expose waste and identify ways to reduce unnecessary spending.
Total disregard for our money aside, the reasoning behind such behavior can be attributed to the fear that if the budgets aren’t spent before year’s end, then next year’s budgets may be cut. That’s probably not very likely for government, but does this scenario sound familiar for private enterprise?
In private businesses around America, department managers that have been frugal all year suddenly start spending at year’s end because money left in the coffers is money that likely won’t be allocated to that department next year. The reasoning is not to reward the fact that the department saved money but to punish them (even if inadvertently) for not spending all they asked for. Hence, we have managers looking for ways to dispense of the evidence that they were spendthrifts for the better part of the fiscal year or didn’t project expenditures correctly.
In my podcast O0ps! #10: The Budget Process I explain that often enough the wrong people get rewarded and those who have earned the reward, get punished. However, if you want to make year-end budgeting truly effective, rather than reinforce a spend-the-money, hide-the-money shell game, you can take a few steps that provide more fiscal sense:
- Budget more! Rather than creating a single, annual budget, review and re-create budgets on a monthly basis. This limits the shock that comes with unexpected expenses—and reconfiguring can be accomplished in increments for a better end game. It provides managers and supervisors with a minimum of 12 times to talk about how money is being spent and to evaluate the effectiveness of previously spent funds.
- Seek continuous input. Those responsible for budgets should actively seek input from those who spend funds (that’s everyone) for ideas on how to increase effectiveness by reducing expenditures. The data is clear that frontline employees have solutions to operational problems but don’t offer them “because no one ever asked me.” Don’t give them your ideas, but seek theirs. Ask them to offer their own ideas for improving efficiency and effectiveness. This will lead them to find solutions or come to the realization that their ideas won’t work. In both cases it puts the responsibility for coming to a workable solution to problems on their shoulders rather than on management’s. This means that frontline employees own the ideas and the resulting outcomes. With this procedure, positive reinforcement is built into the process and an additional benefit is in building positive engagement with employees.
- Focus on solutions, not blame. No one wants to walk into a budget meeting anticipating a verbal slap up the side of the head. The talk should be “How can we do this with less money and all the while save money, other resources, and time?” Anyone coming out of any such meeting has got to feel motivated to take immediate action to make the organization more effective and efficient.
- Visually reflect progress. A recent study showed that when homeowners were given monthly visual feedback, such as graphed data, on the energy they consumed, their consumption decreased significantly. Think of such a graph as a record of accomplishment. The group accomplishments should be displayed publicly and the individual accomplishments graphed privately. Everyone who is accomplishing something likes to see how they are doing.
- Reinforce behaviors (activities) along the way. Talk continuously with performers about how and what they are doing. If they are making progress, they love to talk about it; if they are not, they need to be coached to do better.
- Celebrate results. It is first important to make it clear that if savings are made throughout the year, employees will not be punished by taking the savings away in next year’s annual budget. It is also important to have a meeting where employees can describe to others how they did what they did. Let the focus be on “How did you do that?” This serves two purposes: First, it’s a socially acceptable way of bragging. Second, it usually gives others ideas about what they can do to help improve their own department. Part of the celebration may include announcing how some of the savings will be used to help the department be even more effective in the coming budget cycle. Part of the savings could be used for a celebration, new equipment, or even a bonus, resulting in even more effort to budget and spend responsibly in the future.
These actions will make budgeting in general, a more fruitful, honest endeavor. Including employees in the budgeting process will inspire many valuable savings suggestions, especially when they learn that they profit from the results.