Management Tips for Better Department Budgeting

By: Dale Mask

Creating a business budget for a department is similar to creating a personal budget with some important differences. The big difference for most managers is the business budget is based on the organization’s strategic plan – not your personal goals. For that reason, the first management tip to building a better budget is to make certain the department budget is aligned with the organization’s current business goals and strategy.

Here are five budget tips every manager should use to prepare and manage their department budget:

Deliver on your promise. Top management looks for managers who stay within budgets, or if in sales, over achieves their numbers. Yes, they want aggressive business plans and goals, but they want a budget that is achievable.
Do not “sand bag” the budget. While creating aggressive budgets that look good, but are unachievable, works against you. When a manager low-balls his or her business plan, it impacts initiatives the entire organization makes and can lead to mediocre results overall. (You want to be seen as a manager who plans budgets aggressively and has safety valves in place for unforeseen circumstances in key areas.)
Understand the budget process. Make certain you understand the budgeting process. Get the budget training you need, learn how to read a financial statement, and understand the principles of cash flow. A good course on finance for non-financial managers is an important part of management training overall.
Establish a review schedule. A budget should never be considered finished until a budget review schedule is set. Define the when and who will review the budget. Having a monthly budget review with staff is a great management tool
Engage everyone in the process. Bringing your people together to work on the budget creates more ownership in business goals, instills pride in performance and provides an incentive for those who could do better. Do not make it a lengthy process. Consider bringing in lunch – typically the review and reporting by individuals can be done in a short period of time. (The need for more in-depth budget adjustment sessions can be identified and planned for as a result of this review process.)

Get the conversation started and then LISTEN.

Granted, you will not be able to implement every suggestion you get from your staff. But the environment you will create by sincerely listening can make the hard times ahead feel that much less painful.

Review assumptions. Focus on the basic assumptions made in the budget. Ask: What’s changed? How will it effect the budget? There will be changes in any budget period. Budgets that are not flexible with changing times are doomed to failure. Managing a budget, by reviewing assumptions and making adjustments, is the best approach.
Keep it simple. Build and review the budget with information that is seen and understood by the people responsible for making it work. Summarize the information for everyone to see. The more detailed categories you have, the more cumbersome it can be and the “can’t see the forest for the trees” syndrome may distort the value of the budget process.
Look forward – not backward. Learn what the data is telling you about the past, but also look to the future. Look forward with a customer focus, economic focus, company focus and department focus. Where are they heading? The more information you have about directions and market trends the better your budget planning and budget management will be.
Make the most of crunch time. When budgets need to be trimmed is a good time to transform your department and the entire company into a lean, mean profit machine. Smart business managers use this period of slow growth to retool their operations, update the business plan and look at the big issues. When business is great, there is little time for introspection and fine-tuning – everyone is just too busy. The economy may offer you a lot to grumble about, but the slow time can also provide an opportunity to become a leaner, meaner operation.
Remember budget buy-in includes you. When you are asking employees to make sacrifices, be willing to make sacrifices and become thrifty too. It’s hard to get the support you need when you are showing off your new Beamer just after telling your employees to save paper clips.

Budgeting does not have to be hard. Most find it difficult because they either do not know how to go about the process of budgeting, or they do not know how to administer the budget properly during the budget period. Budgeting is not a perfect science, but it is not just an art either. The process starts with aggressive and achievable goals and moves forward with good budget management throughout the budget period.

By: Dale Mask

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