This is the seventh in a series of blogs on improving the corporate budgeting process. In the last blog I covered linking budgets to strategy. In this blog we look at setting budgets that people can control. So often managers are discouraged by budgets assigned to them over which they have no control. Head office allocations, overheads, rents and other items whose actual values they cannot influence only go to serve the impression that budgeting is just a ‘big stick’ to beat them up and that adds no value to what they do.
Budget managers are people who manage budgets. And that means being able to control the value and volume of expenditure in line with workload and company objectives. If a manager cannot control the measure then it shouldn’t be a part of their budget. By adopting this principle, along with only including significant variable items, greatly reduces the size of a department’s budget pack. This in turn should reduce the amount of effort and time taken to complete a budget pass. This will result in some budget packs containing just a few measures for the department concerned, while for others, the pack may contain just one measure but for the whole organization. For example, with telephone expenditure it’s better to place the whole budget for the organization with one person who may be able to negotiate a better deal than multiple individuals. The only issue with this approach is the budget pack can be different for every user/department and therefore not suitable for those using spreadsheets to collect and consolidate data.
- Identify for each budget holder the measures they can control and over which departments.