In Pursuit of Profit
Read our expert article below or sign up to get articles sent to your inbox.
While larger organizations seem to bear the brunt of the burden when it comes to wasted resources, companies of all sizes struggle to motivate employees to be enthusiastic about budgeting. Even in smaller companies budgeting can significantly degrade the culture. When mishandled at any level, budgeting can rapidly turn into a politicking power struggle between departments and teams, breeding company-wide animosity.
But despite these risks, budgeting remains crucial in every organization.
Poor budget management can result in legal consequences, bad press, strained partner relationships, and reduced employee morale. Furthermore, bad budgeting can sink strategy and stymie growth.
Avoiding these pitfalls to achieve strategic planning goals requires that existing problems be corrected, and best practices be followed.
Budget Request Problems
The most common problems in budgeting are found in the budget request process. Typically, this is because employees at all levels can submit budget requests, which introduces personnel with less budgeting experience into the equation.
Budget requests that are incomplete or contain incorrect information can slow the entire budgeting process down, costing needless time and money. Items like effective dates, applicable cost centers, referenced budget accounts, included personnel, requisition numbers, related purchase orders, and so forth must be properly documented to keep budgeting on track. Employees that do not have access to this information or do not understand its importance should have their role in the budgeting process limited.
Regardless of the completeness of a budget request, it requires a timely reply. Delayed responses and approvals hinder strategic plans by slowing down everything from materials procurement to employee education. Late budget submissions require an even faster response turnaround time to keep operations running smoothly.
Budget Perception Problems
Even companies that do not struggle with the mechanics of budgeting can suffer from budget perception issues.
In many organizations there is confusion about who is even responsible for the budget. While a budget manager often owns the budgeting process as a whole, it is everyone’s responsibility. Empowering employees to feel like their contribution matters is a war of perception that many businesses fight every day. The tension employees bring to the budgeting table often stems from a feeling of futility and inconsequence due to lack of control over the process. Helping employees to understand their role in company and where that is reflected in the budget is part of supporting them to realize their value to the organization.
The time required for budgeting is another barrier that organizations need to overcome because even employees that understand the value of budgeting are not going to be enthusiastic about a task that takes away substantial time from their main duties. According to a recent study, budgeting takes up an average of 20-30% of a senior executive’s time; and while that statistic may not be truly representative of the commitment required from lower-level employees, budgeting costs everyone involved valuable time. As a result, most employees perceive budgeting as a burden instead of viewing it as an opportunity to take control of the company’s financial future.
Office politics are probably the biggest perception problem that organizations face related to budgeting. Money is more divisive than anything else in a company – who is asking for it, who gets it, and how they use it. Budgeting animosity can ripple through an organization when substantial changes are made, either by cutting or expanding a team’s budget. Overcoming the emotions tied into the budgeting process is an obstacle that managers at every level face.
Budget Spend Problems
Anecdotal evidence suggests that the budgeting process itself may be inherently flawed even among companies that are doing it correctly.
Many organizations realize that budgets are unlikely to change significantly over time. While maintaining the status quo is an effective way to keep teams satisfied by making the process more predictable, it can also lead to feelings of entitlement on one end of the spectrum and futility at the other. Teams and initiatives that consistently get hefty funding come to expect that, while those that are limited in funds wonder whether they will ever earn the respect and recognition they desire. Furthermore, strict adherence to an existing budget or resistance to a proposed budget increase can stifle short-term profitability and long-term growth efforts.
Ironically, once budgets are set, overspending is often commonplace. With all the tedious work and extensive campaigning that goes into the budgeting process, management feels owed the funds they receive. Managers then spend to the budget instead of simply spending what is necessary. The result is budget waste that only exacerbates perception problems.
Budgeting Best Practices
Avoiding the negative consequences that result from poor budgeting requires observance of best practices at every stage of the process. Strategic planning can only be effective when budgeting:
Organizations that utilize these best practices can transform mundane budgeting into a vehicle to rally employees around a strategic vision. Strategic clarity leads to better decision-making, fueling continuous improvement and sustained growth.
Please contact us here if you feel you are be investing too much time on managing and maintaining your budget.