Evolution - XLerant

The Missing Link: Budgeting and Execution

There are two primary purposes of budgeting. The one most people think of first is to put a cap spending. But that’s only one reason why organizations (and people) budget.

The other reason why organizations budget is to ensure what’s important gets done. And let’s face it, just because something is important doesn’t mean it will get done. Unless it’s properly resourced and funded, it won’t happen. So let’s examine that crucial link between budgeting and execution.

A good friend of mine is the President of a well known, not-for-profit institution. He’s got a strong strategic background (he helped Jim Kilts turn around Gillette and subsequently sell it to Proctor & Gamble). Here’s his story:

“We had an amazing three day strategic retreat that ended with some very actionable initiatives to drive our enrollment membership and donations. This wasn’t some pie in the sky strategy, but a series of projects that all had concrete action steps. I can’t tell you how good I felt about it as the new President stepping in to lead this organization.”

But alas, that feeling wasn’t going to last long. A while after that strategic retreat they entered their budget cycle. Everyone went back to the way budgeting had always been done… taking last year’s spending and adding X%… haggling over dollars… negotiating and horse trading.

The well crafted strategy and action plans they worked so hard on became victims of the budget process.

“When the CFO handed me the budget, the first question I had was, ‘Where’s the strategy’? All I saw was a P&L with a list of accounts in it. There was a column for the budget, and other columns for last year and the latest forecast and all these comparisons. Lots of numbers… but no projects, no initiatives, no strategy.”

The truth was there was no way of reviewing the budget and seeing if the initiatives were all properly funded. In fact, many of them weren’t funded at all. Ouch. The President concluded he didn’t have the right CFO. Double ouch.

I don’t want to get into all of the mechanics of setting up Excel budget templates with tabs for initiatives, and how you need to write linked formulas to overlay that spending on the master template, but I can sympathize with anyone who’s tried to do it.

It ain’t easy. But here’s what happens when we don’t link the strategy to the budget. We don’t budget what’s important. And if we don’t budget what’s important, the entire value of the planning process gets destroyed. We should put our pencils down and refuse to do it. It’s little more than a mechanical exercise. I don’t even think it actually accomplishes its secondary purpose (to cap spending).

So here’s the bottom line. Figure out how you’re going to budget projects and initiatives (and overlay them on base spending). Build your budget review sessions around them. Make sure that what’s important is what gets budgeted.

If you’re already struggling with Excel hell and a complicated nest of spreadsheets, then maybe it’s time to ask for help.


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