For many companies, mine included, November is a big month to lock in budgets for the next year. Riffing on this topic a bit, here are some top-of-mind key factors for successfully implementing budgets with respect to employee alignment and goal congruence.
Designing a budgeting system must first meet the need for goal congruence, wherein all effected stakeholders in an organization accept and work toward common aims and objectives. It is important that employees are in some way involved in budgeting, establishment of goals/objectives or, at the very least, aware of and effectively guided by the budget. This is sometimes referred to as “participative budgeting,” whereby those who are influenced by the budgetary system have an input into its design and the budgetary targets set. Thus, it is hoped, they will effectively ’buy-in’ to its objectives.
A case example of this is when senior management establishes sales targets and correlating budgets for which sales managers and even the sales representatives they manage will ultimately be held accountable. However, accountability does not necessarily mean responsibility and/or “fault†for, say, unfavorable variances in sales volume. Rather, it is the sales manager’s foremost responsibility to know precisely why the departure from the budget has occurred. In turn, the budget and the functional areas it represents can be modified to positively affect performance moving forward. Again underscoring the value of not only the budget itself, but also the active dialogue between those individuals who can most benefit from its use.
The above is, from my experience, one of the most important in terms of successfully managing a team. Some other useful approaches to ensure successful implementation of a budgeting system include:
• Zero-Based Budgeting – a popular technique that removes pre-conceptions to ensure that the budget is based upon currently attainable parameters, rather than those that might have been achievable in the past,
• Flexible Budgeting – whereby the budget is “flexed†to reflect the volume that actually occurs in relation to what was planned.
Posted by: Colin Mangham