How to make a budget that people actually use

Ever write a budget and then see it go up in smoke as people overspent and passed the buck? This article has essential tips that will help you make a budget that people actually stick to.

Budget, calculator and pencil

Accountants and financial directors know how to wield a spreadsheet. You can build a financial plan, depreciate your assets, discount your cash flow and all the rest. But like most battle plans, a budget rarely survives contact with the enemy.

That’s not to say planning is unimportant. It’s just that building the budget is not the whole story. At least if you want people to actually stick to it.

So, this article is a recipe book of tips and tactics for implementing budgets outside the finance department.

  • Share the ‘why’. Budgets, like death and taxes, are an inevitable fact of life but you can engage people with budgets if they understand the broader picture. How does the budget compare with last year? How does it contribute to the profitability goals of the business? How did you come up with the figures?
  • Use their language. Avoid technical accounting and finance terms. Simplify your spreadsheets. Keep things simple. The better people understand the budget, the more likely they are to stick to it.
  • Address their needs, not yours. Once you’ve got your budget, don’t let it get in the way of people’s work. They should be able to check the budget, report spending and request purchase order approval as easily as possible. You’re aiming for a self-weeding garden. Tools like Turbine can simplify purchase requests, approvals and management.
  • Make the budget visible. The relevant budget figures should appear right at the point where the user is making a spending decision. This is why we show the budget on the PO request form itself. A buyer and their manager can see at a glance if their PO request is going over budget.
  • Answer the inevitable questions. For example, budget holders need to know what happens at the end of the budget period – can they roll over unspent funds? People are very good at working the system if they understand the whole context.
  • Don’t make it political. Collaboration not coercion is the secret of successful budgets. Carry out spending reviews and end-of-period post-mortems in a spirit of learning and sharing lessons. Avoid blame.
  • Help people save money. You have a lot of experience at understanding figures. Perhaps your unique insight can help your colleagues get a grip on purchasing or improve HR performance.
  • Incentivise success. What gets measured gets done. What’s rewarded gets done enthusiastically. Incentives don’t necessarily have to be financial. For example, you can incentivise staying under budget by allowing departments to carry forward unspent funds rather than clawing them back. Just publishing people’s performance with their budgets – who’s under and who’s over – can create a sense of accountability and friendly rivalry.
  • Go public. Share the budget, actual spending and progress against the plan widely. Consider dashboard tools like Geckoboard.
  • Give them options. Help people find ways to live within the budget, such as negotiation training or transfers from unspent accounts.
  • Continuous refactoring. A budget needs to be updated regularly to reflect changing circumstances. Sticking to a budget that is out of touch with reality is one way to guarantee unhelpful behaviour like people who hoard budget and then spend it in a panic at the end of the quarter.

I’ve been involved in budget setting at various companies and, as a school governor for ten years, I’ve been on the wrong end of byzantine, top-down, brutal budget-setting. My experience tells that openness beats mystery, engagement beats control and the right tools beat bureaucracy every time.

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