Ressler’s Rule #12:” He who controls the budget, controls the organization”
It has been said that an army travels on its’ stomach but modern organizations travel on a highway of crisp dollar bills. How those dollars are apportioned and spent determines much of the effectiveness of the organization. Without regard to whether the organization is a corporation, a “not for profit” association, or a governmental agency; every important decision from staffing, acquiring contractor support, even upgrading or refreshing IT infrastructure, are controlled by and dependent upon the budget process.
To be an effective leader in any organization you must understand the budget process and learn the “tricks of the trade” to control and manipulate the budget. I have met a significant number of leaders/executives during my career, whose effectiveness was curtailed because they lacked the time, energy, and/or determination to educate themselves in this critical area but rather were totally dependent on the “budget gurus”. Budget staffers are incredibly useful support people to crunch the numbers and provide input to the decision makers, but ultimate responsibility for making the difficult decisions rests with leaders not staffers. It is nearly impossible to make the right decisions if you don’t understand the basic mechanics that drive the budget.
The first rule to understand is that there is never enough funding to meet all the legitimate needs brought forward and thus there will always be a certain level of competition within the organization. Secondly, “nothing is sacred” –if the organization is truly “strapped for cash” anything can and should be put on the table and seriously considered (Have you heard the term “Reduction in Force or RIF?). Lastly, budget issues rarely occur overnight-they are usually the product of long term trends and decisions which effective leaders understand and address before they become catastrophic. For example, if an organization moves forward on a plan to consolidate servers into one location (a server farm), the savings in staff hours and possibly software licenses must be redirected toward data communication costs or a budget deficit will be created in that area. There are no free lunches in this world and often times long term savings can only be captured through short term spikes in cost.
I would suggest that if you aspire to a prominent leadership/executive role, that at some point you spend time; either on detail or longer assignment, to a budget staffer position. Whether or not you are able to acquire this experience, here is a list (not all inclusive but hopefully a good start) of the areas you should at least touch on:
- Understand what types of funding your organization receives: Many large organizations receive funding from different “pots”-this could be different appropriations, different programs, or simply differentiated funding funneled down from above. You need to understand how much is in each pot, where does it come from, how it is earmarked, how much flexibility do you have to move funds, what restrictions are in place, and can you ask for more. For example, if you receive the largest portion of your budget as earmarked for salaries, do you have the flexibility of using some of the funds to purchase critically needed software if you can create a surplus?
- Understand this year’s budget in relation to the past two years: You need to understand whether this year’s budget is reflective of trends over the at least the past two years. If there were problems in prior years’ funding, have they been addressed or are you starting the year with a deficit that must be addressed.
- Understand the basis for projecting costs: Very few costs are truly fixed and thus they generally increase over time. For example, even if your workforce is stable and all permanent employees, some number of them are probably going to get raises (in-steps, career ladder promotions..etc.). Required training (sexual harassment, valuing diversity, new software, changes in the law) can vary dramatically from year to year and may be dependent on the manner in which they are implemented. Software licenses, contractor support, IT maintenance, data communication and even rent costs usually move inevitably upward and you need to be comfortable that these nearly transparent costs are being adequately considered. Additionally, accurate forecasting will enable you to address potential surpluses so you don’t end the year with an “embarrassment of riches”-not a great signal to those above you regarding your leadership skills.
- Understand where the possible surpluses exist or at least what pots you can siphon off funds: Many large organizations drain funds from their training budget every year to meet critical needs always thinking they can make up for it next year. This may seem unfair but if the alternative is to reduce staffing or have critical software contracts lapse, it will happen. Strong leaders understand that they may be called upon to make difficult decisions so they begin the year with a “feel” for the “go to” funding they will possibly need later.
- Put in place a structured budget review process: If you truly understand the concepts listed above, then it should be apparent that a regular, SCHEDULED, structured review process needs to be undertaken to monitor budget execution and to make necessary course corrections. As a leader, you should not only include your budget staff but also subordinate managers and other staff members in order to have access to the widest possible input both of data and perceptions.
- The budget and the Strategic Plan (SP) must be inextricably linked: If the budget drives the organization and the SP is the road it intends to take, then these two components must be in sync. For example-if a major strategy of the SP is to increase the professionalism of the staff through training, then the training budget cannot be gutted. Leaders need to understand, be committed to the SP and willing to take budget “hits” to support critical SP initiatives.
- When dealing with higher level management, you must deal objectively: When dealing with budget issues you must realize that none of it is personal and your responsibility is to be informed, objective and seek the greater good of the larger organization. Arguments that simply espouse the cause of your fiefdom will appear shrill and self-absorbed. Always try to look at these issues from your boss or their boss’s perspective and then state your position. Always be willing to concede points while at the same time defending your position with data (that’s one of the reasons for #5 above).Pick your battles carefully- don’t argue the insignificant, pursue lost causes, lose ungraciously, or overstate you case.
Lastly, let me encourage you to play the “budget game” honestly, with bosses, peers and subordinates because once you are viewed as unscrupulous or dishonest it is nearly impossible to clear your name-whatever short term gain is not worth the long term cost. Bob Dylan has a line: “money doesn’t talk, it screams” which always struck me as appropriate. People do some strange things under the influence of power and ego and the budget process tends to acerbate a manager’s worst tendencies.
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