In well over thirty years of working closely with hundreds of
not- for- profit organizations, and hundreds of more for profit
businesses, I have observed that one of the major weaknesses is in the
area of effective and meaningful budgeting. Far too many organizations
look to the budget process as a tedious exercise, if not a nearly total
waste of time and effort. They have observed how their organizations
have treated previous budgets, and question whether the effort is worth
it. However, those organizations that use budgets and the budget process
in the appropriate manner, develop a stronger, more responsive
organization, that is more efficient, more relevant, understands its
direction including its strengths and weaknesses, and therefore more
capably prioritizes its efforts and expenditures. One of the best
formulas for this budget process is what I call the "ABCDEF" Method.
It should be understand that while this article refers to organizations, it is just as relevant to businesses of any sort, as well as to our personal need to budget!
1. The "A" is for acknowledging the need to go through the budget process in a meaningful manner. That means committing to examine all aspects of both revenues and expenditures, and budgeting based on needs and prioritizes, instead of merely continuing the status quo. Part of this commitment must be using zero- based budgeting, which includes examining each line item on its own merits and then determining what it is worth to the direction the organization needs to go in, and the group's needs.
2. "B" is for making the budget one that is benefit based. Budgets must be designed to provide the most value to the organization, its vision and mission, and its constituents, members and supporters.
3. "C" represents creativity. Budget molders must look for alternatives, and sometimes creative
outside- the- box alternatives must and should be considered.
4. "D" stands for driving down waste. Only by properly developing a budget and utilizing it effectively is it possible to examine each and every expense area, and to objectively look for waste and/ or inefficiencies that need to be addresses and corrected. There must be no sacred cows, but eyes must be focused at the goals, vision, mission and needs of the organization.
5. "E" should be obvious, but is often overlooked. This process, to be done correctly and in a meaningful manner, requires effort, experience and expertise. Just because someone states that they want a meaningful budget does not necessarily mean they will do, or are capable of doing, what is needed.
6. "F" represents fiscal/ financial reality. Budget creators cannot get bogged down in the past, and refuse to make changes because that's the way it's been done in the past. What are the financial needs of the organization, and what are the financial obstacles being faced? Are they short- term or long- term? Is this only a temporary hiccup or a trend?
I urge all organizations to take a serious look at how they approach their budget process. Do they follow a protocol? Do they heed the approved budget during the course of a year? How serious are they?
It should be understand that while this article refers to organizations, it is just as relevant to businesses of any sort, as well as to our personal need to budget!
1. The "A" is for acknowledging the need to go through the budget process in a meaningful manner. That means committing to examine all aspects of both revenues and expenditures, and budgeting based on needs and prioritizes, instead of merely continuing the status quo. Part of this commitment must be using zero- based budgeting, which includes examining each line item on its own merits and then determining what it is worth to the direction the organization needs to go in, and the group's needs.
2. "B" is for making the budget one that is benefit based. Budgets must be designed to provide the most value to the organization, its vision and mission, and its constituents, members and supporters.
3. "C" represents creativity. Budget molders must look for alternatives, and sometimes creative
outside- the- box alternatives must and should be considered.
4. "D" stands for driving down waste. Only by properly developing a budget and utilizing it effectively is it possible to examine each and every expense area, and to objectively look for waste and/ or inefficiencies that need to be addresses and corrected. There must be no sacred cows, but eyes must be focused at the goals, vision, mission and needs of the organization.
5. "E" should be obvious, but is often overlooked. This process, to be done correctly and in a meaningful manner, requires effort, experience and expertise. Just because someone states that they want a meaningful budget does not necessarily mean they will do, or are capable of doing, what is needed.
6. "F" represents fiscal/ financial reality. Budget creators cannot get bogged down in the past, and refuse to make changes because that's the way it's been done in the past. What are the financial needs of the organization, and what are the financial obstacles being faced? Are they short- term or long- term? Is this only a temporary hiccup or a trend?
I urge all organizations to take a serious look at how they approach their budget process. Do they follow a protocol? Do they heed the approved budget during the course of a year? How serious are they?
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