Benjamin Franklin said, “The only things certain in life are death and taxes.” If he had been a plant or facility manager he would certainly have added, “and the annual budget cycle.” It rolls around every year without fail. And every year managers toil thanklessly to deliver a workable budget. Very often they toil alone.
There are two main reasons leaders burn the midnight oil alone every year, with maybe a controller or an administrative assistant for support. The first is a strong sense of fiduciary responsibility. The second is a sense of wanting to buffer their organization from the inevitable cuts that seem to accompany every budget cycle, and the messy give and take, game playing, and tinkering that take place before and after it’s finalized. As one manufacturing manager put it, “What people don’t know, won’t make them anxious.”But top executives in a facility don’t have to miss soccer games and family dinners, exhaust themselves, and mystify their staffs. The burden of the budget can be shared, both in its creation and in its management. In fact, sharing the budget not only makes life much easier for the executive, it also marvelously energizes the rest of the leadership team, employees, and even union leaders. It leads them to focus on and accept accountability for performance on key business issues, and spawns creative ideas about how to increase revenue and cut costs.
I have been on the inside and outside of many budget cycles in my career. Along the way, I’ve witnessed or helped introduce a number of budget sharing approaches that work.
1. Educate Every Employee on the Budget. This could be done by hosting face-to-face budget workshops, introducing mini-modules that leaders could deliver in shift start-up meetings, or by penning a series of newsletter articles that would grab employees’ attention by the sheer lure of a peek behind the curtain. Through these types of approaches, employees could come to understand how much of the budget is fixed cost– bound up in rent, leasing, utilities; what percentage of the budget is spent on labor; how little wiggle room the leader really has when it comes to discretionary spending. Through understanding the budget process, the employees gain a greater sense of how financial goals are levied on the facility and what managers go through to arrive at the final numbers. Education of this sort breeds understanding, and that awareness is a powerful foundation for building higher levels of engagement, and a sense of greater responsibility for outcomes.
2. Involve the Whole Management Team. One way to do this effectively is to divide budget reporting up among the leadership group. It worked for one of my mentors, who was the Business Manager for a large defense and space facility. Every month he endured a painful drubbing by other managers on the performance to the overhead budget targets. His colleagues were taking no responsibility for their spending because it was “his” budget. One day he’d had enough. He asked each member of the leadership team to take one aspect of the budget, understand it thoroughly and report on its performance at the monthly budget review meeting. Putting them in the spotlight for reporting on the trends led them to become accountable and expert in their assigned area of the budget. Just imagine the delight of the business manager when his “in-house” experts stepped up with answers to budget-related questions before he could utter a word! What had been a painful, awkward report-out became a lively discussion full of problem-solving, good humor and acumen-building.
In another situation involving a major organizational transformation, I witnessed leaders realize that their budget process was just that—a process— much like the manufacturing processes they managed, and could be refined and worked as such. Including the budget process in an organization-wide transformation effort meant responsibility for it didn’t rest solely with the Chief Financial Officer or controller, but rather became the focus of a cross-functional team that included the executives who had previously considered themselves the victims of the budget cycle. They developed a process that folded all the departments into setting budget targets and priorities, settling on final numbers, and developing further game-changing ideas for shifting the revenue/cost equation. Not only were people happier about the budget process, but budget performance improved exponentially.
3- Form a Budget Team of Employees. In the fast-paced, forge-ahead environments that constitute our workplaces today, I believe leaders all too often mistake employees’ lack of business acumen with apathy. It’s easy to assume employee don’t care about the budget, when quite to the contrary, they are highly interested, but sadly, woefully ill-informed. In my experience, if they seem not to care, it is usually instead that they don’t know. They don’t have access to information about how much it costs to heat the building. No one has shared what the profit/loss equation is on each product that rolls out of the factory. This void of understanding can be filled by forming a budget team, made up of a representative slice of the organization from top to bottom and across functions, including union representation when possible. The Budget Team can be charged with learning about the budget items and pressures so they can set appropriate targets (or respond to them if they come from outside the facility), finalize line items, and then educate the rest of the workforce about the budget for the year. Including members of the team in the final rounds of budget setting helps them see the inevitable trade-offs that are required to make ends meet.
4- Share the Ownership. In Lean and Continuous Improvement environments, work is often understood as a set of work flows or value chains. Very often process owners are designated who are responsible for implementing changes and knowing the performance of their assigned process. Expanding the scope of process owners to also encompass budgetary responsibility essentially creates an additional level of expertise within the organization, one that can be tapped to help make smart improvements. Similarly, extending budget responsibility to a natural work team on the floor who “own” a manufacturing process as if they were a small sub-contractor is another powerful way to increase awareness, and drive results. When teams know their numbers, they start paying attention to the performance that drives those numbers.
Once ownership for budget responsibility is clearly established, one of the best ways to engender strong commitment to budget performance is to implement a gainsharing plan that establishes financial rewards for hitting or surpassing certain budget targets. Not only does this process create line of sight between employee behaviors and business outcomes, it keeps attention more consistently focused on the target and actions required to meet them. Designing and launching a gainsharing or financial reward program is well worth the effort because it hits so many of the levers that cement employee commitment to the organization’s mission and objectives. The most effective gainsharing programs also pay for themselves by using a portion of the cost savings and performance improvements achieved through the process as the source of the pay-out. (For more on gainsharing approaches, see our previous “Common Ground” blog: A Winning Equation for Business Results.)
The theme that runs through all these approaches is that sharing the budget burden saves on midnight oil and lets daylight in. By designing and implementing one or more these approaches not only can leaders begin to share the budget burden, but they just may discover it’s not a burden at all. It’s just part of the rhythm of the operation that hums more smoothly with broader involvement.