SI Review: November 2011

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Expert’s Corner

Budgeting for Improvements

Build a process that drives innovation and growth

By Mike Cleland

Staffing is a rapidly changing, people-driven business, so how do staffing owners and executives incorporate a budget process that drives the right management behavior and funds the right improvements to ensure sustainable competitiveness? Unfortunately for many companies, the budget process doesn’t enable improvements to the business at all. Rather, it enables dysfunction.

Don’t misunderstand me, budgets are a necessary part of effective management. However, if poorly conceived and managed, the budget process can also exert a negative influence on management decisions and employee behavior, damaging short-term production and long-term sustainability.

“The budgeting process at most companies has to be the most ineffective practice in management,” Jack Welch said in his book, Winning. “It sucks the energy, time, fun and big dreams out of an organization; it hides opportunity and stunts growth.” This view may seem a bit pessimistic, but it does highlight the pitfalls of a poorly conceived budgeting process.

A poor budgeting process can stifle innovation and cause managers to focus too much on negotiating and positioning future expectations, and too little on discussing how the business is actually going to grow and outmaneuver the competition.

If that sounds familiar, your company is missing its greatest opportunity to identify, fund, and implement high-impact improvements that ensure your organization remains competitive in both the short and long term. Your budget process needs to move beyond the spreadsheets to enable your leaders to ask what improvements you need to implement to remain competitive and relevant.

Here are some ideas to help ensure that your budget plays an appropriate role in the planning and management of your staffing business.

Don’t major in minor things. Even in stable economic times, trying to accurately predict company expenditures over a 12-month period is next to impossible, but that is exactly what many budgets attempt to do by spending too much time negotiating granular details. While it is important to reduce expenses, if your team is arguing about how to save money by purchasing recycled toner cartridges, then they’re not talking about how to improve the business. Instead they should be prioritizing funding for strategic items such as personnel, marketing, automation and process improvement. The return on improving these items will more than fund the difference between new and recycled toner.

Focus its purpose. You need to define the purpose of your budget to ensure the team has the proper focus. Do you want to use it to prioritize your short- and long-term investments, benchmark compensation, drive innovation or provide an accurate initial forecast? If you say all of the above, then it’s likely that your budgeting process will have contradictions that will undermine its accuracy and long-term usefulness.

Respect the impact of compensation. Unless the purpose of the budget is to solely provide benchmarking for compensation, then the link between the two needs to be minimized. The reason is simple: Regardless of your intent around the budgeting process, if it’s linked too strongly to compensation then that will dominate all aspects of its creation. The budgeting process will begin and end as a compensation negotiation.

Continually review investments. Relying too much on the budget framework can make managers lose their initiative for new investments or make investments that are no longer appropriate. Instead, justify each investment separate from the budget with a solid business case backed up by a targeted ROI.

Incorporate rolling forecasting. While it may be interesting to see how close you came to budget, it doesn’t tell you much beyond that. Conversations around the financial trends of an organization need to reach beyond the difference between budget and actual. Instead create rolling forecasts that incorporate the facts on the ground with updated projections of financial performance. You will have more accurate financial projections while you encourage productive business conversations among the management team.

In the end, budgets fund critical improvements, influence behavior and provide a platform for management collaboration. By challenging and asking more from the budgeting process, staffing managers can find new ways to improve their business and motivate their team outside the boundaries of an Excel spreadsheet.

Mike Cleland is president of Charted Path. He works with staffing leaders to drive continuous improvement in the areas of sales strategy, operational alignment and performance culture through proven management practices. He can be reached at mcleland@chartedpathllc.com.

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