Annual Budget Process Assessment: Is Your Budgeting Process Helping to Drive Results?

Stepping back once a year to take a high-level assessment of your budget system is both a best practice and a proactive exercise.

There are five important questions to keep in mind as you work through the assessment process:

1. Are critical users getting the budget-based financial tools they need to be successful?

2. Is budget “ownership” core to your organizational culture?

3. Is budget awareness driving planning and enhancing results?

4. Are budget-based reports telling the “Good Story,” effectively benchmarking results, and forcing a forward-thinking approach?

5. Are your budgets helping Board members to fulfill their financial fiduciary and strategic roles? 

Budgeting is a never-ending complicated system without a true beginning or end. Recurring fluid cycles of predictable periods such as fiscal year-ends, annual budget assembly, and Board meetings intertwined around random acts of nature and circumstance can take an organization’s programs and activities in the most unpredictable directions.

So, when is a good time to do an annual assessment of your budget system? Almost any time will work, but the key word here is “annual.” Picking a sustainable recurring annual date to assess budget system effectiveness is the goal. I believe there are two ideal time period choices; (1) just after the Board has approved the budget for the next year; or (2) about a month prior to starting the budget building process for the next fiscal year. Both time periods work well to look back over your budget system and assess systemic performance and how to make it better.

Question 1: Are critical users getting the budget-based financial tools they need to be successful?

The critical budget users are the core non-financial managers, compromising project managers, department heads, and senior management (C-suite). Core non-financial managers are the decision-makers on the ground, actively making decisions daily that directly impact the use of the organization’s financial resources. We must get budget reports in their hands that are easy to comprehend and inherently useful to help them manage and monitor results.

Make an honest assessment to see if these core non-financial managers are connecting to monthly budget reports. Observe closely if they are interacting with the budget reports and deriving information that assists them directly in their decision-making process. Take note of how they refer to their monthly budget reports. Are they connecting in a positive manner to the budget reports or are they avoiding interacting with them? Meet with them individually, concentrating on the users who are struggling to interact with the budget reports, and explore ways to eliminate usage barriers. Consider tandem pairing of successful users with new or struggling users so they can get a real-world working sense of how these reports can improve their effectiveness and results. Avoid lecturing from the accounting department/CFO perspective. Make sure to consider and highlight the program managers’ points of view. What you will learn from these interactions will draw you to make changes to the monthly budget reports and increase their effectiveness, leading to a higher level of use.

Question 2: Is budget “ownership” core to your organizational culture?

Getting non-financial managers to “own” their budgets is no small accomplishment. Pride of ownership always outperforms assignment of responsibility. Start by having them directly involved in the budget-building process. Next, integrate their project management tasks with the budget system so they get used to including financial metrics along with (and as a part of) program metrics. Aim to have non-financial managers viewing financial metrics as equally important as program metrics. No program can be viewed only by programmatic results (how many people did we serve, how many members were added, number of registrations, etc.), nor can a program only be judged on financial results. What we are looking for is ownership of the synergistic balance between programmatic results and financial-related outcomes.

Question 3: Is budget awareness driving planning and enhancing results?

This question is interesting and best viewed in a group environment, whereas questions 1 and 2 are based on individual assessments. I experienced budget nirvana recently when a project manager contacted me on behalf of the other managers at the organization, asking for more financial and budget reporting and performance assessment meetings. The budget managers wanted to share progress and results from their individual budget areas with each other and look for more collaboration. Mission accomplished. That single request proved the organization was doing a good job addressing Question 1 by getting budget-based tools (monthly budget reports) into users’ hands, and Question 2 by granting “ownership” of the budget to its users, making it a real part of the organization’s culture. Organizations often forget the main purpose of a budget. It’s not about the budget itself, but rather about putting the budget to use to ensure the best possible use of limited resources and improve the sustainability of mission and programs.

Question 4: Are our budget-based reports telling the “Good Story,” effectively benchmarking results, and forcing a forward-thinking approach?

If I was allowed only one report, I would always choose re-engineered budget reports that inherently speak to the budget users (the non-financial managers). Monthly budget reports generally need to meet the 60-second test: the average project manager should be able to interpret a single-page budget report in about 60 seconds, observing where the program is performing in relation to budget benchmarks and where it has positive traction or is slipping. Users should then be able to apply this information to update projections and assess changes they need to make as the project evolves. Improving the project manager’s ability to learn from the monthly budget reports and perform at a higher level in managing limited financial resources will directly improve financial results and impact long-term organizational health and sustainability.

Question 5: Are your budgets helping Board members to fulfill their financial fiduciary and strategic roles?

Board members understand that they must vote to approve an annual budget each year. Beyond that, Board member understanding and connection to budgets are often, at best, unclear and, at its most disappointing, “non-existent”. There are two strategies to consider that will help to improve Board member understanding and connection to budgets. First, consider adding annual financial training sessions for all Board members to attend. This should not be limited to the orientation process for new Board members, as even long-time Board members need continuing education to improve their financial acumen. Annual financial training provides an annual opportunity to reconnect Board members to financial reports and help them to learn how to monitor sustainability issues. It gives them a greater understanding of the important role budgets play now and for the future, enabling them to better understand financial statements and be better at assessing strategic considerations and performance results. Second, as part of your annual budget assessment process, make sure to allow for and seek feedback from Board members, committee members (for example: the finance committee, audit committee, and other committees that rely on financial information), and other volunteer leadership positions. Insights from these important budget users will help you make adjustments and can also lead to changes that will benefit senior management and staff.

Walking through these five budget-process-assessment questions once a year will lead to enhancements in your budget systems and financial reports that will benefit organizational outcomes and utilization and management of limited financial resources.