It’s budget time again – how’s yours going? Do your budget conversations sound at all like your strategy conversations?
In my experience, they don’t.
When I worked in local government, I wrote and project-managed the Annual Plan. Every year, it was the same story – line-by-line budgets with Council, only to get to the end, tally up all the ad-hoc decisions and find out it led to a budget increase or rate rise we didn’t like. So we’d go and slash, try to find some ‘tricks’ to help us out (plundering a quiet reserve, messing about with depreciation, seeing what could be deferred or capitalised) to get it over the line.
It was not strategic and a far cry from the idealism of the planning sessions held only a few weeks earlier.
“Never ask anyone for their opinion, forecast, or recommendation. Just ask them what they have – or don’t have – in their portfolio.” Nassim Nicholas Taleb
Spending our money in ways that align with our objectives is a critical part of strategy's ‘how’. When we view strategy as a separate process from setting budgets, we lose a huge opportunity to convert our thinking into action.
This is walking the talk with a price tag. Yet, right across the public sector, I see alignment to strategy go out the window in the budget scramble.
Do any of these sound familiar?
- Keeping stuff in there for years without testing it because it was hard to get it in there in the first place
- Cobbling a bitsy wishlist together from across the exec
- Working towards arbitrary targets, increases or rate rises
- Throwing objectives out the window once we start scrambling
- Keeping the finance team separate from the decision-makers and strategy people.
Take heart—60% of organisations don’t link strategies to budget. But those that do are significantly more likely to execute their strategy (makes sense, doesn’t it…).
How to put your money where your mouth is
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Think multi-year. The scramble of annual planning can mess with our long-term goals. Be clear about the impact on medium and long-term targets of changing this year’s spending.
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Be realistic. We overestimate how much we can achieve in a year and underestimate its cost. Instead of trying to save the world in FY20 (using less than half of your capex and twice your opex...), use the timing and spending of similar past projects to guide achievable commitments.
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Early engagement. Involve senior leadership and governance early, not at the end, and use strategy as the pivot point for budget discussions.
For the advanced
Alicia McKay