September 8, 2012 Leave a comment
“I woke up this morning and I had them budget blues. I woke up this morning and I had them budget blues. Don’t know where I’m goin’, don’t care where I’ve been. Lord knows, I got those budget blues again.”
Yes, it’s that time of the year again. Another budget season is or soon will be upon us. This often means long hours for we the carpenters who build these financial monuments. Just about every organization known to man has some sort of budget. What self-respecting organization would be caught dead without one?
With continued economic uncertainty, the task itself and associated processes have become less predictable. From cub scouts and churches to state governments and major corporations, the scale may differ but everybody got ‘dem budget blues. Our main point here today is that “tone at the top” matters more now than ever. If it’s so important, then what is it?
By “tone at the top”, we refer to how the typical executive duo of CEO and CFO views a budget, and what they directly or indirectly communicate to their organizations. The titles may differ, but the song remains the same. Words and deeds, presence and absence thereof, all become equally important in setting the stage.
Of Sandbaggers & Wishing Wells
Will this year’s budget process resemble a day at the beach? Ever since the first abacus appeared, budget owners have been “sandbagging”. Perhaps the most classic and perennially visible manifestation of this innate drive is seen with the sales budget. The attempt to set relatively easy targets is largely indicative of human nature. This is the bum for day, hero for a year approach.
Or will it be that this year’s budget process takes on the hue of rose-colored glasses and visions of genies granting wishes? Some budget owners close their eyes, make a wish, and budget accordingly. Showing improvement is expected in today’s competitive markets, so hockey stick sales curves always remain in season. Setting unrealistic goals is another time-honored budget trap. This is the hero for day, bum for a year approach.
Tone at the Top
Sales budgets are a keynote for “tone at the top” because they represent a signature opportunity for the CEO and CFO to collaboratively engage – setting and communicating reasonable goals throughout the organization. Failure to do so, positively reinforcing beach culture or its fairy tale cousin, sends the wrong message. Success in accomplishing this highly visible first step sets the right example early.
“Tone at the top” impacts the quality and timeliness of the information received from budget owners. Nothing is worse than receiving bad budget input late. Poor input typically reflects a budget owner’s low priority assignment to the task and usually signals tacit approval of its acceptance by the next higher organizational level. Otherwise, it would not happen.
The Right Answer Game
“Tone at the top” also takes a hit when key executives play the “right answer game”. That’s where the top-down requirements approach meets bottoms-up budgeting but gets there too late. This unnecessarily spins wheels and zaps energy. “Why did you ask me for my input if you weren’t going to use it?”, becomes the symptomatic question. Unfortunately this question never seems to go to a good place for the person asking it.
Proper “tone at the top” clearly sets forth expectations and empowers those in the middle to safely address budgetary ambiguity. It’s truly the make it or break it element in any budget process.
A version of this post appeared as an article in the Association of Financial Professionals September FP&A Newsletter.