We’ve probably all seen it. It is near the end of a fiscal period, and someone with line authority for a budget sees they have money left. The thinking then becomes, “Good, I’ve got some money to spend,” or alternatively, “If I don’t spend this money down, I won’t get it next year, so I need to zero this budget line out now.”
Unfortunately, this is not what is meant by zero based budgeting. (Tongue in cheek intended.) But too many nonprofit or association staff, who are not financial professionals, or who have never been trained in strategic planning and budgeting, end up with this kind of perspective about their budgets. And while there can be an ongoing conceptual debate about overhead in nonprofits and how they are viewed by evaluators, funders, etc., the reality is at the ground level of programming and budgeting this thinking can be a problem for executive directors who have overall management responsibility for outcomes and finances.
What underlies this thinking is the notion that a budget is permission to spend, more than a planning document to achieve outcomes. And while the concept of zero based budgeting was created largely to address this issue, I have seen very few associations or nonprofits that do zero based budgeting in a meaningful way.
Staff may also get trapped in this thinking by vendors or sales people. When planning for a program, product, etc., it is not uncommon to have a sales person ask staff, “so what is your budget for this project?” We all know what happens then—you end up setting your price, even if you might have gotten a lower one, and that becomes the starting point for many negotiations. Personally, we see it most clearly when we go car shopping.
There is a process I have used with staff to address the notion of impact and priority more than cost. At the largest, most strategic level, we ask what must be done in the next two years to accomplish the organization’s strategic objectives. Then we work on three specific concepts: priority, alignment, and sequencing.
Priority determines what is most important. Alignment helps focus on marshaling resources so that everything points in some way toward those most important priorities. Sequencing, of course, is about what has to come first, second, etc., in order to achieve the priorities. (This can then be broken down into annual cycles/periods, for planning and fiscal year concerns). With these three dimensions of planning, many times I have been able to create multiple impacts on investment. Simply put, if you do the right things first, second, and third, with programming and resources aligned correctly, you may not have to do the fourth and fifth thing to achieve your goals and objectives.
At that point, staff doesn’t have a budget. But, they are tasked then with developing a plan. It is not uncommon for them to ask, “how do I plan without a budget?” The answer I have given is this: “You know the outcomes we want to achieve. Develop three different plans that have a legitimate chance to reach those objectives. For the sake of differentiating them, we will call them the Cadillac, Buick, and Volkswagen plans (although these days I use Mercedes, Toyota, and Kia). Obviously, the Mercedes plan may be more “comfortable” than the Kia plan. But they all should get us where we want to go.
When we have plans for the most important priorities, have aligned and sequenced our activities so that they all support them appropriately, we are then able to evaluate the various plans and levels of investment to achieve different objectives. Many times we find further synergy and alignment—more impacts for dollars invested. Many times we can then be more creative in programming and collaboration. It forces different departments, managers, etc., to work collaboratively, helping to break down silos. And everyone—from the Board through all staff—is able to see how the work moves forward—how the parts connect to the whole.
There is more detail about the process than one can write in a blog post. The “dollars” part of the budgeting process doesn’t really come until the end. And even then, decisions are made on a rolling basis, both annually, and even quarterly as managers, the Exec, and the Board plan and evaluate at their respective levels.
Working this way can be more challenging. At the Board level, there must be real clarity about priority of goals and outcomes. At the staff level, there must be a culture of collaboration not competition for resources. It is sometimes hard for individuals who have measured some of their prestige, importance, authority, etc., by the size of the budget they control to shift to a way of thinking where specific lines of budget authority do not tell the tale of organizational impact or importance. However, the process fundamentally changes the concept of budgeting, and the notion that a budget is simply a la carte permission to spend. It can lead to much more creative thinking about resources, and how to marshal and use them.
How do you budget? What happens toward the end of your fiscal year? Are you satisfied with the process?
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