Managing a Budget

Being finance savvy is almost always an
important component of your overall value to your employer.
Even
if you are not in a position that has direct responsibility for
budgeting, being aware of financial concerns is highly important.
As a manager, your performance is judged heavily on sticking to a
budget, and rightly so. For an entire organization to make the
profit it wants, it's vital that each area sticks to its budget –
after all, budget over-runs come right out of profit. Clearly,
overspending is bad. But under-spending is also a problem – if you
have over-estimated what you need, you've tied up money which
could have been used more profitably elsewhere in the
organization.
You therefore need to be crystal clear at all times about how much
you're actually spending in relation to your budget: After all, it
would be disastrous to pay too little attention to it in the early
part of the year, only to run out of money in month 10!
When you manage a budget well, your organization benefits. And
anything that is good for the organization's bottom line is
generally good for your career. That's why it is so important to
get your budget correct from the start, and then find a way to
make it work despite the obstacles that inevitably crop up.
There are two main components of successful budget management:

Planning – estimating a reasonable budget and negotiating the final amount.
Discipline – committing to work within the budget by assessing and reassigned funds as needed.

Budget Planning
Your first task in budget management is to acknowledge how
important the budget document is to your department, the
organization, and your performance. While you may not be a finance
expert, as a budget manager you are expected to take the financial
health of your department very seriously.
Remember, your budget will probably be reviewed
by the most senior people in the company. You want to make it
as comprehensive and well-thought-out as possible. The bottom
line for you is that your performance will be evaluated through
your budget. So start early, and get as much help as you need
to perfect your budgeting skills. As always, though, the more
you know to start off with, the more competent and capable you
will be perceived.
Estimating
The first step in budget management is sitting down and
determining how much money you will need to achieve what you need
to. It's no longer as simple as pulling out last year's budget and
adding a few percentage points: Organizations now have to run in a
lean and efficient way, and every dollar is accounted for much
more precisely than in the past.
While you can certainly use previous budgets as a guide, the best
approach is called "zero-based budgeting." To prepare a zero-based
budget, you start with no dollars in your budget and build a case
for the money you intend to spend and, if your budget includes
revenue projections, the money you think will be coming in.
This practice will ensure that you really understand
the dollar amounts you're asking for, and can justify your projections
should you need to. Here are some tips which will help you budget
more accurately:

Plan for minimal income (where applicable)
and maximum expense. Typically, you hope for the best and plan
for the worst.
Itemize your expenses. Remember the small
recurring items like subscriptions and office supplies services
that you may need to buy into, such as technical support.
Build in a bit of a safety net that takes
into account the risk inherent in your budget, and create a
fair contingency fund.
Where it's appropriate to the nature of your
budget, include investment in employee training and development.
Demonstrate that the expenses you include will improve productivity
and performance.
Provide documentation to justify your rationale.
Include estimates, assumptions and calculations you used to
derive your figures.
Don't guess. Where possible use real figures.
Be conservative but not cheap. A really low
budget is only impressive if it can be met.
Align your budget with your organization's
strategic plan. If your company is growing, how will this affect
your department's expenses? Will the expenses be linear or stepped?
What capital expenditure should you be considering? How will
the growth affect your staffing levels, and training and development
needs?
Talk to your staff. The budget is not a secret
document. Your people are expected to stick to the budget, so
they should have input into its preparation. You will get much
more co-operation if they understand where the dollars are being
spent and why. Negotiating

Once you have a draft budget prepared, it's time to get approval.
This is perhaps the most critical part of the whole budget
process. Much of the art of managing a budget is in the up-front
negotiation: If you don't negotiate enough, you and your team are
in for a hard year ahead. What's more, it's so embarrassing having
to ask for more money: The organization's Board will notice this
every month when they review year-to-date financials!
The best way to avoid not getting enough is
to negotiate from a win-win perspective. This means trying to
negotiate for a reasonable figure and having clear evidence to
support your budget needs.

Understand what costs you can control and
commit to doing so during the negotiation process.
Know your options and be prepared to present
them. Anticipate where you might get the most resistance, and
prepare solid arguments to back up your request.
Don't excessively pad expenses to make up
for anticipated shortfalls elsewhere. These tactics are underhanded
and don't add to the trust relationship you need to build for
successful negotiation.
Use historical data if you can't put an actual
figure on an item.



Tip 1:
As we've said, you'll need some money set to the side to
handle unexpected contingencies. Unfortunately, this is one
of the first things that can be cut during budget
negotiations. When you start work on your budget, agree with
your boss how you should present contingency amounts, in
such a way that they're not cut.
Tip 2:
If people in your team are aware of the budgeting process,
it's important that your team perceives a "win" for your
budget. Make sure you manage their expectations as well.
Don't over-promise, and be as honest about the final outcome
as you can. It's important that you work with your team and
keep them informed throughout the budgeting process.

Budget Discipline
With your budget in hand, your challenge is now to work diligently
to stay within it. To do this successfully requires continuous
assessment of where the money is going, and re-allocation of funds
as necessary.

Monitor spending against your budget regularly.
Know what you are spending, and if an invoice comes in that
you aren't expecting, deal with it immediately. Find out what
happened and get back on track as best you can.
Try to keep every cost heading on budget
each month. Make adjustments as required by moving money between
cost headings.
Investigate persistent overspends as soon
as you notice them. Try to fix the source of the over-spending
before looking for money elsewhere.
Put strong internal controls and policies
in place to deal with spending. These should be extremely clear
about what expenses can be claimed. Your expenditures should
not be a surprise.
Communicate budget results regularly. Talk
to your team and your boss about the status of your budget.
It's better to let people know about issues before it's too
late to remedy the situation.

There is a delicate balance between sticking to a budget and
losing out on unexpected opportunities. While it is important to
be on budget, if a great opportunity presents itself, you want to
be able to exploit it. An important aspect of this is the ability
to look ahead. Make sure you don't get so focused on your
short-term budget that you fail to take advantage of a great
long-term prospect. If this sort of opportunity comes up, prepare
a detailed and persuasive case, and be prepared to argue for it
high up in your organization. After all, you will be judged at
least as much on performance as on how closely you met your
budget.

Key Points
Managing a budget is a valuable skill. Recruiters
look for your experience of it and competence in it when filling
many managerial positions. In many companies, how well you stick
to your budget is a major factor in your overall performance evaluation.
Key components of budget management success are knowing how to
estimate budget needs, negotiate for a fair budget, and monitor
the budget diligently. Regardless of the position you are in right
now, or the weight your organization places on budget management,
understanding the budget process improves your understanding of
the business in general. This will help you to be a more effective
and productive member of the team, which is a definite bonus to
any employer.

Apply This to Your Life
If you've managed budgets before, look over the tips and ask
yourself if you use each one to its full advantage. What
areas can you improve on? Make a plan to start managing your
budget better today.
If you're new to budgeting, recognize that you will make
mistakes. Rather than get frustrated and upset with
yourself, use the budget process to learn more about how
your business works. Use your monthly assessments to learn
more about your business operations and finance in general.
If you don't have budgeting responsibilities right now,
ask your manager to be included in the budget process any
way you can. By indicating your interest and willingness to
learn, you open yourself up to opportunities to grow and
develop your skills. This type of initiative gets noticed
and rewarded.