The only solution is to build a firm foundation of shared accountability and collaboration. But it’s easier said than done…
However, there are five key things you can do right now to shift the budgeting process from a frustrating back-and-forth to a mutually beneficial exercise for both IT Finance and the business areas it serves.
One of the biggest factors to a successful budgeting process is finding the right rhythm. For example, if you’re only reviewing the forecast once or twice per year, your ability to engage with budget owners and improve how IT dollars are being spent will be limited.
Instead, try to achieve a monthly – or at least quarterly – cadence of reviewing the budget, looking at actuals, explaining variance, and updating the forecast.
Each time you do this, you’re opening a dialogue between IT Finance and the business that fosters a culture of mutual responsibility and ensures everyone stays on-track.
You’ve probably set some broad, long-term goals for your organization. But how do you reach them?
One of the most effective ways to break down those overarching goals into smaller, more quantifiable objectives is to give budget owners specific and individualized targets. By doing this, you give them a clear vision of their personal responsibility in meeting the greater goals you’ve set for the organization.
Instead of just blindly telling them to cut costs, give them firm number. Make it realistic and put it in terms they can easily understand. And finally, be sure it’s tailored to the financial reality of the cost center or service they manage.
A little time spent working to enable budget owners can go a long way, especially in terms of educating them on the simplest strategies to harvest savings.
Tell them about your existing commitments, and make sure they understand which areas of the budget are flexible (and which ones aren’t) – what’s fixed vs. variable. For example, maybe you’re locked into a certain subset of vendor contracts, or maybe your organization has agreed not to cut labor in certain areas for a given timeframe.
Instead of letting budget owners waste their time sifting through parts of the budget they can’t change, help them find the areas they can change. Arm them with as much information as possible to quickly have an impact.
Most organizations only pay attention to negative variance. They want to know… Why did you spend more than you said you would? and Where will we find the money to reconcile this?
Granted, negative variance has real consequences. But positive variance is just as problematic in different ways.
If budget owners end up with more money than they need – either because they asked for more than they should have (worst case), or because they managed to increase efficiency and save money (best case) – the reason why needs to be explained.
What’s the opportunity cost of letting money sit idly when it could be used to generate value elsewhere? If budget owners are held accountable for positive variance, that’s a question you won’t have to worry about answering.
IT Finance has a singular perspective on the budget: to be diligent stewards of technology spend and get the most value for the least money. But that isn’t necessarily the first priority for all the other players in the budgeting process.
That doesn’t mean cost center managers and service owners aren’t interested in spending wisely; it just means they’re likely more interested in having all the resources they need.
Keep those motivations in mind as you navigate the conversation and remember to have some empathy.
For example, if you’re struggling with budget owners to reduce padding, don’t take an offensive stance by shaming them for the waste. Instead, use it as an opportunity to work alongside them and build report – pointing out the areas that need to be cut and why, and assuring them that the changes won’t hamper their ability to perform.
Be firm but understand their perspective. Stay sensitive to their fears and aspirations. Be nice and show that you care.
As time goes on, their trust in you will grow, and they’ll be far more receptive to what you have to say.