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Budgeting: It's Everyone's Responsibility

August 1, 2004
by root
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Staff can provide crystal-clear projections in forecasting your financial future by Victor Lane Rose, MBA, NHA

Budgeting: It's everyone's responsibility

Involving staff in budgeting might not always be comfortable, but it can yield smoother-running operations "Annual Budget"
Perhaps no two words in the business vocabulary can send such a palpable shudder through the whole of any organization. Budgeting can become the bane of an organization, causing the courageous to quiver and the most optimistic to lose hope. Often, and at the worst, it causes departments and divisions, and individual members, to don battle gear and clash arms.

Many organizations claim to have a participative budget process. In most cases, though, department managers stage a time-intensive "annual event" under the pressure of deadline, creating their individual budgets and submitting them to the chief financial officer (CFO) for compilation. The CEO and CFO then review these budgets composed in isolation and haste and begin making decisions about what is "approved" and what isn't. The resulting annual budget becomes a product of one-way communication (downward).

The consequences are recognizable to almost everyone:
  • Adversarial relationships between management, departments, and programs lead to feelings of mistrust and frustration. Creativity is stifled, and competition arises among various parts of the organization.
  • Budgetary requests and line items suddenly become "inflated" to offset unexplained budgetary cuts.
  • A "spend it or lose it" mentality develops, leading to the misdirection and waste of resources.
What is left is an aggregate of organizational pieces lacking true integration. Is it any wonder that many budgets, once approved, are so often set aside (with disdain) and end up collecting dust during the succeeding 12-month operating period?

The Problems: Our Own Perceptions
The first problem occurs when people are put in roles without the knowledge they need to succeed. Healthcare is notorious for promoting a good nurse to a managerial position, or an effective maintenance person to a department leadership role, without the proper managerial skills. They are set up for failure.

Second, financial information is often shrouded in a veil of secrecy, shared with employees only on a "need to know" basis. We, as administrators, tend to treat employees as if they have a limited ability to understand the complexities of organizational finance-yet these same employees leave after every shift to return home and conduct the same financial transactions, in type if not in scale, for their own families.

If employees look upon the budgetary process with distaste-and they often do-it is because we created an environment for that to happen. If we want our organizations to be wise in their stewardship of resources, we must meet our obligation to build them, first by educating all of those responsible for its performance appropriately, and then trusting them in the execution of that responsibility.

Here's How
Several steps are worth considering toward building a more universally informed budgeting process:

First, we must work to remove mystery from the financial realm. If we want fiscal matters to be treated with respect, leadership must first do the same by giving stakeholders the knowledge they need to do the job. This equates to a foundation in basic fiscal matters that underscores the relationship between daily responsibilities and finance.

Second, it is the primary responsibility of every organization's financial department to turn ambiguous financial data into meaningful financial information. Financial information about an organization should:
  • Detail how the organization allocates and uses its resources
  • Benchmark performance transparently
  • Assist individual employees in relevant decision making
This process begins by teaching the basics to key employee stakeholders so they can comprehend the information they need to succeed and appreciate the importance of that which they are charged to execute. Start with the key financial statements: income and cash flow.

Income statement. This is not the so-called "expense" statement. The income statement measures the bottom line viability of the organization or delivery unit it represents. Good fiscal management requires that equal emphasis be put on both the expense and income side of the statement. Managing expenses is not enough because only so much slack can be removed from a system by focusing solely on one side of the equation. It has long been argued, and I think rightfully, that it is impossible to expense-manage an organization to excellence.

Awareness and decision-making based on relationships between income and expenses are what prevent an organization from being "penny-wise and pound-foolish." The income statement measures the return for each dollar spent and is therefore the most important statement to understand for those carrying out the daily tasks of the organization. Managers must be aware of how items under their direct control-such as overtime, the cost of supplies, and the costs of employee turnover-fit into the larger whole compared to the income that their services bring in.