Nonprofit Accounting Basics

Annual Budget Process Assessment: Is Your Budgeting System Helping to Drive Results?

Note: Articles published before January 1, 2017 may be out of date. We are in the process of updating this content.

Stepping back once a year to take a high-level assessment of your budget system is a healthy exercise.

There are four important questions to keep in mind as you work through the assessment process:

  1. Are critical users getting the budget-based financial tools they need to be successful?
  2. Is budget “ownership” core to your organizational culture?
  3. Is budget awareness driving planning and enhancing results?
  4. Are budget-based reports telling the “Good Story,” effectively benchmarking results, and forcing forward-thinking?

Budgeting is a never-ending complicated system without a true beginning or end. Recurring fluid cycles of predictable periods such as fiscal year-ends, annual budget assembly, and board meetings intertwined around random acts of nature and circumstance can take an organization’s programs and activities in the most unpredictable directions.

So when is a good time to do an annual assessment of your budget system? Almost any time will work, but the key word here is “annual.” Picking a sustainable annual date is the goal. I believe the ideal time is after the board has approved the budget for next year. This is a good time to look back over your budget system and assess how to make it better.

Question 1: Are critical users getting the budget-based financial tools to be successful?

The critical budget users are the core non-financial managers, compromising project managers, department heads, and senior management. Core non-financial managers are the decision makers on the ground, actively making decisions daily that directly impact the use of the organization’s resources. We must get budget reports in their hands that are easy to comprehend and inherently useful to monitoring results.

Make an honest assessment to see if these core non-financial managers are connecting to monthly budget reports. Observe closely if they are interacting with the budget reports and deriving information that assists them directly in their decision-making process. Observe how they refer to their monthly budget reports. Are they connecting in a positive manner to the budget reports or are they avoiding interacting with them? Meet with them individually, concentrating on the ones struggling to interact with the budget reports and explore ways to eliminate usage barriers. Consider tandem pairing of successful users with new or struggling users so they can get a real-world working sense of how these reports can improve their effectiveness and results. Avoid lecturing from the accounting department/CFO perspective. Highlight the program managers’ points of view. What you will learn from these interactions will draw you to make changes to the monthly budget reports and increase their effectiveness, leading to a higher level of use.

Question 2: Are you always striving to improve the “ownership” factor?

Getting non-financial managers to “own” their budgets is no small accomplishment. Pride of ownership always trumps assignment of responsibility. Start by having them directly involved in the budget-building process. Next, integrate their project management tasks with the budget system so they get used to including financial metrics within program metrics to the point of comparable status. No program can be viewed only by programmatic results (how many people did we serve, how many members were added, number of registrations, etc.), nor can a program only be judged on financial results. What we are looking for is ownership of the gentle balance between programmatic results and financial-related outcomes.

Question 3: Is budget awareness driving planning and enhancing results?

This question is interesting and best viewed in a group environment whereas questions 1 and 2 are individual based. I experienced budget nirvana recently when a project manager contacted me on behalf of the other managers at the organization, asking for more meetings. The budget managers wanted to share progress and results from their individual budget areas with each other and look for more collaboration. Mission accomplished. That single request proved the organization was doing a good job addressing Question 1 by getting budget-based tools (monthly budget reports) into users’ hands and Question 2 by granting ownership of their budget, making it real to their organizational culture. Organizations forget the main purpose for budget. It’s not about the budget itself but about putting the budget to use to ensure the best possible use of limited resources and improve sustainability of mission and programs.

Question 4: Are our budget-based reports telling the “Good Story,” effectively benchmarking results, and forcing forward-thinking?

If I was allowed only one report, I would always choose re-engineering budgets reports so they inherently speak to the users. Monthly budget reports generally need to meet the 60-second test: the average project manager should be able to interpret a single-page budget report in about 60 seconds, observing where the program is performing to budget benchmarks and where it is slipping. S/he should then be able to use this information to update projections and assess changes she or he needs to make as the project evolves. Improving the project manager’s ability to learn from the monthly budget reports and perform at a higher level in managing limited resources will directly improve financial results and impact long-term organizational health.

Walking through these four budget-process-assessment questions once a year will lead to enhancements in your budget systems and reports that will benefit the organization outcomes and utilization of limited resources.