Accountability, Transparency, Focus

March 2008

These are the buzzwords of a strong budget effort. They are also buzzwords of a strong dieting effort. Weightwatchers uses all of these concepts to help folks lose weight. Dieters weigh in each week (accountability), keep a log of what they ate (transparency), and are trained to keep their eye on the prize—the skinny jeans that have been hanging in their closet for years (focus).

But, all of these qualities—whether they are applied to a budget or a diet—make people rankle with discomfort. And thus a good budget and lasting weight loss can be tough to pull off.

It is human nature to wish that everyone would simply trust you to do your best and leave you alone to do as you will. And because of this laissez faire attitude, many organizations are living on the chubby side.

I admit, I struggle with this stuff myself. I am no bastion of financial or dietary strength. Sometimes I just want to relax and enjoy that Disney vacation or that extra piece of chocolate.

And, you may have noticed that no one pays much attention to budgeting when times are good. As long as money is flowing in, why stress everyone out with restrictions and belt tightening?

But, as we have been hearing this year, the economy appears to be waning. Oil prices are soaring and consumers are losing confidence. I thereby predict a renewed interest in budgeting… at least until we American’s figure out how to navigate our new world.
So as those about to be subjected to a budget or those who will be tasked with a budget—please make sure you set yourself up for success. Even if you know this diet/budgeting fad will pass—you might as well play it full out! Set your budget up so that it holds folks accountable, shares significant info and focuses the organization on what matters.

Hold folks accountable

Hold folks accountable for their plan, for their projections, for their behavior, and their results.

I define accountability as a responsibility to explain your actions.

At this very moment, I am listening to Sheryl Crow’s new CD at Starbucks—and the song playing is “Now that you are gone, I am free. Free to make a mess of everything because no one is watching me.” I think that sums accountability up very nicely. Thanks, Sheryl!

Consider this list of techniques to hold folks accountable—from the least intense to the most intense:

• Send out a quarterly variance report
• Send out a monthly variance report
• Ask managers to explain to the accountant why there is a variance
• Ask managers to explain in writing why there is a variance and include it in the variance report
• Ask managers to explain to their peers why there is a variance in a face-to-face meeting
• Ask managers to explain to their bosses why there is a variance in a face-to-face meeting
• Ask managers to explain to their executive team why there is a variance in a face to face meeting
• Withhold bonuses for budget variances
• Suspend or fire managers for budget variances

Few of us would ever consider firing someone for not meeting the budget, but I have run into one city government that did just that. The city manager was tired of folks ignoring the budget. After one round of dismissals, the attitude toward budget compliance miraculously changed!

But many of us actually do the first bullet. We send out a variance report to everyone. “Here is the info you wanted.” But if no one is held to it, why bother?

We should probably come up with a procedure to hold folks accountable that is uniquely designed to make managers just uncomfortable enough to make them respect the budget but not so rigid that they do something stupid just to ensure compliance. This procedure will vary depending on the culture of your organization and the sensitivity of your managers.

Shares significant information

Transparency is the most popular accounting word of this post-Enron era. Transparency means that nothing is hidden. Hiding or obscuring things creates distrust and suspicion. And distrust and suspicion creates squirrely and strange behavior.

Have you ever seen a budget that is so rolled up—so macro—that you can’t figure out how you fit into it? Or have you seen budget variance reports that are 15 columns wide and 100 rows long? You can confuse and cloud an issue both by sharing too little information and by sharing too much information. These crazy budgets are the opposite of transparent, they are opaque!

In the budgeting realm, transparency means that the budget is clearly presented and results are understandable and actionable. Transparency also means that the budgeting process is free of mystery and the resulting unnecessary drama.

I was once hired by a budget officer at a publishing corporation to conduct a series of budgeting training sessions for his managers. He wanted to resolve the manager’s complaints that they were clueless about how to create a budget. Training, he though, would be an easy answer to his problems. It was early in my career and I was naïve regarding the proper use of training, so I went along.

Early in the first training session, I found out what the true problem was; the managers had been cut out of the loop. The budget officer would ask them for their projections and then hole away in his office for two months trying to reconcile everyone’s numbers to each other and trying to negotiate with the corporate office in Orlando.

After he had massaged the numbers, he gave a final budget binder to each of the managers. The managers were very frustrated to find that these numbers were different than what they had requested and they complained to the budget analyst that they were "clueless" about how all this worked.

He interpreted that to mean that they didn’t understand how to project numbers. What the complaint really meant is that the budget process was opaque to the managers. They were clueless about what had happened to their original projections.

In trying to help everyone out by massaging numbers on his own and trying to make everything fit, he had created a black hole. He was obscuring the process. This was the exact opposite of what a transparent budget process looks like.

So, as a result of the managers not seeing and tracking what had happened to their numbers, they held onto a justified mistrust of the whole budget process. They didn’t bother working hard at their projections nor did they try to comply with the budgets.

A few savvy managers figured out that they needed to stay involved in the process and met frequently with the budget analyst. In this way, they got more of what they wanted. Other managers saw these meetings as subversive, secretive behavior. See? Squirrelly. Opaqueness causes squirrely behavior. Squirrelly behavior wastes time and can cause good people to seek other employment.

So the training did nothing except let these folks vent and get even more frustrated. I learned to do a little more homework before conducting a training session and the budget analyst learned to share. The managers learned to stop being squirrels and to watch and fight for their projections until they were finalized. I guess in the end, everyone was pretty happy and a lot wiser. But because the process wasn’t designed well from the outset, it caused plenty of unnecessary angst for everyone involved.

Focus on what matters

A budget is the translation of the plan into numbers. The main benefit of a plan is focus. It tells you what you are supposed to be doing and the budget tells you whether you are on track with your plan.

Clear expectations, in the form of a plan, are essential for employees and managers to perform consistently and as a team. Otherwise, some folks just end up "doing their own thing"’ to the detriment of the organization as a whole. The more vague your plan, the more confusion will ensue.

A line item budget—one that mimics the general ledger—usually has no direct relationship to the plan.

In the coming months, we will discuss how to link the budget to a strategic plan and a strategy map or balanced scorecard.

But next month, we will discuss the qualities of a good budget. Yes, there is more.