Budgetingby John Kind
This ‘first attempt’ budget will, of course, be subject to challenge, since it represents the maximum level of costs that will be permitted for your team. You need to produce a budget with costs below the permitted maximum.
Your task is to explore the ways in which this can be done so you demonstrate your team’s commitment to greater efficiency and productivity. You and your colleagues will need to do some brainstorming. Be radical!
Below are a range of techniques that you can use to keep your brainstorming sessions on track.
Experiment with ZBB (Zero-Based Budgeting). This means carrying out a fundamental review of what your department or team does and how it does it. This entails challenging your procedures, your routines and your current ways of working. In particular, you need to define very clearly the value that your activities add to the business or organisation. Initiatives and projects that no longer make financial sense should be discontinued.
Consult with others
Be open-minded and invite your team members to make suggestions about ways to operate in more cost-effectively and efficiently. One productive method might be to carry out a well-facilitated series of ‘budget workshops’, concentrating on particular areas of your department’s or team’s activities, such as systems development and training.
Invite feedback from the other departments, functions and teams in your organisation. What ideas and initiatives do they think would have a significant impact on your productivity and added value?
Challenge your costs and cost structure by asking questions such as what steps can we take to reduce ‘space’ costs by, say, 15 per cent to 20 per cent? In what ways, as a department or team, can we improve our productivity? For example, if in the past a major systems development project has taken nine months to complete, what would need to be done to reduce this development time to six months?
Focus on priorities
Focus on those parts of your budget that really matter – this is the 80:20 principle in action. Some 80 per cent of your cost budget is likely to come from 20 per cent of the different sorts of cost items. In the case of your role as a team leader, just two costs – salaries and systems development – account for about 85 per cent of your total budget. That is where your budgeting efforts should be concentrated.
Carry out ‘what if?’ scenarios to assess the financial impact of different budget options, such as reducing headcount and/or using less office space.
Here are some practical examples:
- Introducing additional ‘hot desking’ will reduce the office space required by 15 per cent with effect from 1 July next year
- Increased efficiencies in systems development processes for both existing and new projects will reduce costs by 10 per cent from the start of next year
- Renegotiation of the health insurance contract will save £3,000 next year
- Travel and entertainment costs can be ‘frozen’ at the current year’s forecast level of £10,000.
If you’re serious about improving performance, remember to
- Experiment with Zero-Based Budgeting (ZBB)
- Be open-minded – invite colleagues to make suggestions
- Challenge your cost levels
- Focus on the 80:20 principle
- Invite feedback from colleagues in different parts of your organisation
- Explore ‘what if’ scenarios – the financial impact of different budget options.