Budgetary Spending
Getting Authorization
In rare instances, a budget is pre-authorized: one is given a specific dollar amount for a specified purpose. There was a time that this was not uncommon for ongoing business operations, but this practice is increasingly rare.
Most often, one must justify expenses, even routine ones. The author suggests that there are four basic points that can help to justify a budget. He then lists only three:
- The value received will exceed the amount spent
- The work plan supports the company's objectives
- The work plan is efficient in its use of resources and capital
He talks a bit about negotiation and taking into account management's concerns and focus - it's a pretty sloppy and abbreviated stab at discussing negotiation skills, so I'm skipping it.
Adjusting Amounts
In cases where a budget is cut arbitrarily, the manager can change their plan to fit the adjustments, seek out alternative sources of funding, or request a meeting for reconsideration.
Arbitrarily changing work plans, decreasing all items by a fixed percentage, is generally unrealistic: you have to be selective in determining how to scale back. The author suggests cutting areas that are under your direct control, or changing the work plan to be less ambitious (focusing on mission-critical tasks and foregoing value-adds).
Depending on the organization, it may be possible to seek alternative sources of funding within or without: you may begin to bill other departments for services performed; you may be able to show others that your plan will benefit their operations and get them to chip in some funding; or you may be able to raise funds (example, applying fro a research grant).
If you have to negotiate, be reasonable. A good tactic is to assign amounts to activities and suggest activities that can be discontinued in order to save money, or a project may be only partially completed. Taking a ridiculous stance is inadvisable, but presenting your case to the decision makers and letting them make a decision (since budget has been reduced, we will have to give up one of these three things ... which is least critical to our mission?)
Coordinate With Accounting
Once a budget is approved, there are generally a number of rituals to go through with accounting. Determine when the funds will be dispersible (start and end of a period, any blackout dates), how the budget will be allocated (the accounting system, how invoices are coded, etc.), what the procedures are for getting things paid.
Spending At the Beginning and End of the Year
The author mentions that there are some peculiarity when it comes to obtaining funds at the beginning and end of the year.
At the beginning of the year, there may be a lag between the time that funds are approved and when they are available. This may be due to an accounting lag, or the treasury department's management of funds, etc.
At the end of the year, there may be a process of clearing the books, which means any funds remaining will no longer be available after the year rolls over unless you make arrangements for an exception.
There may also be peculiarities in businesses that experience seasonal cash flows, some of which are not arbitrary, but are a natural consequence of the ebb and flow of income.
Corporate Culture
Here and there, the author mentions some of the various dysfunctional practices:
- A company automatically approves only 90% of funds requested
- A company approves budgets, then takes back funds
- Specific line items are always rejected
- Next year's budget will be reduced if you don't spend all of this year's
- Accounting procedures make it difficult to access funds at specific times
In each instance, the ground-floor managers eventually figure out the routine, and react accordingly - padding their budgets against cuts, hiding funds in accounts that are less likely to be questioned, reducing budget if all funds weren't spent last year, rushing to spend money before it can be taken away, etc. The result is pretty much the opposite of efficiency.
Much of that is still around today, remnants of old-school management in diseased corporate cultures - but he (rightly) says that a new manager "wont' be able to change the system" and will have to play the old boys' game until he gains enough influence to be in a position to make changes.