There are two ways to budget.
The First Way
The first way is to have each department prepare a list of spending desires.
Then they send them to you and you compile them into an overall budget.
Then there is a big meeting with all the department heads, all the staff, and all the board, where the combined budget is presented.
Great shock is expressed.
Then everyone is asked, “Who can give up some money?”
Since the first speaker loses, the only response is the classic deer-in-the-headlights look.
The situation can get
The resulting budget is based on “Who is the best negotiator?” instead of “What is best for the organization and the mission?”
The Second, Better Way
Yes, there is a better way. It goes like this:
The Board determines how much they are willing to spend on each initiative and each department. These targets are based on the high level view of the mission and strategies and on the amount of money that will be available.
These targets are communicated to the departments.
Then each department prepares their prioritized wish list.
Each department then prepares a spreadsheet with the accounts down the left side and the months across the top. The blank spreadsheet is totaled in the lower right hand quarter. In the upper left corner, which is always visible, they place a formula: Target minus Total. Thus, the amount of budget available to them is available at all times.
Then, each department starts down through their wish list from highest priority to lowest. After each item is entered, they look at the upper left corner. The moment it is about to go negative, they stop. “But I still have these other items!”
Now they, the department, must look at the other items and compare them to the items already entered. “Which is more important?” “Can we cut back on one of the items already entered?” The tough decisions are made by a small group in each department, but a negative number remaining is not allowed.
Using this method, you come to the large budget meeting with a budget that is fully compliant with the wishes of the board. You also have a list of items that did not make it to the budget. Anyone can argue for including one of their below-the-line items, but now they have to convince the group that their need is more important than some specific item in the overall budget. But if they cannot, the budget still stands.
One meeting, job done.