Building a Culture of Effective Budgeting Practices

How can you make budgets more effective and valuable for your nonprofit organization? The answer lies in changing people’s perspectives on budgets. You need to move them away from thinking that budgets are only an operational requirement and instead move them to view budgets as a core part of an organization’s culture and aspirations for a brighter future.

Program staff, department leaders, and development teams typically approach operational policies, compliance rules, and legal requirements as obligations to fulfill, which can cause engagement in these important processes to be half-hearted at best. However, people will be more motivated to actively engage and interact with budgets when they see direct benefits that align with the organization’s mission and culture, as well as their own performance needs and wants. Budgets can and should augment both roles.

There are three tactics to consider that will help transform budgeting from an operational necessity into an enlightening cultural enhancement. Budgets viewed through this perspective can motivate organizations to explore possibilities for the future, test their capacity to deliver on mission promises, and help them to adapt to a changing world. The three tactics are learning how to:

• Integrate front-end budget assessments with back-end budget reassessments
• Balance budget funding expectations with service and operational capacity limitations
• Encourage active budget-related connections and engagement

Front-End Budget Assessments with Back-End Budget Reassessments

To make budgeting a vital part of your nonprofit’s culture rather than just an operational requirement, you must demonstrate a consistent focus on adapting to changing conditions and new challenges. Adding a formal front-end budget assessment and committing to back-end budget reassessments emphasizes that budgets are not just a static display document but a living and breathing interactive process.

Adding front-end budget assessment procedure centered on addressing these three questions will help users to see how transformative budgets can be.

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?

Ownership is the key element here. Users of financial information must believe they are an integral part of the budgeting process. Connecting with users on the front-end encourages them to share their observations on budget effectiveness—looking back—and aspirations and ideas for innovation—looking forward.

You can turn budgets from a static document into a living process by adding rolling projections to monthly financial reporting, which provides a platform for real-time budget reassessments. In effect, rolling projections act like flexible budgets in disguise, allowing a static budget to adapt to changing conditions.

Balancing Budget Funding Expectations and Operational Capacity Limitations

Assembling a budget for the next fiscal year is never easy. Of course, nonprofit budgeting would be easier if you knew the exact amount of future funding. What makes budgeting hard is that we must align the expense side of the budget—a task that is challenging enough by itself—to an ever moving and often unpredictable funding target. Consequently, it is best to begin the budgeting process by first focusing on your funding pipeline and exploring the edges of the “best” case and “worst” case parameters for funding expectations. 

However, you cannot assess the funding pipeline without also considering your organization’s capacity limitations, which for nonprofit organizations is mostly driven by whether your staff has the necessary time, skills, and desire to perform effectively and work efficiently.

The delicate balancing act of conservatively documenting expectations for budgeted funding with a realistic assessment of labor capacity requires understanding your organization’s cultural risk/reward appetite. As an example, chasing funding growth through expanding collaborations, applying for additional grants, and securing new fee-for-service contracts can be a huge risk factor if the organization’s staff does not have the necessary skills and hours to efficiently and effectively perform the work. 

Related to assessing capacity, isolating the budget assembly process for labor, such as salaries and related costs, at the front-end of the budget process will help organizations to not only assess the cost of labor but also assess capacity issues related to skills, available hours, and compliance requirements.

Encouraging Budget Related Connections and Engagement

The bad news is that encouraging people to connect with budgets is a process that never fully ends. The good news is that there are many ways and opportunities to help your team feel more comfortable engaging with budgets. An excellent way to help make budgets feel more accessible is to decentralize budget processes wherever possible. This is essential for getting people to invest in the budget process and moving toward a culture where budgeting is a core value, rather than just a compliance exercise.

The concept of decentralizing budgets is mostly centered on pushing budget planning, building, and monitoring, to the people and the budget-dependent departments where they reside. This seems obvious, but in fact, organizations often take the opposite approach.

Whether by design or accident, organizations often find themselves isolating budget connections and responsibilities in a few individuals, such as the finance department, a few senior managers, or sometimes only the CEO or executive director. The reason behind this unproductive behavior is not as important as the reasons to shift the focus to people who have direct operational and oversight responsibilities.

When you decentralize the budget process, you will increase feelings of ownership and optimize individual accountability and organizational adaptation to changing conditions. Conversely, without ownership as a core tenet, people will lose their desire to connect with budgets.

Another more specific tactic to take is to schedule pre-month-end closing meetings. This entails having the finance department reach out to senior management, project directors, and other users of financial reports and budgets to get updates on activities and changing conditions prior to beginning month-end closing procedures and generating financial reports.

These pre-month-end closing meetings have many benefits. My favorite benefit is that the finance department will gain knowledge of changing conditions in advance of issuing financial reports. Another benefit is that these meetings provide opportunities to remind attendees of key due dates, action steps, and deliverables, gaining valuable time from sharing information earlier. These benefits will have a positive impact on engagement with budgets and encourage an open culture of sharing information and expanding collaborative planning.

Planning Tip: Consider an earlier start date for the annual budget preparation process. Most organizations start the annual budget preparation procedures too late, resulting in a rushed process. This leads to feelings of stress and impedes thoughtful planning and innovation. Moving the start-date up even a few weeks provides expanded opportunities to involve more people, enhance feelings of ownership and inclusion, and explore improvements to programs, fundraising, and operational tactics.

Use Your Budget to Connect Your Organization

Budgets are generally thought of as a required operational document. This impression causes budgets to feel like a burdensome compliance tool. To make people feel more comfortable, positive, and connected to budgets, organizations need to make budgets more of a living and breathing process that is intertwined into daily discussions and planning. 

When you weave budgets into everyday interactions, they quickly become engrained into an organization’s culture, connecting people and enhancing sustainability and planning for the future.

Want to learn more about making your budgeting process more effective? Check out the webinar, Building a Culture of Effective Budget Practices.