Budgets that Damage - The Downsides of Making the Numbers
In my organisational career, I had budgets from the age of 22 to 47. I lived and breathed them and many times, budgets, the gospel that they were, caused havoc, albeit within the corporate retailer framework that I worked.
Here are two examples of the damage caused.
Example One
Typically budgets were initially discussed in January, just after the Christmas rush. They were always dependent on year-on-year sales growth and at the time in question, individual businesses were not expected to deliver 'profits', as the
way the business was structured was not capable of sustaining that level of information.
So the budget got signed off about May (for the fiscal year staring the April a month before!). Monthly sales budgets were built, usually to a corporate model, as were cost budgets, the biggest of all being salary costs. Half year budgets had to be met and so by the time September's costs were in, you were well into planning your Christmas.
One year, after a review of performance of the organisation as a whole at the half year, a decision was made to radically trim salary budgets for the rest of the year. Out of 20 businesses in my geographical region, 8 were told to cut costs
dramatically from November onwards. Because of the way that employment legislation works in the UK, you can't just lay people off. So we had to find a better way to cut costs, just before Christmas (and at that time, the only two months the organisation made any profits to speak of were in November and December!)
It was decided to reduce the hours of every member of my staff (some 125 people) by 9.9% (apart, much to my personal disagreement, from the management team, who would be under 'much greater pressure', so would maintain their hours (and salary)). Although I say it myself, I had a great relationship with my team, and everyone made matters much easier by complying with the 'request' within days (instead of the statutory notice-period, which for some could have been up to 12 weeks). My people were rock solid in how they put themselves forward and I was humbled.
But
my Christmas business was badly damaged. The most profitable time of the year was damaged, badly and when the sums were added up, we lost 'profit', as far as I could calculate. The organisation's reputation was in tatters - and for what. Driving to achieve the budget, and more importantly keeping a lid on costs!
Example Two
My second example is the same organisation, bang up-to-date. Like right now, December 2004.
A manager is promoted in July 2004, to a very difficult store to manage - rather beyond his capability really. He inherits a budget cost overspend and is told to recover it by the end of the fiscal year (March 2005). He decides to cut back drastically on anything he can cut his staff costs on. So he 'cancels' Christmas recruitment and plans no extras for the busiest period of the year. Admitted, not the only period
they now make a profit on, but still very, very important to their profitability, for the year.
Things go badly wrong:-
- Systems fall apart.
- Preparation of merchandise for Christmas is too late.
- Staff morale plummets.
- People leave.
- Absense levels rise.
- He becomes depressed.
- He makes some serious lapses of judgement, because of the pressure.
- He is disciplined and demoted.
- Another manager (the fourth in five years) is brought in.
- There is a severe underperformance in sales (est. £50-100,000 for the period)
- The manager's confidence is ruined, forever.
All to meet the budget...
He's not a bad guy, in fact he has worked his socks off. With support and guidance he could have made this work and then progress his career. He was given none of these, except told that he had to make the budget. The article goes on to say that rather than performing to a pre-written script, managers are far better when they work towards forecasting more and more accurately on a rolling (and, over time, learning) basis. Performance and results become a lot more honest, realistic and outwardly (i.e. customer) focused, rather than inwardly (i.e. how to avoid or 'cheat' the budgeting system).
Perfect solution?
Maybe. It's just the nagging fear I have that the organisation anonymously mentioned in the article, with the solution above, might be the one I've been talking about in my examples... Martin Haworth is a Business and Management Coach. He works worldwide, mainly by phone, with small business owners, managers and corporate leaders. He has hundreds of hints, tips and ideas at his website and specifically on budgeting at http://www.coaching-businesses-to-success.com/budgeting. (Note to editors. Please leave a live link when using this article - thank you!)
...helping you, to help your people, to help your business grow...
Related News
|
 |
|
|
RELATED ARTICLES
How To Use W Edwards Deming
Human beings and the way they interact are extraordinarily Complex.
Deming tried to define that complexity.
Once Upon a Conflict
Once upon a time there lived an innocent, hardworking manager. One day he dared to wander from the safety of his open-concept office to speak out at a team meeting. He was immediately challenged, nay attacked, by another team member and his senior manager, embarrassing him in front of his peers. Plagued by downsizing, this noble manager feared for his job. A senior human resource professional saved the day through mediation. From that day forward, the manager carried that scar and never trusted anyone enough to speak out again.
Creating a Team Working Environment
TEAM DECISION MAKING: Managers who invite participation believe that people directly affected by a decision should be involved in making that decision. The effort is toward joint, cooperative decision making. The aim is to give employees a chance to have a say about things that affect them. This means giving them more control over their own work and giving up some of your own power and control.
Improving Patient Sensitivity in Doctors and Hospital Staff
COMPANY/ORGANIZATION
Use Noncompete Agreements To Protect Your Business
Q: One of my former employees has launched an online business very similar to mine and is contacting my clients and trying to steal their business from me. Do I have any legal recourse against him?
-- Brad J.
People - You Cant Make Them What Theyre Not
Many business people and managers are spending too much time trying to change the underperforming people who work for them. They seem to believe that if they train people - tell them what to do or even threaten them with the sack - then the performance level will go up.
Collections Management
How long does it take your customers, clients or patients to pay you for the products or services you have provided?
Good Idea Generation ? A Process
It seems incongruous that good idea generation can be a process or that a process may lead to insight. However, if you examine the behaviour of people who regularly generate good ideas ? such as creatives in advertising - you will find that common patterns of behaviour do emerge and it is possible to make insight more likely.
5 Questions Great Managers Ask (and they arent hard!)
However hard we try, we seem to make life more difficult for ourselves; more challenging; more complex. Yet it needn't be so. try out these five questions with a regularity; a discipline and you will reap rewards. You will certainly reap rewards.
Change Management
"It is not the strongest species that survives, nor the most intelligent, but the most responsive to change". -Charles Darwin
The Seven Essentials of Business Communication
There are seven essential elements to successful business communication:
The Three-Dimensional Communication System
Human communication is always three-dimensional. No spoken or written message is ever just words or rational thoughts. Every interchange between you and another person has and takes place at the following three intimately related levels, or dimensions, of being: emotional, physical, and rational. Any attempt to communicate will succeed if all of these dimensions are adhered to. Knowledge of this three-dimensional nature is the foundation of training. You can't get much closer to real understanding without these realizations.
Intercultural Management
The role of a manager is evolving in response to the needs of companies operating on the international stage. The complexities of globalisation brought to the area of management are great and require the 21st century manager to adapt in order to offer modern solutions to modern problems. One area in particular of growing importance is intercultural management skills.
Performance Evaluations Can Be Beneficial
THE PERFORMANCE REVIEW MEETING: It's a fact - most supervisors and employees have negative feelings toward performance appraisals and appraisal interviews. It's often necessary to shift people's thinking from the perception that the interview is a time of judgment to the perspective that supervisors can provide support and direction to employees who want to improve their productivity and be involved in the process. Most employees, after all, wish to work effectively. Few can tolerate the notion of working poorly and ineffectively. The appraisal is an important time when supervisors and employees can come together and talk about how to improve performance.
9 Tips for Getting the Most From Your Conference Investment
Tips for Getting the Most From Your Conference Investment
6 Simple Steps to Dealing with Difficult Managers
The challenge of managing difficult managers can be rather daunting, especially when you inherit them! If they are your own born and bred, then hopefully they would have evolved into great managers!Experience shows that difficult managers are difficult because they are angry and frustrated about something or somebody (even themselves - especially where they are, or have become, a square peg in a round hole of a job), so the steps to take are these:-
Hiring Tip -- Picking The Best Candidates
I often hear leaders from all types of organizations ask questions about hiring the right person. Their questions usually sound like these:
Nine Vital Lessons For Avoiding Training Fads That Waste Time, Money and Enthusiasm
Unfortunately, at least two thirds of much of the training and development effort undertaken by organisations to develop their people is wasted.
Coaching Employees in the Workplace
After a full week of training, you are still a little nervous about your new job. All of the information you need to digest, the new environment you are adjusting to, and the new faces you will be getting acquainted with is just a bit overwhelming.
Basic Management Skills
Recent studies have shown that industrial supervisors are working at less than 60 % of their potential. Basic management skills training is guaranteed to change all this and at such little cost
|
