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How do you hold employees accountable to their budgets?
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4 Answers
In my role as CFO it is important to implement a budget that is realistic and attainable. One of my suggestions is to work with the various dept heads or managers when creating the budget so their is a clear understanding of what results you are trying to obtain. Once the budget is completed and reviewed with those responsible for managing the company than I believe that positive reinforcement works much better than negative enforcement.
I would have incentives for exceeding performance expectations.
I would create a budget that is flexible. For example if a manager comes to you with a request to spend money on a certain project outside the budget, than based on the expected return on the investment needs to be discussed. If the investment going to increase revenues, or increase efficiencies and decrease overall costs, than you the budget must be flexible to accomplsh this as long as the necessary capital is available.
It is important to get the buy-in from management. You need to work as a team to control costs and to constantly look for efficiencies in running the company day-to-day.
An interesting question that certainly isn’t as cut and dry as “adhere to your budget or you’re fired”.
I suppose the “best” solution depends upon the industry in which the company resides, and the organization’s overall financial position. Unfortunately however, most employees will treat their limited budget funds as “house money”, and as anyone who’s ever gambled with house money knows, it’s very easy to start betting real recklessly, real quickly. Unless you can impose specific and enforceable consequences for exceeding a monetary cutoff point, it will typically be difficult to restrain those expense accounts.
With that said, my experience working with a budget comes from the perspective of the “employee”. While by no means frustration-free, my experience coordinating with my organization’s treasurer was mutually beneficial on the whole and—most importantly—fair.
Rather than get into constant battles over the budget we forged a simple arrangement that saved us both a tremendous amount of grief, ran it by our president for approval, and then stuck to it. The arrangement was as follows:
• I was allotted X amount of dollars for a particular quarter.
• If I wanted to exceed our initial budget’s limitations, I needed to consult with the treasurer, who could obviously approve or deny the overdraft.
• If I failed to consult with the treasurer prior to over-extending our budget, we each risked having 50% of the difference between our cap and our final expenditures deducted from our salary.
While it may have been unorthodox in its nature, you can be sure that I made a point of staying on or under budget, and the treasurer made sure to consistently account for my expenditures as they came in, reminding me as I neared my cap. In my opinion, the ends justified the means.
Rather than viewing the budget as a set of rules for employee accountability, look at the budget as the company's plans expressed in numbers. Ideally, overall goals are established first and then broken down into chunks so that everyone understands their role. They are then accountable for completing their part of the plan using the resources they are given (i.e. their budget). Ideally, they are part of the budgeting process, so they have had a say in whether the plan and budget are realistic and attainable.
Holding the person accountable then becomes a matter of seeing whether they have achieved their part of the plan.
Decapititate the first one to go over, and the rest will quickly move to comply... Ok, a bit extreme, but the previous answers are all good so I had to come up with something different.
Actually, your question is a bit vague. Are you interested in solving an existing situation where an employee has gone over budget, or wanting to implement a plan to address such an occurance from happening in the future? More importantly, are you in a position of being able to enforce whatever you decide to do?
Sorry to answer a question with more questions, but the goal is to help, and the more specific you can be, the better the options/advice you will get.
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