Most individuals get promoted into their first managerial positions because they are exceptional performers, knowledgeable in their areas of expertise, and they have demonstrated an ability to lead. This doesn't necessarily mean they know how to develop or operate a departmental budget. Consequently, the need might arise to learn budgeting on the fly.
Managing a departmental budget is similar to managing a household budget, although corporate budgeting can involve many more stakeholders and is considerably more complex. The good news is that there are best practices that new managers can learn from. Here are seven helpful budget tips:
Use your existing budget as a baseline
Unless you are starting a new department or function, there likely already is an existing budget for the department you are taking over. Review this budget carefully, and get all of your questions answered. You may or may not agree with that budget, but it should function as a baseline and a starting point for the new budget that you develop.
Talk with members of your department about budget projections
Most new managers get promoted into a department where they had been a staff member, but they may not be knowledgeable about every area of the department. For instance, you might be taking over the management of an engineering CAD (computer-aided design) group, but your job has always been to work with outside clients and develop applications, and you know nothing about budgeting for hardware and software. You should plan to sit down with the members of your department who are on the computer operations side. They can tell you about resource usage, what they are projecting for hardware, software and maintenance for the coming year, and what the history of hardware and software performance has been.
Get an understanding from corporate on budget expectations
As a corporate-wide practice, most organizations have a pre-budget-cycle meeting of the C-level officials to determine what the overall budget increase allowance is going to be for the coming budget year. Often, they will come up with a figure and then tell managers of various departments in advance of budgeting what to plan for. The message from corporate usually goes something like this: "Plan your budget to be within five percent of what it was last year." Understanding corporate expectations in advance can go a long way in helping you to lay out your budget—because you already know what types of budget increases they are expecting you to present for approval.
Operationalize your budget and know what you can sacrifice
In laying out your budget, you should refer to your goals and objectives for the coming budget year so you can position the budget where it can be adjusted if corporate earnings targets aren't met and you are called upon to freeze or to reduce budget. If this happens, you should know exactly what you are going to cut. The best way to give yourself flexibility is to make as many of your budgetary items operational or discretionary as you can. An operational budget item is one that you pay every month and that you aren't committed to a long contract for. If you need to reduce, eliminate or defer the item, you usually can. A discretionary item is an expense allocation committed to a specific project or activity. If things get tight, you can defer or eliminate the expense and the project. In contrast, when you purchase something large and expense it over time as a capital expense (like a hardware or software license), you are locked in and you have no flexibility.
Ask for assistance if you need it
If you need help with amortizing or depreciating a budget item or other budget-related financial ratios and ways of structuring expense, the finance department often has budget analysts who are knowledgeable and who can help. Take advantage of it. Finance can also assist you when you have to make a decision about whether to expense an item through your operating budget or capitalize an item in a fixed assets budget. They can do this by producing a spreadsheet that calculates the figure for you and compares how much per month you would pay with either method, and how long the payments would run.
Use all of your financing options
You can work creatively with your budget. If you can't get authorization for an additional staffer and the position is an entry-level one, you can look toward local colleges and universities that might have students who are being trained in the field and who would like a shot at an internship. (If you decide to go this route, be sure you're complying with fair labor practices.) If you want to onboard new software or hardware and can't cost-justify it, vendors can come to the rescue with financing options that will work. If you can find a way (like going to the cloud instead of buying an on-premises system) where you can operationalize your costs where you can expand or reduce them as circumstances require, this gets you away from capital expense lock-in.
Implement proof of concepts for new projects if you can't get them funded
You don't have to necessarily "stand still" if your budget is frozen or reduced. Many vendors, especially if they are trying to establish market presence, are willing to conduct free proof of concept projects, like a test drive of a new project management system, in order to get their foot in the door the next time budget becomes available. One of the best ways for them to do this is to demonstrate the value of their products in a small proof of concept—not only to you, but to others in the business who will benefit. If the POC is successful, you might get other support for funding the project in addition to your own. A POC also gives both you and your company the ability to observe a vendor at close range. In other words, do you think that the vendor is a company you can work with and that it will be sensitive to your business needs?
As a new manager, there are many budget management tricks that you will learn the longer that you work with budgets. What you want to do when you first get started is to begin with some established best practices. These will give you the necessary foundation to which you can add your own approaches and techniques as you gain experience.
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Mary E. Shacklett is president of Transworld Data, a technology research and market development firm. Prior to founding the company, Mary was Senior Vice President of Marketing and Technology at TCCU, Inc., a financial services firm; Vice President of Product Research and Software Development for Summit Information Systems, a computer software company; and Vice President of Strategic Planning and Technology at FSI International, a multinational manufacturing company in the semiconductor industry. Mary is a keynote speaker and has more than 1,000 articles, research studies, and technology publications in print.