Nine Lessons I Learned in Budgeting
October 13, 2015 – Mike McCann
After a dozen years building corporate budgets and another dozen years assembling government budgets, I have learned some hard lessons. Many of you may share similar thoughts:
1. The legislative body does not have the technical skills to forecast revenues and should not be expected to do so, especially since revenues are primarily the result of events outside local control. Finance professionals need to use their skills and experience to generate the most accurate possible revenue forecast for the legislators. They consider local and national factors, review historical trends, analyze current conditions, and project trends into the future.
2. The completed revenue forecast is the best professional estimate of revenue available to the budget process. Together with unrestricted reserves, these revenues are the total funding available for expense planning in the budget process.
3. Accurately managing personnel costs and their allocation is incredibly difficult, but key to accurate budgeting. These costs represent 75% or more of most government budgets so errors in salary-related costs can be particularly damaging — four times as distorting as the same percentage errors in non-personnel costs.
4. Expense budgeting should start as close to the action as possible. Line supervisors and project managers often have the most current and detailed information to work with. Equally important, they can best tell their project’s story, and explain both why funds are needed and how they will be used.
5. Budget leaders must ensure that line staff and the budget team are properly educated and oriented to both goals and methodology. Old fashioned line-item worksheets are less effective for organizing budgets than more activity-oriented budget input tools. Formats that start with the story and then encourage thoughtful expense planning help avoid across the board and generally less thoughtful line-item percentage increases.
6. There are many more line department leaders at all levels than there are budget analysts. Line department leaders know what they need; let them advocate for themselves. Empowering line staff to contribute directly to the budget process is a win-win proposition — as long as the budget team and executives have visibility and the final say.
7. The budget leaders need to understand the current state of the budget throughout the process. Current revenue and expense totals should be visible, clear, and accurate. Access to every proposal and detail should be online and easily found.
8. Good budgeting takes time. Socialization, consensus building, iteration, political tradeoffs, horse trading; these are all common terms and concepts surrounding this inherently political process. Budget calendars and firm significant milestones help an organization move forward in a measured and orderly manner.
9. Taking enough time to reconcile the details and circulate the latest results at each major step is crucial to staff consideration and political buy-in. If the budget is not realistic or if staff know they will not be able to operate within its constraints, then the process is a failure and disservice to the entire organization.
As a financial professional, crafting a clean and functional balanced budget might be the most important and creative work you do all year long. It is the product of your many years of experience, education, and sheer hard work. It is critical to the functioning of your entire organization and its ability to provide services to residents and other stakeholders.
The things you do in Excel to build that budget look like magic to everyone else – but often keep you awake checking and double checking late into the night. The package of linked budget worksheets you have built over a career are effective and accurate, but you know that they are going to make it hard to retire someday. No amount of documentation and hand-off is going to adequately cover it.
Peer-to peer tip: Try out the Budget Milestones Report which is available at no extra cost as part of the OpenGov Intelligence platform!
Mike McCann moved into government service in Ukiah, then Monterey CA, after beginning his career in corporate (ADP, Wells Fargo Bank, Blue Shield of CA), not-for-profit (Blue Shield of Ca, Mendocino Private Industry Council), and start-up accounting. For the last 20 years, Mike has been hands-on with budget, financial reporting and accounting operations, including City budgets and CAFRs. He holds a B.S. in Accounting from SJSU and M.S. in Instructional Technology from CSUMB.
Contact Mike with questions or comments at email@example.com.
Category: Government Finance