Successful managers understand the paradox of budgets.
Budgets exist to ensure results are delivered on time and to agreeable levels, including sales forecasts and especially expenditures and any other type of cost. Budgets, and the budget setting process, is absolutely critical to the success of any person, household, department, division, company. Budgets matter.
Budgets matter even more if the manager, who will be measured by the budget, is the one who creates the budget and then sells it upwards to the stakeholders and guardians of the consolidated corporate financials, such as the board of directors or the various operating Vice Presidents, etc. That budget becomes the manager’s promise. Promises are inviolate. No promise should ever be broken! So, if for no other rationale than that of meeting one’s promise, budgets need to be respected and treated as sacrosanct.
Budgets become scorecards to know if managers are tracking on time and on result. They allow for early detection of variances and for the marshalling of resources to help deliver corrective action plans before too much time has passed and before small problems erupt into major resource-consuming monstrous problems. So, as difficult as they are to prepare and as constraining as they may be, budgets are an important and a necessary tool of running any business.
When results are too slow or too little, and costs too high, so a bad variance, compared to budget, it may be because of a lag in time periods, so temporary. Or it may be because of market or manufacturing factors, bad factors, and also temporary. For those temporary bad variances successful managers will build in a credible amount, an amount they can sell to other stakeholders when justifying their budgetary numbers, to act as a “slack variable”, so to say. That slack variable gives managers a bit of wiggle room and allows them enough bad variance to be able to respond quickly enough to head off small problems before small problems erupt into major problems.
When a manager is under-performing, missing, budgetary targets in a bad way, there is no question the manager deserves to be challenged by the upper core of the company whose responsibility is to ensure that all the parts are contributing to the whole. But, when a manager is missing, exceeding budgetary targets, in GOOD WAY, managers often are given more elbow room to run their businesses.
When managers experience GOOD variances, this becomes the moment when the paradox of budgets can play a significant role to ensuring the ongoing success of successful managers and their teams.
As stated earlier, though budgets are regarded with strict adherence to the numbers and as inviolate, successful managers take advantage of positive variances, positive exceeds performance, to step off budget, SOMEWHAT, in order to bank roll or divert resources to encourage potential innovations and potentially useful breakthrough activities that can result in exceeds performance for the subsequent or next budget. This is akin to the old concept of “bootlegging” that garnered millions of words in books about how to innovate until it was largely shut down with bureaucratic overlays.
So, in addition to building in a slack variable, and knowing how to work within all the rules, successful managers also know how to bend the rules of budgets a wee bit, (staying ethical and squeaky-clean, of course), to lay down a path to facilitate or accomplish the extraordinary for the next budgetary period.
In plain simple English, when exceeding budgetary performance, successful managers have an opportunity to help ensure their own success by gently violating their budgets in ways helpful to future performance.
The Paradox of budgets: treat budgets as inviolate, yet know when and how to violate them.
