You need to hold leaders accountable not just for limiting their spending, but also for delivering results.

Challenge

In most organizations, managers are held accountable for spending no more than budgets permit. Variance analyses cause managers to explain why spending exceeds plan.

This metric does little to build a culture of acccountability for results. Consider the following example:

• Jane is entrepreneurial, successful, and grows her shared-services business. Her customers in the business find more money to spend on her services, so her revenues and her expenses exceed plan. She has a variance to explain.

• John is a poor performer and produces very little, but he spends exactly what he said he'd spend. No variance.

How can you hold managers throughout the enterprise accountable for results while still controlling spending?

Solution

An adjustment to the budget planning process can trigger a culture of accountability virtually overnight.

Investment-based budgeting requires that departments submit budgets that describe the cost of their deliverables (not just expense codes by manager, as in traditional budgeting).

Budgeting is then a matter of deciding what the enterprise will "buy" from each department.

As a result, when budgets are awarded, they're linked to specific deliverables -- a detailed definition of the accountabilities of each department.

In the example above, Jane delivered everything funded funded in her budget; and she delivered additional results to clients utilizing budget they provided.

John, on the hand, failed to produce the deliverables his budget paid for; he's the one with the variance to explain.

It's a matter of managing people to their bottom lines, not their top lines.

Comprehensive solution....

Other Resources

White paper for CFOs and Budget Directors: Investment-based Budgeting