We often take pride in our ability to ‘make do’ when the situation is not as we would have liked. This particularly applies to those occasions when we do not get the budget we requested. We grizzle – but we ‘make do’. But what message does this send? Jim Kennedy, speaking at an Asset Management Council Chapter Meeting in Adelaide warned of the dangers of this ‘make do – can do’ culture. When we ‘make do’ (usually by cutting corners, or deferring activity that results in larger costs later) we are telling the finance section that our budget request was overblown. When Finance subsequently provides less than requested (working on the basis that the initial request was ‘gold plated’) and the recipients subsequently ‘make do’, that does more than confirm the initial Finance suspicion, it creates a lack of trust on both sides. Budget proposals are now ‘boosted’ to allow for the inevitable cuts. Finance reduces the budget request and as it goes on, budgets lose their informational, decision-making, value.
Jim proposes that the value proposition for Asset Managers should be “How to protect your leader against political opposition” and his answer to this question is a ‘defensible budget’.
So what is a ‘defensible budget’? Jim describes it as follows:
- Fact and Risk Based
- Fully traceable to the asset’s output requirements.
He reckons these two are really sufficient but could be bolstered by showing that the budget is
- demonstrably good practice and in accord with national standards; *compliant with statutory and regulatory imperatives;
- implemented by competent (certified) staff;
- supported by verified technology (information decision systems);
- transparently and verifiably costed (which builds up trust between the technicians and finance; and
- deliverable in the agreed time frame (don’t promise what you cannot deliver).
Good stuff! – but, and here’s the rub – developing good practice, ensuring competent (certified) staff, establishing sound information decision systems, demonstrating transparency and ensuring deliverability does not happen overnight. It takes years of consistent management attention and good leadership.
Question this week: Do you know where your organisation stands on each of these facilitators of sound and defensible budgets? Is there a program to improve it? Comment?