In February, AAT launched a new joint venture with distance learning provider The Skills Network (TSN) to introduce a brand new online budgeting course, AAT Essentials: Budgeting. Designed to support managers to better manage budgets and cash flows.
But, why? Shouldn’t managers inherently be able to budget effectively and efficiently?
Unfortunately, as AAT and TSN have recognised, most non-financial managers never receive the training they need to perform key financial tasks, such as budgeting, prior to taking on such responsibilities!
We discuss just how important it is for managers to get departmental budgeting ‘right’, and how, as employers, we can better aid them in doing so.
Managers and budgeting: Expectations and importance
Budgeting is at the core of every organisation – we know this! Without keeping check of the financial realities of our business, we fall short in achieving our strategic vision.
Effective budgeting is therefore necessary for managing activities, controlling expenditures, allocating funds, and really setting a precedent for consistent performance across the entire business.
As such, controlling a departmental budget is very much at the heart of every manager’s role, and the ability to effectively manage a departmental budget is not just increasingly valued by employers, it is expected – and falling short is rarely acceptable.
To put it simply: budgeting isn’t just a tick-box exercise to satisfy the demands of top-tier management.
a manager’s responsibility to ensure that they are on top of their budget, and
not rely on someone else to tell them when they are
They must ensure that their resources are correctly aligned (not wasted), costs are understood, and volumes are appropriately predicted, with the correct amount of staff (at the right cost-per-employee) to achieve their departmental goals, which must be aligned to the wider strategy of the organisation.
A manager must get to the stage where they understand each line of their budget and the value of monitoring it, and must also be pro-active enough to identify and address problems in good time!
Where managers often go wrong
Without effective budgeting, poor decisions are made, performance falls short, and resources are wasted.
But where do managers often go wrong?
- Creating a budget without discussing it with, or involving, others
- Being overoptimistic by setting unrealistic sales projections that are not based on past sales or current market conditions
- Underestimating costs, or not considering cost increases
- Applying simple percentage changes to the previous year’s budget without any reasonable justification
- Creating a budget, then simply ignoring it
- Rushing the process – collecting too little information, or not taking the time to monitor budgets correctly
- Being privy to silly games of other managers – e.g. being close to year-end and under budget, so beginning to quickly spend unnecessarily to ensure that the budget is not cut next year.
We must better support managers in developing the financial skills and knowledge needed to take correct ownership of their department’s resources.
How to better support managers with budgeting
The key to budgeting is being strategic. Departmental budgeting should always be directly tied to the objectives and strategy of the wider business. Often, managers are unclear on the bigger picture and how their departmental budget fits within the context of the wider business.
We need to help managers understand the strategy, and ensure that they know the answer to the question: what goals am I trying to achieve with my departmental budget? Managers can then begin to determine the resources required to achieve those goals, assessing how to utilise them more effectively, and, if they need more resources, developing a proper business case to request additional funds.
We should be prompting managers to ask questions such as: “Am I clear about my outgoings?”, “Am I clear about what’s incoming?”, “Have I accurately forecasted to meet objectives?”, and “Are there any factors that might have serious implications for my budget?”
Once managers have asked the key questions, they can begin to manage the intricacies of gathering information, monitoring expenses, allocating resources, setting up warning signs and tracking team performance. They can then ensure that they can be pro-active in making corrections should they be on track to fall short of financial targets.
Above all, we need to equip managers with the confidence and competence to effectively understand costing, estimation and budgeting.
The new AAT Essentials: Budgeting online short course aims to support managers to learn how to budget effectively, allowing them to study in their own time, either at home or at work, without needing to attend work-based training, attend a college or take time out of their work schedule.
Find out more about the AAT Essentials: Budgeting course.
Skills Network is AAT Comment’s news writer.