- The concern should be to make the budget as realistic and accurate as possible because a reasonable budget based on a reasonable plan encourages reasonable performance
- A budget is a measurement tool; accountability, discipline and reviews are necessary for control
- A budget requires complete participation by all levels of management
- Large variances between planned performance and budget objectives indicate a weakness in one or multiple areas:
- Poor estimates
- Poor feedback and lack of timely, corrective action
- Ineffective management policies concerning budget maintenance
- Know your operation. Know the people in your operation. Seek feedback. Experience your mission hands-on.
- Don’t gloss over this. Get to know each of your missions intimately
- How many supplies does each unit have available?
- Where are the supplies stored? Are they controlled? Are folks scraping by unnecessarily?
- Do you have excess between units that could be shared?
- Who is actually watching the cable TV? Are we driving every vehicle on the GSA lease? Who is using the MiFi and why?
- How many people are under each cost center? Have you done a cost per person analysis on things like TDY or GPC? Are there outliers? Why might that be (rank, job, special equipment, specific conferences/training)?
- Is your unit deploying this year? If so, when? Will that cause your requirements to increase or decrease? Both scenarios are plausible, but not possible.
- Don’t gloss over this. Get to know each of your missions intimately
- Do you know how your budget was determined? Could you explain it to the Wing Commander?
- How are you evaluating performance? What is the benchmark?
- Have you created a feedback loop with your managers? Periodic budget reports should generate feedback on performance variance against budgets
- For feedback to work properly, it should be regular, expected, consistent and timely.
- The best feedback loop is to sit down monthly with each cost center manager to review the budget-to-actual variance report.
- Constantly incorporate changes. Budgets are living, breathing documents.
- Find the right balance. Generic or vague estimates are worthless. But the cost benefit analysis must be reasonable. Commanders can’t know every single detail months in advance, but should be able to provide enough of an outline to “frame out” a budget.
- Initiate Responsibility Accounting. Responsibility accounting means structuring systems and reports to highlight the accountability of specific people (cost center managers). Individuals within each organization must be empowered with both the budget and authority to execute their mission. One without the other is pointless.
- Separate your budget into fixed versus variable costs. This greatly reduces the number of lines to review.
- Unfortunately, fixed costs, because of their apparent static behavior, are not always reviewed regularly and critically to determine reasonableness. These are your biggest cost drivers; give them the attention they deserve each year.
- Variable costs like GPC and travel are the areas to scrutinize most closely. Rarely does a “copy/paste” budget hold up to close scrutiny.
- One major concern of relying upon historical budgets as a basis for future prediction is that a unit may be perpetuating past inefficiencies.
- Relationship of Cost to Review Frequency (insert graph)
