Most of us working in cubicles have little interest in budgets, much less variances. Unless, of course, you are in finance… We simply know they are out there and if we’re on budget, it’s good, and if we are over budget, it’s bad. End game.
Really, though, it’s not the end. Cubicle Warriors love budgets and variances because it helps them understand their job situation. Budgets and variances are in input in deciding to stay or leave a job. Understanding budgets, in other words, helps your career. If you’re still scratching your head over this, I was too for a long time in my career. Then, a thoughtful manager helped me understand why I should love budgets and the inevitable variances to the budget that goes along with them. It’s simple, really. Let’s see if I can help.
This, perhaps, is bloody obvious, but without budgets, no one can figure out if the company or department is being successful. It doesn’t matter so much that one is on budget as much as it does matter to say, “Here is a plan to compare reality with in your decision-making.”
If you really have no goals, you have nothing to compare your current work, effort and ideas to making your goals. The very same thing is true with budgets.
If there are no variances to the budget, you have to question budget reality and the spend. You had a plan — and no plan is perfect. So where are the variances? What is causing them? How do know if the variance will continue and you need to adjust your plan?
Variances force you to react to the realities of what is happening in the business — your business. You engage in the business by comparing the variances to the plan and look for explanations of what is happening with the reality.
Do you think you create budgets in a vacuum? No. Managers sit down with a lot of advice and say their revenue will increase X%. That increase will come from….what? A new product going to market? A new release of an existing product that will help? The demise of a competitor where you will take over the business with good marketing and sales efforts? There are hundreds of reasons to think there will be an increase or decrease to revenue…and that is the story you want to know.
Expenses are the same way. Are expenses going up 5%? Is it because we’re launching a new, successful product and need to incur the expenses? Or is it because the company suddenly got generous and decided that everyone should get a 5% raise? Okay…unless you are Google, that’s probably not the case. But whether expenses go up or down, there is a story behind it.
Unless you have specific interests in the budget numbers and the variances, don’t listen too much to the numbers. Instead, listen to the stories behind the numbers. If you are not hearing the stories, ask why something came in the way it did. Why did our expenses go up 3% compared to budget? Why did revenue go down compared to budget? Elicit the stories.
The stories, you see, tell you the direction your department and company is taking. That impacts whether or not the company takes you along with it.
What’s you story about your budget?