Budgeting is a predictable annual process for most, if not all, organizations. It’s a process, though, that often takes place in a top-down fashion. Senior management, often with input from their finance leaders set the direction and allocate resources based on organizational priorities.
Seems logical but, while this approach has its merits, it overlooks a valuable source of input and insights—employees! Employees, after all, are the ones who will actually be leveraging allocated resources as they do their work, interact with customers, and manage day-to-day operations. Without their input there’s no guarantee that adequate resources have been provided. And that can work two ways:
- Employees haven’t been allocated enough resources to achieve assigned goals.
- Employees have been given more resources than required resulting in waste and inefficiencies.
Taking a more inclusive approach to the budgeting process can help close gaps and increase the odds that resources allocated are relevant to meet organizational needs.
Some organizations are recognizing the benefits of involving employees in the budgeting process, tapping into their unique insights to craft more realistic and effective financial plans. This shift not only leads to better financial outcomes but also fosters a culture of collaboration, transparency, and mutual respect.
Here we take a look at the benefits of employee involvement in budgeting, practical steps, and best practices in involving employees, and some potential challenges to be aware of and avoid.
Benefits of Involving Employees in the Budgeting Process
Involving employees in the budgeting process isn’t just “nice to do,” it’s “must do” for ensuring an efficient and effective environment for goal achievement. Here are some benefits this approach can provide:
- Enhanced ownership. When employees have the opportunity to be actively involved in the budgeting process, they develop a sense of ownership and responsibility. Instead of passive recipients given an edict by higher-ups they become active contributors. This sense of ownership can lead to an increased commitment and greater engagement.
- Diverse perspectives. Senior leaders aren’t all-knowing and all-seeing. Every employee in the organization has the potential to offer a unique—and valuable—perspective. Involving employees in the budgeting process, lets leaders tap into a wealth of diverse perspectives, ensuring that the budget considers the wide range of needs, challenges, and opportunities that existing within the organization.
- Improved accuracy: Employees working on the ground have frontline knowledge of their departments’ needs and challenges. Involving them in the budgeting process, ensures that budgets are based on real, on-the-ground insights, leading to more accurate and realistic budget projections. As highlighted in a LinkedIn article, one of the key principles of kaizen budgeting and continuous improvement is to empower employees to participate in decision-making and problem-solving, leveraging their knowledge and skills1.
- Boosted Morale: When employees feel that their input is valued and considered, it has a positive impact on their morale. They feel more engaged and motivated, knowing that their insights and feedback play a crucial role in shaping the organization’s financial direction.
- Promotion of a Collaborative Culture: Involving employees in the budgeting process fosters a culture of collaboration and mutual respect. It breaks down silos and encourages departments to work together towards common financial goals.
Involving employees in the budget process helps to harness the collective intelligence of the organization to craft a budget that is realistic, holistic, and aligned with the organization’s goals.
So how can organizations effectively engage and involve employees in a process that, admittedly, many may feel to be dry and unappealing?
Practical Steps for Including Employees in the Budgeting Process
- Make it real—and relevant. Help employees understand the benefits to them of being involved in budgeting. For instance, ensuring they have the resources they need to get their jobs done.
- Understand, and help employees understand, the organization’s goals. No budget can be effective if it’s not based on reality. Where does your organization want to go and what will success look like? Clarity on desired goals and outcomes ensures that the budget aligns with and facilitates desired objectives.
- Practice open communication to ensure employees feel comfortable sharing their insights and feedback in an inclusive environment. Involve them regularly through meetings, suggestion boxes, or digital platforms. Demonstrate through your responses to their input that you are committed to transparency, inclusion, and a risk-free environment that drives input.
- Training. Most employees have little, or no, experience with budgeting. Offering training—that is both on-demand and synchronous—can help them feel more comfortable and confident about the process and their role. This might include sessions on basic fiscal matters, cost analysis, and the relationship between daily responsibilities and finance.
- Embrace collaborative tools. Give employees easy access to technology that can help to facilitate collaboration.
- Provide feedback loops. Don’t just invite input from employees—respond to that input. Taking an iterative approach ensures that the budget remains dynamic and that it can be adjusted based on real-time insights.
While there are clear benefits to involving employees in the budgeting process, there are some potential challenges as well. It’s important to be aware of, and ready to address, these challenges.
Overcoming Potential Challenges of Involving Employees in the Budgeting Process
- Manage expectations. While feedback from employees should be encouraged and proactively sought during the budgeting process, not all suggestions can be implemented. It’s important for employees to understand that. Transparent, open, and frequent communication can help manage expectations to avoid misunderstanding and frustration.
- Allocate enough time and resources. A more inclusive budgeting process is likely to require a greater time investment, especially in the early stages of adoption. Be prepared for a longer process and plan accordingly.
- Emphasize and ensure confidentiality. Financial data is, obviously, sensitive data. While promoting inclusivity is valuable, it’s also crucial to ensure that critical financial information remains confidential. Employees need to understand this and how they can protect—or, potentially endanger—this information.
- Be prepared for potential resistance. Any kind of change—even a positive change—can be met with resistance. Some employees might be skeptical about a new approach, or may feel threatened by a new approach. Some managers may feel a loss of control and authority. Addressing concerns and highlighting benefits can help ensure buy-in.
Organizational budgeting no longer needs to be—or should be—confined to the boardroom and top executives. Making the process more democratic and embracing the insights and input from employees at all levels can not only lead to a more comprehensive and realistic financial plan but can also foster a culture of collaboration, transparency, and mutual respect. While challenges exist, the benefits of this inclusive approach far outweigh the potential pitfalls.
Lin Grensing-Pophal is a Contributing Editor at HR Daily Advisor.
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