HR Management & Compliance

Thinking Small: How to Make Budgets Work in the Face of Uncertainty

As companies adapt to an increasingly unpredictable business environment, one thing is certain: The present and the future of work are undoubtedly digital. This reality presents both challenges and opportunities for organizations ready to adapt. Whether empowering hybrid workers to communicate and collaborate from anywhere in the world or managing spending across novel budget categories, businesses will need to be agile and forward-thinking, which requires the right investments to be successful.

Unfortunately, strategic budget development often falls flat, failing to meet the moment or forecast future challenges. As the Harvard Business Review writes, “They start five or six months early with promises of visionary transformations that quickly give way to tedious templates, endless financial forecasts, haggling over targets, and battling for resources.”

However, the stakes are too high for companies to fail in the planning and budgeting process. To facilitate the future of work today, companies need to make better, data-driven decisions to optimize their talent and resources. Effective budgeting can help. The key is to think small by using microbudgeting to work smarter and make better business decisions.

The Case for Microbudgeting

Traditional, big-umbrella budgets strive to exercise control of each spending category, regardless of size or organizational impact. This process often combines everything from paper clips in the mailroom to big-ticket investment priorities into a single budget.

These budgets are modeled after the butterfly effect, which assumes that small actions like a butterfly beating its wings can have outsized implications like creating a hurricane. Similarly, many business leaders assume that, by controlling even the smallest costs, they can engineer profitability with the efficiency of an assembly line.

Throughout the pandemic, businesses relying exclusively on traditional budgeting methodologies struggled to evaluate their operations during a tumultuous time. As The Wall Street Journal’s “CFO Journal” reported in May 2020, “Uncertainty surrounding the pandemic has rendered careful corporate planning exercises useless.”

Noting the challenge that C-suite executives face as they strive to generate post-pandemic budget protocols, Forbes says that “forecasting this year has no usable baseline. It’s like trying to run a company by looking in the rearview mirror. Blindfolded.”

In contrast, microbudgeting tracks items in categories because their importance stands alone or because they provide meaningful indicators of other, hard-to-quantify business priorities. What’s more, microbudgeting is less concerned with capping spending categories or limiting project scope. Instead, it can serve as a baseline for critical categories worth tracking.

In this way, microbudgeting abandons the broad constraints imposed by annual budgets, instead harnessing a scaled-down approach to track spending to generate better data-driven insights into company performance.

Better Data-Driven Insights

The results can be dynamic. A microbudget can operate like a key performance indicator (KPI) that creates data-driven insights into operational output, customer retention, or other measurable variables.

For example, tracking expense report filings throughout the pandemic provides a baseline for shifting operational expenses or hybrid work cost trajectories. At the same time, tracking things like an account’s travel requirements can highlight trends that might suggest client management problems that need to be addressed.

Similarly, tracking employee leave, hours logged, and home-office expenditures can help companies evaluate employee well-being. With 75% of workers reporting feeling burned out while working historically high hours, these insights convey more than personnel costs. They can help leaders understand generalized employee behavior, allowing them to respond appropriately to preserve employee morale and well-being.

Regardless of the intended outcome, microbudgets only manage one metric, as increasing complexities and interrelationships between categories can quickly make these products obsolete. However, the simplicity of microbudgeting makes it easy for any organization to analyze comparative data over time, allowing small businesses and enterprises to harness budget protocols to derive data-driven insights that drive better business decisions.

Conclusion

The hybrid work model is expected to be the new normal throughout 2021, and it will likely be a prominent work arrangement well after the pandemic subsides. When coupled with shifting consumer habits and uncertain pandemic reopening patterns, companies can use every insight they can find to effectively navigate this business environment.

Budgeting can play a prominent role in helping companies forecast the future. The key is to think small. Microbudgeting evaluates small-scale metrics to make big-picture decisions that optimize talent and resources. In a post-pandemic landscape, it’s a powerful way for businesses to chart a data-driven path forward in times of uncertainty.

Alan Tyson serves as the CEO of DATABASICS, a best-in-class time and expense management solutions provider recognized by leading global organizations for its deep expertise, next-gen technology, and customer-focused platform. Connect with Tyson on LinkedIn, or follow on Twitter @DATABASICSinc.