Budgeting is a predictable annual process for most, if not all, organizations. But it’s a process that often takes place in a top-down fashion. Senior management, often with input from their finance leaders, sets the direction and allocates resources based on organizational priorities.
Seems logical, but while this approach has its merits, it overlooks a valuable source of input and insights: employees! After all, employees 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 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, as well as 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 a “must do” for ensuring an efficient and effective environment for goal achievement. Here are some of the benefits of this approach:
- 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 the budget considers the wide range of needs, challenges, and opportunities that exist 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 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 skills.
- Boosted morale: When employees feel their input is valued and considered, it has a positive impact on their morale. They feel more engaged and motivated when they know 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 toward common financial goals.
Involving employees in the budget process helps harness the collective intelligence of the organization to craft a budget that’s 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 is dry and unappealing?
Practical Steps for Including Employees in the Budgeting Process
- Make it real—and relevant. Help employees understand the benefits of being involved in budgeting—for example, 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 isn’t based on reality. Where does your organization want to go, and what will success look like? Clarity on desired goals and outcomes ensures 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’re committed to transparency, inclusion, and a risk-free environment that drives input.
- Provide training. Most employees have little or no experience with budgeting. Offering training that’s 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 facilitate collaboration.
- Provide feedback loops. Don’t just invite input from employees—respond to that input. Taking an iterative approach ensures 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 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 or 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 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.