So this post should ideally be a month or so late for the creme de la creme of companies as the Budgeting process should ideally be done as part of the opening tasks of the 4th quarter. Nonetheless, better late than never for those organisations that are deep in the budgeting or budget approval process.

There is a positive relationship between good budgeting and good governance. Why? Because it is the process that leads to a decision on ‘Who gets What, When and How’. This was said about politics by Harold Lasswell and the same can be said about budgeting as it is part of good governance. The major attributes of good budgeting namely; effectiveness, efficiency, transparency, accountability and discipline are also ingredients of good governance, which if demonstrated can enhance value to the organisation.

A board’s responsibility is to see that resources are used efficiently and the mechanisms used are the budgets and forecasts so that boards can focus on oversight and accountability. That said a balanced budget is no longer sufficient if resources are dedicated to the wrong purpose.

So how can you ensure that you follow the right process in order to get to a budget that works for yout organisation? The following steps are necessary:

1. Evaluate the macro-economic environment and check those themes against your strategy and ongoing strategic objectives in order to make the right projections for the next fiscal year. These indications should then guide the budgeting process
2. The Finance Team should then take the lead and share the global targets with the other departments, for leaders to start aligning their departmental revenue and expenditure estimates with the company targets
3. The Finance Team should also share the fornat guidelines for the departments to draft their mini-budgets in a consistent manner. Sharing the past years budget against expenditure is also helpful
4. Departments then submit their draft budgets to the Finance Team for review to confirm that they are in line with the guidelines they were given
5. Once harmonised, the department heads defend their budget drafts at a leadership meeting. Negotiations then take place
6. Consolidation of the negotiated budgets is done by the Finance Team and the Finance Head together with the CEO present the budget to the Board for approval
7. Once approved (best be done before the end of the financial year) the Finance Team should ensure that company resources (cash) is used in line with the budget. A reserve should be built in for extraneous expenditure.
8. Any under-budgeting that requires a revision of the approved budget should go through the Board for approval with clear explanations on what led to the under-budgeting.

So there you go. We at Akira Consult share these and other insights (www.akiraconsult.ke) in the effort of shining the light on good governance. Call us if you need a moderator at your budget moderation meetings!