The Facilities Manager is a big spender with neither the clout of a revenue department nor the "mystique" of a technical department. Moreover, his or her activities are conditioned by clients. Postage, stationery, and photocopying costs can often be charged to a Facilities Department which has no control over usage; more significantly, office reorganisations and the resultant moves, increased security requirements, changes in employment numbers, and temporary office rentals all end up on the Facilities cost centre. The Catch 22 of prescriptive budgeting comes into play: "it does not exist, so you can't budget for it until it does, at which point it becomes an overspend to be recouped from the existing budget, so that it will not distort the next budget round".
Doing it their Way
What Accounts Departments want are simple mechanistic and straightforward processes controlled by them, allowing as little local input as possible. Thus at budget time spreadsheets are distributed to all cost centres, setting out all the cost heads, indicating previous year's budgets and actuals with a nice empty column for you to insert next year's figures. It all seems very helpful, but the accompanying papers will lay down an overall limit (perhaps even split by cost head) effectively dictating what can be entered in that nice empty column. Surprise, surprise: when the papers from all departments are consolidated, the sums miraculously add up to the figure first thought of by Accounts. This makes good reading for the Board and ensures that if actual results are wide of the mark then Accounts are in the clear. Budgeting in this fashion ceases to be an analytical and predictive tool and is transmuted into an academic exercise increasingly removed from the reality of line business decisions.
All the old Devices
The more mechanically proscribed the budget process the more susceptible it is to becoming a battle of wits and subterfuge. The line manager sets out to create a hidden surplus. Accounts set out to tie down every detail of cost. The process becomes adversarial with argument back and forth as to the validity of assumptions by either side. Instead of concentrating on the business's performance and future direction, all effort is directed inward.
Conflict is Unnecessary
Rational examination reveals that the warring parties are striving for the same result. It is the mechanisms which create the conflict, by focusing attention on the means rather than the ends. Strategic direction by the Board detailing the overall spend for the coming year is essential, and conformance by all areas of the company is a prerequisite of good corporate governance. The role of Accounts should be to provide accurate and detailed information about previous performance, and sound projections on what is happening with general costs and inflation. The role of line managers is then to utilise these figures to examine their plans and propose budgets that meet the company strategy. This involves hard work, rigorous analysis of every aspect of the operation, really difficult decisions and a degree of openness unachievable under the adversarial system.
How does it Work?
Managers should use information collected by Accounts to review every aspect of the previous year's spend against three essential criteria.