Budget Approval
In many organizations the board approves the detailed line-item budget for the coming year, often engaging in exhausting discussion about small differences in preference. There are other approaches to board leadership and oversight of the organization’s finances that position the board to focus on the big picture and empower staff to manage the details.
A helpful concept for clarity of authority and responsibility is that only the person or group that makes a decision has authority to change that decision. Applying this practice to the budget process can greatly reduce board micro-management of finances while releasing staff to adjust expenditures in response to changing circumstances.
When the board develops budget parameters and the senior staff prepare a budget to address the board’s requests, the board reviews the full budget to ensure that it honors the budget parameters. If the staff budget violates any board-set parameters, the board indicates which parameters are not satisfied and asks senior management to revise the budget to satisfy all parameters. Once senior management provides the board with a budget that meets all the parameters, the board passes a motion indicating that it received a budget which satisfies all the budget parameters. This is notably different than the board approving the budget.
Senior management is now responsible to manage the finances throughout the year ensuring that actual expenditures comply with the budget parameters. Since the detailed budget was developed by senior management and the details were not formally approved by the board, senior management has the authority to reallocate funds between line items when one area needs additional resources and another has completed its work under budget. Senior management can make changes to the spending plan as long as the budget parameters are still satisfied.
The board is exercising its responsibility to allocate the use of financial resources by setting budget parameters. It is also exercising its responsibility to oversee the future financial health of the organization by reviewing the operational budget to ensure that staff have a plan that complies with the board’s direction. And staff are empowered to optimize the allocation of funds with senior management approval rather than new initiatives or approaches being delayed until approval at the next board meeting. When the board limits its budget approval to a few key parameters, the board isn’t consuming its time with minutia and staff can modify their operational strategies in a timely manner for optimal organizational results.
