Budgeting Processes

“Measurement is the first step that leads to control and eventually to improvement. If you can’t measure something, you can’t understand it. If you can’t understand it, you can’t control it.  If you can’t control it, you can’t improve it.” -H. James Harrington

Every year, government officials gather in city halls, county offices and state capitals to propose, debate and adopt future annual budgets, which documents public policy and provides insight into its priorities, resources and services.

Most public sector entities have two budgets:

  • Operating budget: established for executing the various programs within the agency and is typically funded by tax and licensing revenue streams.
  • Capital budget or capital improvement plan (CIP): the budget for major capital items, including land, buildings, structures, and equipment and is typically a 5 or 10 year plan.  Funding for these projects come from appropriations and earmarked revenues and bond sales.

Unfortunately, stringent regulations and restrictions are affecting policy and funding objectives within the budget cycle making the proper use and allocation of limited public resources more important than ever. Selecting the optimal budgeting methodology and solution can determine whether a government agency or public entity is able to simultaneously fulfill its organizational goals and honor its constituent commitments.

John E. Nixon, director of Michigan’s Department of Technology, Management & Budget, supports this notion, “Too many times, we take a narrow focus on the current and next fiscal year’s budget. We need to change the paradigm. Finance people need to take the long-term view.”

This can be accomplished with performance-based budgeting, a much more versatile approach that evaluates cost structures on the basis of the outputs they will generate. It looks forward, not backwards, and establishes system-wide conformity that flags reporting variances.

With the growing success and rapid adoption of performance-based (also known as outcome budgeting), more local and state governments are looking to implement the right software solution to keep up.

Today’s modern generation of software solutions can not only automate and streamline traditional budgeting processes, but also help unite cost-based budgeting with performance-based goals.

These technologies should contain the following best practice frameworks and automated capabilities to support the analytical, budgeting, and reporting activities of an organization:

  • A single integrated platform to manage data from different core areas, including Finance, Program Management, Contracts, Grants, Human Capital Planning, CIP and others.
  • Wide variety of visualization options to show performance indicators, including gauges, stoplights, thermometers, cockpits, charts, 3-D graphs and interactive strategy maps
  • Self-service dashboard and scorecard creation to empower anyone in an organization to monitor and analyze performance easily
  • Flexible business modeling with built-in financial, budgeting and forecasting functions, rules, and algorithms to support decision making
  • Workflows and audit trails to support each agency’s or group’s unique business processes

According to a recent GFOA study, “98% of local government officials say multi-year fiscal planning helps improve fiscal discipline and long-term sustainability.” These improvements include,

  • Consistently deliver more timely, reliable and flexible results.
  • Link strategic objectives and goals to operational and financial performance.
  • Improve communication and collaboration among managers.
  • Enhance strategic decision-making, enabling leaders to more quickly identify, analyze and forecast the impact of changes as they occur.
  • Enable better decision making on relevant information

Deciding to implement a new budgeting process and software solution can be a daunting task with costly consequences. That is why it is critical to understand your needs, know your options and equip yourself with the right tools and resources before you make any changes to your budget methodology.

To gain the necessary knowledge to confidently implement a smarter-spending solution that delivers key benefits for your entire organization, don’t miss, “Smarter-spending Solutions for State and Local Governments: How to Streamline Budgeting, Planning and Forecasting Processes and Get Your Budget on Track” a free demo webinar on April 10th at 2:00pm.