Have you created, or were handed, a budget but you don’t know where to start? Or, have you managed a budget for a while but want some other perspectives on what to look for throughout the year? Well this is the post for you. As I mentioned in my prior post about creating budgets, I have managed budgets for a long time in legal, operations, and other departments, as well as gotten input on this topic from many peers. Below you will find five of my top tips.
- Align team goals with budget - The success of your budget increases if everyone is working toward the common goal of staying within that budget. As such, when creating your team goals as well as when creating an individual team member’s goals, they should all support what you have put in your budget. There are a number of ways to do this. First, you could put a specific goal – e.g., come within 5% of budget – in their personal goals. You could also tie a part of an employee’s bonus to the department meeting its budget. Second, you could make the goals a bit more indirect by having each employee have a goal around coming up with cost-savings measures. Finally, you could be even less direct by just ensuring that nobody has goals related to projects that do not have any budget and that all funded projects do have owners. I use all three of these concepts in combination to set up the department for budget success.
- Operationalize your budget review - Reviewing your spend (actuals) against your budget on a monthly basis is critical to being able to stay on budget. You should involve your team in these budget reviews. The agenda should include an update on the prior month’s spend, a discussion of anything unusual from the prior month, and a discussion about any expectations for the coming month. Be open during these discussions and encourage people to speak up. You want to foster a positive environment where people feel comfortable bringing up anything that will impact the budget. Every team member should understand how their work impacts the budget. Any team member heading up a particular project should understand the budget of that project and where they are vis-à-vis budget. Transparency of this information will allow people to make well-informed decisions.
- Constantly look for ways to get better – automation and different suppliers - Even if you are at or under budget, it is important to continuously look for ways to get more efficient with resources. This can be done in conjunction with monthly budget reviews as your team will likely have some great suggestions. There are three main questions I ask:
- What can be automated?
- What can be outsourced?
- Are there opportunities to get better pricing from any outsourced providers (including technology)?
Of these three, I lean towards automation because of the dramatic cost savings over time, but also the additional benefits. Automation will typically have an initial cost to fund the development effort. However, that initial investment can eliminate certain resources for a long period, sometimes even bringing ongoing costs to $0. Automation also can provide information, such as auditing and data, that were not available with manual methods. For example, implementing an e-billing solution not only saves on the people cost for reviewing bills, but also gives better visibility into where the money is being spent, leading to new areas for savings.
- Always have a plan B and C - Things change as the year goes on – revenue may not come in as expected, there could be a global pandemic that impacts your business, or you could decide to fund a higher priority business item – and you may be asked to change or reduce your budget. This can be frustrating but you should be ready for unexpected changes. The first thing you can do to be ready is to know what you will cut first, second, and third, etc. When you have a prioritized list, you can respond to any budget cuts or freezes pretty quickly. Second, you should have alternative, cheaper ways to still move forward on your top legal department strategy or strategies. For example, instead of hiring a full-time employee to manage and implement your e-billing system, perhaps you can hire a temporary employee, consultant, or an intern to move you forward on the research and design phases. Also consider whether you can move forward with any projects in phases or by doing a scaled back proof of concept first. For example, you could procure fewer licenses of your e-billing system and implement it for only 10% of matters (e.g., litigations over $1M). Both of these moves will allow you to still advance your project, but for a lower cost. The proof of concept also has the added benefit of allowing you to demonstrate the value of the project to the business, thereby making any associated budget requests for a full-scale implementation easier to get approved.
- Communicate changes early - A budget is an estimate based on your knowledge at one point in time. It won’t be perfect and you will have to make changes. Make sure you understand the process to communicate those changes. As soon as you have knowledge of anything that will be significantly under or over budget, which you will likely get from your monthly budget review, make sure to communicate that. If it is something that will put you over budget, make sure to have the details about why the spend is necessary, what alternative options you have looked into, and what benefits will come to the business from this spend. The threshold for when to communicate these changes differs at each organization so be sure to work with your partners in the finance organization to understand what is expected at your organization.
With these tips, I hope you will have confidence in managing your budget. If you have any other good tips, I would love to hear from you at email@example.com.