Budgets stifle innovation, so should we scrap them?
Posted on July 30, 2014
My head hurts. I have been trying to work out how to get around what seems at a first a rather simple problem.
I work as Head of Research Innovation at Breast Cancer Campaign. When we get an exciting project opportunity that fits with our general strategy in the months before the year end, in the middle of the business planning period, then we are brilliant at grasping the nettle and making it happen. However, if that very same project had developed in the weeks and months after our trustees had approved our plans and budgets then we would struggle to know what to with it.
This issue was bouncing around my head when I arrived at the recently held, and very timely, Clore Social business capability workshops focusing around strategic financial management.
I don’t usually have to worry about cash flows and paying the bills in my job. And so it was I found myself trying to save a small (fictional) social enterprise with a huge cash flow issue and serious doubts over a long term strategy and financial stability.
What did I learn? I learned that having large fixed assets, such as owning a property to run a business out of can be a fatal attraction. While it might save money in the long run, having it is a major headache if your cash flow is tight – it takes time to sell a property by which time you may be declared bankrupt! Renting can be terminated quickly and cheaper offices found when cash is tight.
However, one trick is not to end up with such a tight cash flow in the first place. I now understand why businesses are keen on zero hour contracts. If business decreases then you can decrease your salary costs exactly in line – not something you can do if they are fixed.
I also appreciated the pressures smaller charities and enterprise can encounter. Yearly expenditure and income budgets might all add up nicely, but if a large grant is paid to you in February while your biggest expenditure happens in the previous December you need enough free cash in the bank to cover that period! Or some fantastic negotiation skills to delay your outgoing payments and bring forward receipt of the grant.
On the day we managed to be creative and save the (fictional) social enterprise, by finding ways to delay or spread out payments and bring forward income to buy us time to change the business model to a more stable one.
I think I also found a solution to my own financial planning issue, although maybe not one you might expect.
What should we do when a project arises out of the business planning period? The business year end is completely arbitrary. The women (and men) suffering from breast cancer don’t care what date it is, they quite rightly want breast cancer dealt with in the best way possible.
So what are our options? We could add this new project into the current year plans and budgets and ask the Fundraising Directorate to generate more cash in the coming year. Although our income targets are stretching enough as it is. Do we cut something else out to accommodate the new project? It would be counterproductive to cut our research funding for many reasons. We could cut other activity, but where would we stop if things kept popping up and we kept swapping and changing our plans?
That is surely no way to run an organisation. Or maybe it is, if you want to innovate.
I suspect that ditching business plans and budgets was not what I was meant to take away from the business capability workshops, but bear with me. Normally the nature of projects we develop have a lead time of over a year or so and they can fall in to the future business plans and budgets. Good. Some of projects however, as is the case with many scientific breakthroughs, can come about unexpectedly (the antibiotic effects of penicillin were discovered by accident). As these new projects arise we need to decide to commit (or not) quickly. Outside the short business planning window we can’t consider them, as they aren’t in the budget. The budget is stifling innovation.
So, get rid of the budget entirely? Admittedly there are probably good reasons to have a budget, but how about a large enough unallocated budget in the business plan that can be used when great project ideas come from our stakeholders.
Sounds simple eh? I’m about to find out.
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