While budget numbers are simple, budget management is not. To make a budget work, you need to add real management:

  1. Understand that it’s about people. Successful budgeting depends on people management more than anything else. Every budgeted item must be owned by somebody, meaning that the owner has responsibility for spending, authority to spend, and the belief that the spending limit is realistic. People who don’t believe in a budget won’t try to implement it. People who don’t believe that it matters won’t worry about a budget either.
  2. Budget ownership is critical. To own a budget item is to have the authority to spend, and the responsibility for that spending.
  3. Budgets need to be realistic. Nobody really owns a budget item until she believe the budget amount is realistic. You can’t really commit to a budget you don’t believe in.
  4. It’s also about following up. Unless the people involved know that somebody will be tracking and following up, they won’t honor a budget. Publishing budget plan vs. actual results will make a world of difference. Rewards for budget success and penalties for budget failures can be as simple as meetings where peer group managers share results.
Tim BerryTim Berry

Tim Berry is the founder and chairman of Palo Alto Software and Bplans.com. Follow him on Twitter @Timberry.