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The H.R. Doctor Is In
Follow the Bouncing Budget
As
the seasonal rites associated with football, election
campaigning and other contact sports get underway throughout
the country, it is also public agency budget season. This
season has come to last 12 months interrupted only by a brief
"New Years Party," generally celebrated on Oct. 1 or
sometimes July 1. What is celebrated at these parties is that
a gavel has dropped ceremonially and the budget has been
adopted.
No
sooner is the budget adopted, however, does the budget get
adapted, amended or aborted because circumstances have
changed. Thats what this article is about Ð the fact that the
budget should merely serve as a guide and not as a religious
icon to be venerated, worshiped and never modified.
We
simply are not that good at financial projections in a very
complex world. Cities and counties are the victims of "hostage
dramas" in which it is very difficult to do any accurate
budget projections while the legislature is in session. The
same is true while an election is pending, while Congress is
in session, or for that matter, while Congress is out of
session. One major event in a local community can change the
dynamics of a government budget significantly. It may be a
sniper-shooting rampage, which adds hundreds of thousands of
dollars to an overtime budget for police, or a building
contamination resulting in the need to move
offices.
The
reality is that we live in the uncertain world of a busy local
government and even the budget "queen" or "king" of the
organization is making the best guess possible based on
experience and knowledge. While those guesses may be far
better than budgeting by random chance or the chaos theory, it
is, nonetheless, often an extrapolation from past behavior
rather than a solid "intelligence" analysis of what is to
come.
The
best predictor of future behavior is past behavior. That maxim
is less effective when it comes to budgeting for local
government in the middle of a sea of complexity. The past
revenues received certainly are solid benchmarks for looking
into next years budget. But, past revenues are not the only
point to consider.
What good is a budget if it cant
be relied on for accurate projections? The answer is that a
budget is a very valuable tool for planning, benchmarking and
way finding. In a public administration world where long-range
planning may extend only as far as the next meeting of the
County Commission, tools have to be put in place like a
Five-Year Capital Improvement Plan or a budget Ð perhaps even
a multi-year budget Ð to set forth the government agencys
long-term strategy. In that sense, a budget is a stabilizing
document even if the numbers on any given page are not
completely accurate.
Measuring actual performance
against a target, such as the budget projections, offers
another tool for accountability and responsibility. In a
previous article, "Keeping on Track" (available at
www.hrdr.net), the HR Doctor stressed the importance
for any organization or individual (or family for that matter)
to set goals and create methods to measure progress. In that
sense the budget becomes a rather narrow tape measure during a
particular fiscal year. In that sense it is both valuable and
dangerous.
The
budget proves valuable as a way to track expenditures, help us
live within our means and achieve the Holy Grail of a balanced
budget. The danger is that the budget becomes dangerous as an
excessive obsession with the budget document and the numbers
on the spreadsheets can lead to a divorce from reality. "I am
sorry that the number of homeless people in the community has
doubled, but there are no further funds available in this
years budget to do anything about it." "It is regrettable
that the fire station is full of mold and would not even pass
one of its own inspections, but it will have to stay as is or
get worse until we can incorporate improvements into next
years budget Ð perhaps."
The
point is that the budget can be used as an excuse for
paralysis as well as a tool for measurement.
Basic
Philosophies for Financial Strategic
Plan
The financial
strategic plan should guide the organization with
basic philosophies, such as:
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Use one time
revenue only for one time projects.
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Use agency
employees, rather than outsourcing or
contracting out, for governments "core
competencies."
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Explore and
outsource certain functions which might better
be done more cheaply, effectively and flexibly
by private industry than by government
employees.
Depending on the
community and the circumstances, these could
include basic automobile servicing, lawn
maintenance, institutional food preparation or
other functions.
Is it still necessary
in an era of giant office supply companies like
Office Depot, Office Max, Staples and others, with
overnight delivery to maintain a large government
warehouse full of copy paper? The answer, in all
likelihood, is no. Such a warehouse is a vestige
of another period.
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Do any outsourcing
or contracting out only after permitting
employees to suggest cost-saving measures (i.e.,
to "bid") to retain the service. Avoid very
strenuously and creatively the layoff of
existing employees. This can nearly always be
avoided by an array of HR techniques including
cross training, internal transfers of vacancies
and other
methods. | |
There are some steps that can be
taken to make the budget more valuable to guide local
governments. In the HR Doctors 30 plus years of experience,
including time spent, pardon me, "time served," as a chief
administrative officer for a county, the following is offered,
with respect, to the budget buddies of American local
government:
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Every
government organization should develop a financial strategic
plan complete with public hearings, just as in the case of a
land use plan.
-
The
strategic plan should begin by admission that it is based
upon a vision "from 40,000 feet" rather than an eye
chart.
-
The
plan is meant to point the way to a better community and, in
that sense is more than a short-term political or accounting
document.
-
Maintain an emergency reserve. In
other words, try to control for uncertainty and risks by
building into the budget over time an increasing capacity to
recover more quickly from a hurricane or an earthquake or
some other unexpected catastrophes. Avoid the lure of using
the strategic reserves for a tactical look-good purpose,
such as hiring more employees with on-going expenses
attached!
-
Develop a multi-year budget in which
the agony of annual budget preparation is mitigated somewhat
by efforts to project ahead over two years rather than one.
It is true that the budget will have to be monitored and
periodically adjusted for a two-year budget to become more
finely tuned as the months go by. However, guess what? We do
that now with a one-year budget.
-
Learn
from the statistics of the often neglected risk manager to
prevent hidden costs from turning into a camouflaged pit
into which local government leaders fall can unsuspectingly.
"Its 10 a.m., do you know where your workers compensation
claims are?"
If
you are fortunate enough to operate a fire department, for
example, you may find that the number and cost of workers
compensation claims in this one department exceed every other
risk liability in the organization. Watch these trends
carefully and develop programs for doing the best you can in
the face of state mandates.
Programs such as modified-duty
return to work programs or strict enforcement of safety rules
can reduce the number of backaches and, in turn, limit the
full employment of chiropractors "manipulating"
employees.
The
same is true of health insurance trends. An agency has to do
much more than simply meet with an insurance company once per
year to hear the, almost always "bad news" that premiums will
go up 25 percent next year. By introducing disease management,
utilization review and better network discounts in the health
insurance plan, excessive bleeding can be avoided if not
forestalled.
Agencies which regard the budget
as the "end all and be all" administrative tool make a big
mistake. They abdicate responsibility to accountants in a
world where other skills have to be sitting right at the
decision table with every bit as much opportunity to make
contributions and be heard as the accountants and auditors
currently have.
The
budget battles go on as they have throughout the history of
the Republic. The number of zeros increases in the equation
and so do the effects on the lives of average adults, children
and other small mammals in the community. Make the budget a
strategic tool for the organization as opposed to the daily
balancing of the checkbook.
The
HR Doctor hopes that your bottom line, physically and
financially stays healthy!
Phil Rosenberg The HR
Doctor http://www.hrdr.net/
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