What does your budget process say about your culture?

You can tell if you have a healthy culture by looking at your budget process. It is also a powerful lever to change that culture.

Your basic business processes both create and illustrate the culture of your company. One of the most powerful is the budget process – what the budget means to people and how it is agreed is a key component of your culture.

In a ‘red’ aggressive culture, intense preparation goes into talking the budget number down so that managers can beat it by more than their peers. Budget setting becomes a competition, as you challenge others, garner more resources and look good. There is increasing gaming of the budget system towards year-end. Budgets mean “getting a bigger bonus than him”.

In a ‘green’ defensive culture, financial targets are cascaded from the top, whether formally or informally. You accept whatever your boss gives you and start collecting excuses. The pattern will be to hold the budget line until the mismatch between reality and the budget becomes too great for everyone to ignore – then everyone ducks for cover as the numbers lurch downwards. Budgets mean “avoiding blame”.

In a ‘blue’ constructive culture, managers develop their own targets that will demand the best they have to achieve. At every review, the conversation is about what action can we take to do better, regardless of the budget variance. Budgets mean “what I promised to achieve”.

As well as being a litmus test of culture, budget meetings are a powerful, highly visible place for a CEO to create the culture they want to have.

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