Management in the Not for Profit Organization

Dedicated to Exploring the Philosophies and Techniques of Management in the Non-Profit Sector

Hooray!  It’s Budget Time!

No, I have not lost my mind.  I am fully aware of the trials and tribulations of budget time.  I have witnessed people walk out of budget preparation meetings looking exhausted, subdued, angry, or shell-shocked.  I have seen normally dynamic leaders step out of a conference room with dull, glazed, sullen eyes - appearing as if all the blood was drained from their bodies.  What kinds of horrors were witnessed?  What sorts of trauma were experienced that could take bright, accomplished people and make them feel like dismal failures?  Yes, it was that annual, destructive ritual known as the budget creation process.  

 It should not be that way.  It need not be that way.  When it does take place in such a negative atmosphere it means that something is being done improperly.    Budgets “express , in monetary terms, the board’s and staff’s decisions regarding how the organization will fulfill its stated purpose”.  (Blackbaud, p.1)  They are intended to be constructive planning tools that set goals while recognizing constraints.  They should then become baselines against which performance is measured.  

Instead, they become…  

Turf wars:  We can’t let them take money from our department and shift it to that other department.  

Punitive:  You didn’t hit your numbers this year, so you’re going to get fewer resources next year.  

Negatively opportunistic:  Everybody knows things are tight.  This is our big chance to cut FTEs.  (i.e.- regarding people as expenses rather than assets.)  

Short-sighted:  This is taking too long.  Let’s just get the numbers to add up so we can hand it to the board.  

Threatening:  You will agree that your department will bring in this much money, or else.  

Disconnected:  I have actually witnessed top executives order their line managers to provide projections, then change those projections after they were received, AND NOT TELL the line managers that the final budget contains numbers that are different from what they projected!  

Time to whine:  Line managers bemoan the fact that markets are moving away from the products or services they generate; Executives complain that their line managers or production staff have let them down.  

“Dance(s) of Deception”:  Documents are submitted to funding agencies merely to comply with their demands, “without a proper knowledge of their cost structure” (Malki, p.2).  

Figments of organizational leadership’s imagination:  The organization does no rigorous market analysis, SWOT, TOWS, Risk Assessment, or any other evaluation of markets, opportunities, or pitfalls other than the opinions of top executives.  

Just plain backwards:   We need this amount of money to do what we want to do, so we will say your department will bring in that much money.   

I have seen the above in multiple settings, regardless of whether the top managers were MBAs, PhDs, MDs, or MSWs.  And none of the approaches listed above lend themselves to an accurate assessment of the resources or potential of an organization.   The tighter money gets for nonprofits, the more (or more intensely) the above-mentioned scenarios seem to happen.   But there is another way of going about the budget process.  We could view it as a time for creativity – an opportunity to innovate.  Let us begin with a market assessment.  

A good market assessment goes beyond a quick SWOT analysis.  It includes close examination of the competition, studies of the political climate, reports on trends in the organization’s current industries, and in industries where the organization holds some potential.  Critically, any reliable examination of the market includes information from those who know the customers the best.  Often, those are the people providing the direct service to those customers.  A solid assessment does not rely only on the expert judgment of those at the top of the table of organization.  It must be thorough and multi-dimensional.  

The absence of a thorough market analysis is central to the most common difficulties encountered in constructing a budget.  It does many things, but probably the two worst are: 1) It creates a leadership vacuum because decisions are not based on solid information and on some level, the participants know it; and, 2) It contributes to a shift in focus from customers and their needs, to the organization’s short term need for cash.  

Properly done, budget development, market analysis, and the establishment of strategy are inextricably entwined.  One cannot be accomplished properly without doing the others well.  

Furthermore budgets for most nonprofits, as mentioned above, are baselines.  They are snapshots rather than etched in stone:

Nonprofits’ budgets are dynamic and may change many times during the year.  A good budgetary system should facilitate the updating of the budget at least once a month.  The following are examples that require updates of the budget:  additional funding, new projects, cancellation of planned grants, changes in staff, etc. (Malki, p.10)  

Budgets should also reflect the overall system, not just the separate parts.  This is because a splash in one place causes ripples everywhere else.  For example, if the IT budget was inadequate, then equipment might fail.  In such a case, all business units that depend on that infrastructure would be impacted.   Similarly, the withdrawal of a grant used to create a system to deliver a new product integral to long-term strategy would affect all other components of that strategy, and the organization as a whole.  

This means we must step back and see the big picture when creating budgets as well as utilize details available from history.  We will view both the forest and the trees in order to determine the long-term risks & benefits of our strategic options while still making reasonably accurate calculations of day to day operating expenses.  

But most of all, we must change our attitudes toward the budget creation process.  We must regard it as an opportunity to exercise vision and operationalize strategy.  We cannot do so while spending time amongst the pitfalls described above.  If one sees those problematic scenarios persist, then the budget process has become a mirage project:  at best, a waste of time; at worst, a descent into chaos.    


Blackbaud, Financial Management of Not-for-Profit Organizations, July 2004,  

Malki, Elli, Guidelines for the preparation of budgets in not-for-profit organizations, August 2010,