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Can Operating Managers Really Manage Budgets?

By Scott Lazenby

lazenby 1In previous columns, we considered ways to adapt governmental budget systems to modern management principles of delegation, empowerment and alignment of organizational goals. One of the key assumptions inherent in this kind of system is that managers of operating units will be effective in managing budgets. Department heads in small organizations and mid-managers in large organizations will need to be skilled in forecasting and monitoring revenues and expenditures, in identifying strategies for balancing spending to available resources and in taking appropriate action when real life doesn’t unfold as projected. Is this a realistic expectation?

For example, the supervisor of the police patrol typically gets to that position due to knowledge of policing practices and skill in communicating and in supervising staff. The same is true of a high school principal who is expected to combine a solid understanding of educational theory with good leadership skills. If they have general management skills (strategic planning, performance management, budget management, etc.), it is only because they somehow picked them up along the way. Even at the level of police chief or school superintendent, technical knowledge is given far greater weight than formal management education.

However, police patrol officers and schoolteachers together account for a huge share of local tax expenditures. Why is it that we assume the police patrol commander or the school principal should be excellent leaders of their staff, but not be competent to make budget decisions?

Part of the answer is an assumption that not all leaders of people are good at financial management. There is some truth to this. Many police commanders and school principals, earning six-figure salaries, do not know how to calculate a percentage increase in a quantity that varies over time. Responsibility for budget decisions should thus be limited to individuals who have either specific training or natural talent in working with numbers. They are the ones who are good at trend analysis and forecasting, efficiency improvements and time-and-motion studies, benchmarking and performance measurement and best practices in purchasing and contracting.

The problem with this theory is that we can all list examples where the supposed experts in budgeting and finance have made absolutely bone-headed decisions. This is especially true in large bureaucracies, whether private or public. By far the most common reaction to major organizational budget decisions by those working in the trenches —especially those decisions done in response to some perceived crisis—is WTF? (An abbreviation for “I am surprised they made that particular decision.”)

Another argument is that leadership is an art, a right brain activity, and financial management is a science, a left brain activity. People are born with one or the other, but not both. But if this is the case, why do we bother to teach knowledge and skills in both areas? Why would a school principal be expected to know the technical aspects of education, but not be able to learn the technical aspects of budgeting? Why would a police commander be expected to know the latest best practices in criminology but be assumed incapable of learning how to manage financial resources?

It is a fair argument that few people are born into the world with an innate ability to manage a budget. But instead of accepting this situation and leaving budget management to (centralized) “experts,” a better solution is to train and educate operating managers in budget management skills. It should be treated no differently than the need to train managers in effective supervision and motivation skills.

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