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Collaboration in every area of your business is a good thing—it breaks down silos and breeds innovation.
Finance and budgeting are no different. With a collaborative budgeting process, you can engage your teams—in and outside the finance department—to actively contribute to financial planning and be more invested in its success.
But as anyone who has taken part in a budgeting cycle knows, the process of getting input from budget contributors across your organization is often the hardest part.
“There are various moving parts and phases to the budgeting process and each of those phases requires coordination between department heads, C-suite as well as folks who are actually driving those budgets and making inputs into your models,” said Devendra Kalwani, Associate VP of Finance at Capstone Infrastructure during Vena’s livestream Budget Season: How To Focus Your Planning on the Year Ahead.
“Getting them all on the same page can definitely prove to be a challenge,” he continued. “And the challenges are amplified the larger your organization is and the more employees you have.”
But with a more connected and structured budgeting process that prioritizes collaboration from the start, businesses can get their budgets completed much faster and more smoothly.
In this article, we’ll dig into what a collaborative budgeting process looks like and how to implement it effectively.
Collaborative budgeting means involving employees and stakeholders from outside the finance department in the budget development and planning process.
The goal of collaborative budgeting is to make the budgeting process cross-functional. By doing so, you ensure you’re getting input from the stakeholders who are actually impacted by the budget.
As a result, your finance leaders can make final budgetary decisions and allocate resources with a wider perspective and set of insights.
The process itself includes a bottom-up approach to building an initial budget, in which department leaders prepare budgets based on their needs and plans for the coming year. Most of the time, they’re given an overview of company-wide objectives and expectations to guide their planning.
Managers of each individual business unit may also be asked to create a formal budget proposal to be reviewed by the finance team for adjustments, then included in the overall company budget.
In the end, collaborative budgeting aims to reach a budget consensus that meets the needs of the whole organization and fosters greater understanding of the budget in general. By giving stakeholders part ownership over the budgeting process, you can foster a sense of trust that motivates teams to be more accountable over their spend.
When department heads actively contribute to budget planning and proposals, your finance leaders are better able to equitably allocate the company’s resources.
Traditional budgeting processes—like the top-down approach—contain visibility gaps because leaders simply don’t know what they don’t know. They see their organization from a high-level perspective that may not include the nuanced budget needs of individual business units.
While collaborative budgeting doesn’t mean final budget decision makers can say yes to every request, it does allow them to view needed resources first and allocate budget second, rather than distributing funds through an arbitrary process or one relying too heavily on what was done in the past.
Over time, as you go through a collaborative budget process several times, your finance leaders and employees from various departments at your company will gain a greater understanding of each other’s perspective. This is a key way to build trust and one that will allow teams and business units to work more harmoniously together to achieve goals.
Rather than being seen as micromanagers or the “spend police,” finance teams can be seen as a collaborative force for maximizing budget potential to meet departmental goals.
Non-finance employees are likely not financial experts, but collaborative budgeting can increase their financial savvy and enable them to make better financial decisions over time.
As they gain higher levels of financial literacy, they will also get better at contributing impactfully to your company budget.
The actual implementation of collaborative budgeting requires structure, including a clear process for collecting and reviewing budget input from various stakeholders.
Below are a few of the most important steps to follow when establishing a collaborative budgeting process:
Begin by setting clear budgeting guidelines and objectives that align with the company's overall strategic plan. Define key financial targets, such as revenue, expenses and profit margins, as well as strategic priorities, and communicate these to all relevant teams.
Invite representatives from each functional area of the business to contribute to the budget process. Be clear about how they should develop and submit their budget proposals, the deadlines they’ll need to follow and the people who should be involved. For example, you might want every department head to take the lead on their unit’s proposal.
This is a big one—define the process for data collection.
Because you’ll be collecting data from many sources and individuals across your organization, this step is best executed using a centralized budgeting and planning solution that can automate much of the process. Companies that attempt to complete this step manually are often left with version control issues, data gaps, and inaccuracies from human error.
Further, the best budgeting solutions allow for easier project management by sending reminders to team members so that deadlines aren’t missed and the process isn’t stalled waiting for budget submissions.
Determine who will review budget proposals and how they’ll be analyzed. Schedule regular meetings with this core team to ensure the final steps of the budget process stay on track.
Expect some negotiation to take place during the collaborative budgeting process. Different departments may have conflicting priorities or resource requests. Encourage open communication and compromise in order to reach a budget that both meets organizational goals and addresses departmental needs.
Once a consensus is reached, finalize the budget. After senior management provides their approval, the budget becomes the financial plan for the upcoming period.
Have a robust system for monitoring and reporting on budget performance throughout the year to ensure you’re tracking according to plan.
This is another step where financial planning software is an asset. It creates better visibility across your organization so your core finance team and departmental leaders can see how spending compares to budget and make smarter decisions accordingly.
Communication isn’t just essential at the start of a new collaborative budgeting process—it has to be prioritized throughout the entire execution period.
“Communicate often, communicate early and get buy-in from your CEO and CFO because they’ll really set the tone for the upcoming budget season,” said Devendra during Vena's livestream.
Your budgeting process should include a documented plan with phased timelines, tasks, deadlines for completion, and persons responsible for completing each task.
Make this plan shareable and communicate effectively with those involved at every step, all while offering your finance team as a support resource when needed.
The quickest way to lose trust from your employees is to make collaborative budgeting performative—in other words, saying you’ll do it in theory but not really honoring input from participating employees.
“Budgeting can often be seen as ‘oh—finance is running it,’” said Melissa Howatson, CFO of Vena during the livestream.
“But for me, at the end of the day, you know you have a good budget if the business owns it, feels accountable to it and believes in it. I think the relationship between the CFO and COO for instance is critical for helping drive alignment and making sure the different areas of the business are talking to one another. [...] As things change, you’ll be hearing that and building that in [the budget].”
While you won’t be able to honor every single request that’s made in department-level budget proposals, you should respect their contributions by talking through approval processes with contributors and generally trusting their budgets when it is possible.
As with any budgeting process, the tools, templates, and thought processes behind budget plans must be consistent and aligned with company goals. Don’t allow your collaborative budget process to get messy by failing to implement the right levels of standardization and control over the process.
Define your process in detail beforehand at the leadership level so that it’s ready to be communicated with participants from the start. Have the right technology tools in place to keep processes on track and monitor your budget actively at all times.
The great thing about collaborative budgeting is that it’s a flexible process—one you can refine and update to fit your organization’s preferences, processes, and goals. In fact, with every new budgeting season, you should evaluate what budgeting approach makes the most sense for where your business is, Melissa explained during Vena’s livestream.
While you’ll want to stay true to the core principles of the process and use the best practices that we outlined in this guide, your budgeting process is naturally going to evolve.
No matter how exactly you implement it, it’s clear that taking a collaborative approach to budgeting not only leads to more informed decisions but makes for more empowered employees who are motivated to help achieve company goals—an invaluable benefit to growing your business successfully long-term.
Join finance leaders to learn how to orchestrate an efficient, connected, and intelligent budget planning process that will give you the best chance for success as your business navigates the unexpected in the year ahead.
As Vice President, FP&A at Vena, Tom Seegmiller is responsible for strategic finance, including business partnering, budgeting and forecasting, with a focus on optimizing enterprise value. Tom is instrumental in the formulation of the financial narrative for the executive leadership team, investors and board members. Tom has always had a focus on driving enhanced business decisions through leveraging financial and operational data. He is an experienced finance executive, having most recently led the finance team at Miovision Technologies. Prior to that, he was in senior FP&A leadership roles at OpenText. Tom enjoys golfing, skiing, exercising and traveling in his spare time, but most importantly, he loves spending time with his wife and daughter.
