We’re coming into that time each spring when most public and nonprofit boards turn their attention to budgeting for the next fiscal year. When many board members think about budgeting, it’s often more about the revenues, expenditures, and surpluses (or deficits) that comprise the details of the budget—a management document to ensure that our organizations operate within their means and with the resources to cover what we want them to do.  Budget Making, though, is a more comprehensive process—one as useful as any other planning a board undertakes for determining what the organization does and how it does it. In fact, I would go so far as to say the budget-making process is the most important planning a board engages in for determining the direction and extent of its organization’s activities.

This key function is so central to a board’s effectiveness—and organizational success—that we’ll need two C-MBS blog posts to cover it all. This entry will focus on the stages of the budget-making process generally, while the post next time will highlight the essential Practices, Actions, Styles, Attitudes, Manners, Behaviors, and Attributes—which if you’ve been following the blog you recognize as the PASAMBAs—that guide the work of every Change-Making Board not only during budget making, but at all other times as well.

Budget making parallels the best in planning that any organization can undertake: It brings all parts of an agency together in one place and time—identifying resources for fitting strategy within an organizational structure, while focusing on multiple ongoing tasks accomplished by people working on different assignments. A good budget predicts what will happen in the future from a dollars-and-cents standpoint; effective budget making carried out by a Change-Making Board secures the commitment to making that future happen.     

Budget making is a serious responsibility and as such can be a source of worry for trustees on almost every board. This goes beyond the fact that some trustees view budgets as intimidating, or maybe just hate working with numbers. (One of the greatest board members I had once said I could ask her to do anything on the board, as long as it didn’t deal with the budget!) Nonetheless, the board has a broad governance role for fiscal oversight, plus trustees assume a fiduciary responsibility for their organization’s financial affairs (for more on that, see my 2021 blog post on Financial Stewardship & Auditing).    

Unless you have the rare luxury of serving on a board that’s “flush” (maybe I should say well-resourced), board leadership becomes vastly more difficult in times of scarcity. Public and nonprofit institutions depend upon their boards for guidance more so in tough financial times than nearly any other. Many nonprofits live a hand-to-mouth existence in the best of times, with revenues and expenses that can vary significantly depending upon fundraising success or an unpredictable need for services. Throughout the Covid era, healthcare and human service nonprofits around the country were quickly overwhelmed by clients in crisis, with unprecedented demand driving a severe need for immediate cash through emergency funds and interest-free loans. At the same time, other nonprofit sectors (think museums, parks, and community theatre) watched their donor funding dry up almost instantaneously. Both situations take their toll on even the most-well-run organizations.   

The major steps of budget making are fairly standard, though organizations can incorporate unique elements and special practices to be followed in building their budgets. A similar calendar or schedule is utilized from one fiscal year to another, and the process is usually led in large part by agency staff. New program and operational needs are identified and strategic objectives prioritized. (Here’s a pro tip: Every purposeful, meaningful budget is undergirded by a strong strategic plan which gives direction to the organization—the plan will help fundraising significantly, too.) Programs determined to no longer be cost effective may get dropped. Fixed costs are analyzed and adjusted for growth, inflation, and other variables. Revenue estimates from all sources are accounted for and allocated to departments or other administrative units. Alternatives are found to cover deficits through borrowing or transfers, and investments are made if money is left over. 

In the final stages, a draft budget is assembled in the format followed by your agency, with line items listed out by fund, program, object (e.g., salaries, benefits, supplies, travel, debt service, etc.), and location (for larger organizations). In the case of public bodies, the draft budget is often made available for inspection for a limited period of time—a hearing might also be required by state or local law—and eventually the final budget is adopted by the board. The new numbers are assigned to each unit or budget center, expenditures monitored, and fund balances reviewed through the year. 

Taken at face value, budgeting is a pretty linear process: Do some planning, find the money necessary to implement the plan along with continuing operations, justify the spending of the money, get necessary approvals, and then control expenses. Most trustees know this about their budget going in, or learn it quickly, and then devote much time and attention to seeing that the thing stays balanced. However, it is the Change-Making Trustee who understands it takes more than the rote performance of separate steps to do real budget making. In the next blog post, then, we’ll take a look at the specific PASAMBAs which are part and parcel of demonstrating collective fiscal responsibility during budget making.

Remember—all the PASAMBAs leading to impactful and dynamic board governance can be found in my book, The Change-Making Board: Consequential Governance for Public & Nonprofit Organizations, available from all major online book retailers or at the “Book” link at the top of the homepage for this blog. Any comments or criticisms, plus ideas or requests for a future post, are always welcome and can be sent to me at info@changemakingboards.com

Until next time!

R. J. Dunn