In the last blog entry, we spent considerable time examining the processes and stages of budget making and why that work is so central to the effectiveness of the Change-Making Board. For this post, we’ll take a look at some critical PASAMBAs of governance—Practices, Actions, Styles, Attitudes, Manners, Behaviors, and Attributes—that should direct the thinking of every Change-Making Board when turning its attention to budget making. And for many boards with a fiscal year starting on July 1, that time is now!   

The guidance which follows holds true for the smallest nonprofit, where the executive director or maybe a part-time business staffer holds responsibility for the budgetary and financial management of the organization—to the largest agencies where separate offices exist for budget development and oversight, debt management, investments, and the like. Beyond providing a structure for the Change-Making Board to fulfill its collective governance role for financial oversight, these PASAMBAs will aid trustees in meeting their individual fiduciary duties relating to an organization’s fiscal affairs.   

Micromanagement is the biggest enemy of the board’s ability to fulfill its strategic and analytic role in the budget-making process: Most boards don’t know enough about the day-to-day operations in their organizations—let alone the attendant detailed financial decisions that staff must make—to run things effectively. Those boards that just can’t seem to help themselves from going “into the weeds” on budget matters quickly become bogged down in financial minutiae. The result can be a series of discrete, mistaken decisions, because they fail to see the complete fiscal picture. In a worst-case scenario, this might mean ending up with anywhere from seven to nine different opinions about how to proceed on even a minor purchase or small investment!   

Having a standing finance committee, utilizing financial dashboards and standardized financial reports from meeting to meeting, and including a member who is trained in accounting can be great resources for the Change-Making Board. When trustees turn into an assemblage of fastidious bookkeepers, their micromanagement leaves little time for the important strategic judgments we need them to make about larger issues like resource adequacy, financial risk, and future funding trends. 

Contrary to popular belief, the budget is not cast in stone:A budget first and foremost is a planning document, not an accounting ledger. And the budgeting process is more art than science. 

It’s impossible to know at the start of a fiscal year every last thing that could happen over the course of the next 12 months having some sort of budgetary impact. There should be enough “slack” in a budget so that when unforeseen expenses pop up—which they always will—moderate ones can be absorbed within the existing budget. We’re talking here about margins of maybe three to five percent at most. If things go beyond that, it may even make sense for the board to formally amend the budget mid-year to deal with unallocated expenditures.

The bigger concern for me is when I see the budget used as a cudgel to discourage or inhibit creative and novel approaches to pressing issues that arise in the middle of the budget year. “It’s not in the budget!” is an excuse often heard for not doing something which needs to be done when it needs to be done. It makes little sense to hold off on tackling solutions to problems because they were reached at the wrong time on the budget calendar. Such is not the approach of a Change-Making Board.  

It’s more productive for boards to monitor categories of expenditures and larger trends than individual line items in the budget:On practically every board, there is one trustee who, when the monthly or quarterly printout is shared, immediately highlights every line item that has gone over budget—before then undertaking a line of questioning not unlike Perry Mason. Simply said, this is showboating and it serves little purpose other than to draw attention to said trustee while eating up everyone else’s time.

Except in extreme cases of volatility or large-dollar overruns, the Change-Making Board should stay primarily focused on expense categories, making sure broad groups of related expenditures are reasonable and staying within budget. Helping the organization’s leadership foresee coming trends is probably the more important responsibility of governance. Based upon their own experience and business knowledge, board members can be in the best position to foresee trends having a sizable budgetary impact on their organizations, such as a downturn in investments or the rising cost of employee benefits. 

Remember this, too: Depending upon your organization and its unique budget cycle, line items can vary considerably from month to month—it is rare in many organizations for revenues and expenditures to be proportioned in 12 even chunks through the year.  

The nature of most budgeting is incremental, but that approach need not drive the entire budget: Back in the day, an approach known as zero-based budgeting (ZBB) was all the rage for public agencies and, to a lesser degree, nonprofit organizations. The name is the approach: Every budget line starts at zero and is reconstructed anew for each successive budget. In theory, ZBB forces an ongoing analysis of cost effectiveness and efficiency in operations, demanding decision making for every program “from the ground up” every budget year. Yeah, well.

Very few—except possibly for the largest public or nonprofit organizations—have the staff and proficiency to handle the continuous planning, data availability, and resource allocation mechanisms required to do ZBB the way it was intended. In reality, most agencies build their annual budgets of revenues and expenses with incremental percentage changes from the previous year to reflect traditional adjustments for inflation, salary increases, and other known changes to fixed costs. 

I get it. Increments aren’t much of a way for the Change-Making Board to reflect its priorities, and “bad” spending can get cemented into annual budgets. Instead, there may be merit in using a zero-based approach on a more limited and ad hoc basis—such as when bringing on a new program or conducting a full-scale review of an existing program. But it’s a tough go for the typical agency to build a budget from scratch year after year after year unless egregious circumstances demand a unusual level of budgetary due diligence and fiscal accountability (for instance, if the bottom drops out of funding sources).  

It’s natural for boards and trustees to approach budgeting with an eye toward leanness and efficiency—we rightly equate such behavior with good fiscal stewardship. However, meaningful financial oversight requires that trustees also assess budget adequacy with respect to new income streams, spendable reserves, and endowment levels.  A budget can be balanced, yet not come close to reflecting organizational needs. (Capital needs—buildings, fixtures, equipment, and large leases—too frequently get short shrift during budget planning and development as well.) In the end, Change-Making Boards have little control over the forces driving the economy, but such boards don’t shrink from responsibility for the degree to which their organizations’ budgets can weather unpleasant surprises and unexpected challenges.  

These and other 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

See you again soon!

R. J. Dunn