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A Tale of Two Budgets

The Management Pocketbooks Pocket Correspondence Course

This is part of an extended management course. You can dip into it, or follow the course from the start. If you do that, you may want a course notebook, for the exercises and any notes you want to make.


There was a time when the now traditional budgeting process did not exist. It emerged in the early twentieth century as a mechanism to exert central control on increasing large corporations with more and more regions and divisions. It put the power at the centre and constrained senior management in the regions and divisions to comply.

We looked some time ago at the triptych of mission, vision and values. Once these are agreed, senior managers can develop a strategy for the business and, from that, plans for the coming year. When costs and revenues are allocated to those plans, the costs can be divided among the regions, divisions and functional groups, to create a budget.

Budgeting is therefore a process that reinforces a static hierarchy, centralised control, and a fixed plan for the coming year. It happens in the overwhelming majority* of businesses; including Barnstaple Corp, a fictional US headquartered global manufacturer.

Barnstaple Corp

This results in Barnstaple having a high level of control over how and where it spends its investment money – able to channel cash to the regions and operating divisions where HQ analysis can see the great growth potential. Down on the ground, however, individual managers who are responsible for distinct product lines feel frustrated. They have very little true decision-making capacity and are forced to manage their business with no more resources than they are given.

Some can see huge local opportunities, which they are unable to exploit due to lack of central funding. It is not that budgets cannot be adjusted mid-year; but the effort, bureaucracy and politicking required to negotiate this with HQ leaves many of them with a fatalistic attitude. They know that if they were given more autonomy, they could make more money for their bosses, but they feel as if nobody really cares about the profits of their one product line.

Idlas

Idlas works very differently. It is a fictional European headquartered retailer, that gives everyone of its employees in 24 countries a simple message: continually find and implement ways to serve our customers better. Anyone in the business can make a decision and primary levels of leadership are devolved to clusters of stores of no more than 50 to 60 branches. Headquarters serves as a resource pool for company-wide services, but individual senior managers at cluster level can opt out of those services if they can find alternatives that allow them to provide better service to their customers.

All decision-making at Idlas is governed by a few over-arching corporate values and promotions tend to be internal, locking those values into the company’s DNA. To support decision-making, HQ provides a constant stream of high quality information, that is openly available to any manager.

Similar and Different

Both Barnstaple and Idlas are highly admired companies making large profits for their shareholders. Both have very real equivalents in the world – each on both sides of the Atlantic, although the Idlas equivalents are far rarer than the Barnstaples. Both are extreme and idealised counterparts of their real-world equivalents – yet neither is very far from the reality of typical businesses of their type.

But both have a very different response to the VUCA** environment in which most large corporates are trading – and in which most small businesses trade too.

Barnstaple husbands its resources carefully, using centralised expert analysts to predict where they will be needed and a budgeting process that allocates them accordingly. Scrutiny of requests for budget variances happens centrally.

Idlas lets local managers read the local conditions and optimise as they go, drawing down on central resources, to invest what they judge necessary to maximise customer service and therefore profit.

Scrutiny takes place far more locally than at Barnstaple, among peers in the region.


* I am tempted to say 97.6 per cent of businesses, knowing that 98.3 percent of statistics are made up and that only 1.4 per cent of readers ever try to check a statistic and that only 21.2 per cent of them are ever persistent enough to get an answer. But I shan’t, for obvious reasons.

** VUCA: Volatile, Uncertain, Complex, Ambiguous

Further Reading

Barnstaple represents the archetype of command and control budgeting, whereas Idlas is emblematic of a devolved leadership model.

You can learn more about this from the Beyond Budgeting Institute.

You may also like The Managing Budgets Pocketbook.

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Project Lifecycle

The Management Pocketbooks Pocket Correspondence Course

This is part of an extended management course. You can dip into it, or follow the course from the start. If you do that, you may want a course notebook, for the exercises and any notes you want to make.


Implementing business strategy usually means starting one or more projects. Whilst nothing would please me more (as a former professional project manager) than to devote a series of blogs to a thorough description of project management, that is not the role of these blogs and also, The Project Management Pocketbook already covers that ground.

So I shall limit myself, in the next few blogs, to some of the essential models that a project manager will need. We will cover:

Once the dates are passed, these links will work.

Four Stage Project

There are as many ways of representing the lifecycle of a project as project managers, but they all contain many of the same features, just different language for the stages, different choices of how detailed to be, and different graphical metaphors for how to draw it.

Here, we will use the version in the Project Management Pocketbook.

Project Lifecycle

Scoping

Define the purpose, aim, objectives and scope of the project to evaluate whether it makes good business sense and is therefore worth proceeding to the planning stage. Good business sense here means consistency with your organisation’s mission, vision and values, and a reasonable expectation that the benefits will exceed the costs.

Planning

Put together a detailed specification for what your project will produce and then use this as the basis to plan what you need to do, in what order, at what time, with what resources and allocating work to which people. Calculate the cost of your plan to create a budget and compare that with the benefits you will get if your project delivers to its specification and you can create a business case. You business case will guide your decision whether to invest in implementing your project.

Implementing

Now deliver your project, constantly monitoring for risks, changes, delays, overspends and the quality of your delivered products. Intervene where necessary to maintain control. At the end of the implementing stage, you can hand over the last of the things you have created to your customer, boss or client. Will they accept them? Only if they are fit for purpose.

Evaluating

How did it go? What did you learn? How did team members perform? Was it all worthwhile? Take this new knowledge into your next project and do that one even better.

Further Reading 

From the Management Pocketbooks series:

  1. Project Management Pocketbook
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Motivational Needs

The Management Pocketbooks Pocket Correspondence Course

This is part of an extended management course. You can dip into it, or follow the course from the start. If you do that, you may want a course notebook, for the exercises and any notes you want to make.


If you need to motivate your team, then you absolutely need to understand the concept of ‘needs’.

Most psychological models of motivation, starting with the best known of all – Maslow’s Hierarchy of Needs – are based on a simple premise:

Human beings have needs. Therefore the promise to
satisfy them is necessarily motivating.

Maslow is overdone in training courses, management guides and, yes.. blogs. So we’ll skip that for a moment, but you can always take a look at The Motivation Pocketbook.

Modern thinking focuses strongly on four workplace needs:

1. The Need to Master our Work

We have a deep psychological drive to achieve proficiency and mastery and, when we do so and are able to work at that level, we find our work deeply satisfying. We fall into a ‘flow state’ where our work totally absorbs us.

2. The Need to Feel a Sense of Purpose

What question do small children ask, continually?

Why? Why? Why? Why?

As adults we equally need an answer to this and if we sense that our work has a real meaning and purpose that aligns with our values, then it is highly motivating.

3. Relationships

If you work full-time, then you probably spend more time with your work colleagues than you do with the person or people you thought you had chosen to spend your life with. People are social creatures and we have a powerful need for strong social relationships in which we feel there is a place for us – and ideally some sense of esteem from those around us. Respect is also a very important motivator.

4. Control

Once again, young children hold a mirror to us as adults. Much toddler mis-behaviour (and the same is true for a lot of teenage actions) is driven by a desire to control our lives, our environment and our choices. Rob people of control and stress is a rapid result. Give workers more control and that is intrinsically motivating.

Two other Needs Based Models on the Management Pocketblog are:

  1. David McClelland’s Three Motivational Needs
  2. Ryan and Deci’s Self Determination Theory

 

 

Further Reading 

The Motivation Pocketbook

The Management Models Pocketbook

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Manage Stress at Work

The Management Pocketbooks Pocket Correspondence Course

This is part of an extended correspondence course in management. You can dip into it as you go, or you can follow the course, right from the start. If you do that, you may want a course notebook, for the exercises and any notes you want to make.


As a manager, you have two stress management responsibilities:

  1. To manage your own stress levels
  2. To manage the environment to avoid subjecting your team members to inappropriate levels of stress

Let’s scamper through the basics.

Exercise 1: How to spot the signs of stress in your team?

In your notebook, make a list of all of the outward signs that suggest that a team member may be experiencing stress.  These are the things you could observe in their demeanour, appearance and behaviour.

Part of your responsibility is to monitor your team’s collective performance.  What if stress were an endemic problem?  What would be the indicators and behaviours that would signal this problem? Write these in your notebook.

For some examples, click here.

Reducing Stress

To understand stress, you need to focus on one thing: control.  We feel stressed when we do not feel we have enough control in our lives.  Therefore, to reduce stress, we must increase control.

Supporting your team

Look for places where stressed team members feel robbed of control.  Where you can, restore some of their control.  Where that is not possible, help them to find other areas where they can take control.

Points of Control

The five key points of control for all of us are:

  1. Our environment
    How can you or your team members make changes to the environment to feel a greater sense of control.  Often, very little things are enough.  Personalisation is an important driver.
  2. Our use of time
    Where can you use your time more effectively (you may want to look at the time management tips in an earlier blog)?  How can you give team members more control over the way they use their time to get their work done.  Autonomy is another important driver.
  3. Our physical response to stressors
    Simple choices like what to eat, getting enough exercise and prioritising rest and relaxation will make a big difference to stress levels.  Poor physical health will reduce our resilience to a stress response.
  4. Our mental response to stressors
    ’there is nothing either good or bad, but thinking makes it so’
    Hamlet was spot on when he understood that it is the meaning we attach to events that determines our response to them: elation, contentment, boredom, or stress for example.  When feeling stressed, take control of your mental response and start focusing on what opportunities there are, what resources you have, and what there is to be grateful for.
  5. Our values – what is important to us
    A mismatch between what we are told is important at work and what we fundamentally believe is important to ourselves is a major cause of stress.  Examine your values – they may be out of date and you may want to shift, for example from: ‘it is important I work hard’ to ‘it is important I do great work’.  If your values are still out of sync with what your employer requires, you are in the wrong job.

Further Reading

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