$500,000 Problems Hiding in Budget Season

Budget season is a unique, truth-telling process of sorts. It's that time of year where executives begin to put together plans for the future, align with bigger picture vision, establish goals, and also look back on what's been accomplished and how things have been going. While executives reflect, they must first ask, did we accomplish everything we set out to achieve this year?  Many times the answer to that question is "no, but we're close."  

In my opinion, executives are consistently plagued with "no, but we're close" problems, and these problems eat into next year's budget.  In simplistic terms, I call these $500,000 problems (or even larger in many organizations).  Why $500,000? Three months is a typical delay of a project. You know that project that didn't quite get done last year and is now bleeding into this year?  Because it wasn't completed last year, it's now eating into this year's budget. But at what cost? Using a simple model of a fairly small, $2,000,000 team and using US salary data from glassdoor.com, we can see in the table below that if this team is behind by one month, it costs the leader more than $160,000 per month or $500,000 over three months.

Delays don't necessarily happen because teams aren't capable; they happen because the culture and priorities of those businesses are inherently complex.  Most companies have good teams that are working hard, but frankly, they are distracted and constantly battling shifting priorities. In addition, vacations creep in, a key employee takes another job, a critical issue comes up, a regulator needs some additional attention, or the markets react to investor fears. The net result: at least a 3 month delay...and a potentially unnoticed, under-utilized $500,000 weighing down next year's budget. 

For many of our clients in enterprise data, compliance, and IT departments, it’s pretty easy to spend $2,000,000, if not $20,000,000 a year. And for some, that can happen in a quarter. For these executive leaders, the key questions this time of year are how much can we budget, and what do we need to spend it on. With any annual budget, leaders not only have to defend the financial forecast, but also the goals and objectives. To accomplish those goals, leaders have a few options:

• Build a team
• Leverage vendor partners
• Create a team/vendor hybrid    

The 'build a team' concept is the most common approach, but it's also the most likely to experience our 3 month, $500,000 problem.  Because of this, I'm seeing leaders look more and more at managed services and vendor partners. Vendor partners provide a number of benefits that are worth considering during budget season:

• Vendors are typically focused on one key objective and are impacted less by the day to day distractions of "run the business" activities
• Vendors typically commit to a budget and a time frame and are expected to deliver
• Managed services can be predictably forecasted and are more easily scaled up and down budget cycle to budget cycle without impacting the core team
• Vendors have access to an expansive team of resources with different skill sets that can be used as projects run into challenges

I'm biased in this of course, but it's one of the reasons we love what we do at Kingland. Clients appreciate these benefits, and for $500,000 we'll deliver on time without the distractions that plague many of these enterprise teams. My take: look at your annual budget and carve out a portion for your key vendor partners and let them help you increase the progress you make next year. Expect your vendor partners to deliver and focus your core team on other priorities.  This ends up as a great recipe for progress.