Budgeting is a crucial task for Facility Managers. Since we manage a significant part of our organization’s costs, the budget is important to the organization both to validate the amount spent and to manage it.
When I talk to Facility Managers, the annual budget process they have to go through is always a tedious, time consuming job. When they are in the middle of the process, they don’t seem to have time for much else.
Unfortunately, budgeting can be a difficult task if you take it seriously and don’t just look at what you spent last year and add (or subtract) a few percent from the total.
How you budget will also impact how easy it is for you to do your monthly or quarterly explanations of actuals against budgets.
While developing your facilities budget will continue to be a time consuming and painful process, it will be a little easier with these tools and you can focus attention on other things that you need to get done to get results.
Rear view mirror
Knowing what was actually spent on what at our facilities in the last year, and even previous years, is necessary to develop a future budget. Whether you are doing a ‘zero based’ budget or simply adjusting your last year’s budget, you need historical details that help you. This includes not only what was spent, but why and when. A report from Finance is a good place to start, but may not be enough if their sub-account structure doesn’t provide you the right information. Either get them to expand it or find another way to drill down and see details.
When budgeting for subsequent years, you need an idea of what is in front of you. What changes will impact your Facilities budget – things within your responsibility and outside your responsibility?. If other department’s activities have an impact on your budget, you need their information first. This ranges from annual salary and wage increases you need to build in to your staffing costs to volumes of activity within the company that drive your cost. Well before you start your next budget cycle, make a comprehensive list of what you need to know and start asking the other departments for information. You may not get everything you need, but if you don’t ask, you won’t get anything.
Beyond what you can see with your binoculars, you also need to use your crystal ball to consider what you can’t see but may impact your budget. This may be external influences, such as market increases for products or services you procure, upcoming negotiations for rent, unions, etc. Where you have to make an educated guess, try to establish a base for that guess and document your assumptions so you can defend your assumptions or adjust them as you learn more.
Sometimes you have to make decisions about activities or costs that impact your facility management budget without being sure. To do this, list the items along with the range of possibilities for each one. What is the likelihood and what may be the minimum or maximum costs? What are the risks? Once you do this with everything, you can start to decide what to do with all of the uncertainties in front of you. Sometimes, the combined results give you a budget you can live with, since some will come in high and others will come in low. Again, be sure you document your assumptions, since you’ll need it when you explain your actual on a monthly basis.
If you have to roll-up your overall facilities budget from budgets your staff have prepared related to their portfolio or area of responsibilities, or even just from information others have provided to you, look at it critically. Interrogate them about their assumptions and reasons for their budget, considering that they should have used the techniques described above. Make sure their budgets are built on solid information and assumptions that are reasonable. Challenge and change those that don’t. And be prepared for your boss to do the same with you.
Since your Facilities budget will have lots of parts and components, you have to use a scalpel, not a blunt instrument during the budget process. Look at every item and see whether it can be reduced or refined. If you only look at the roll-ups, you won’t have the tools you need to determine the real requirements. If you have revenues (such as parking) that offset expenses, you can get a false sense when you just look at the bottom line. You need to dissect and drill down into the revenue lines and the expense lines to make sure budgeting issues aren’t hiding in the bigger number. And this isn’t just about reductions. Under-budgeting an item can also cause you problems, forcing you to either exceed your budget or to cut something you don’t want to cut to bring it back in line.