Setting Budgets and Targets

Does too much of a stretch impact motivation? Over many years of setting (and trying to achieve) targets and budgets, getting the balance right between stretch and motivation remains a challenge.

I love Jim Collins and Jerry Porras and their BHAGs in their great book, Built to Last, but if the goals are seen as unachievable too early in the business year, what then?

Is there a way for businesses to achieve success without budgets and targets in place?

Two old favourites " You can only manage what you can measure" and "People do what managers measure" suggest that they can't. I am sure there must be successful businesses with different methodologies, but most of us need to work towards something.

With that in mind, I think there needs to be stretch, and there needs to be a sense of achievability.

Why would you race against Usain Bolt unless you think you could win?

The same goes for budgets and targets, people need to believe they are possible.

So how do you build budgets and targets that achieve the company's current objectives and future growth plans, while still feeling within reach by the business team?

Do you start with the company objective, say 10% growth on turnover, and then see how to get there with the existing resources, or do you start with each line manager and sales person, and ask them what is attainable? Top down or bottom up?

Lack of trust in the process is bi-directional, too. In other words, line management prepare a conservative budget because they think they are going to be pushed up anyway, and its safer to start lower. Executives start high for the same reason! Then its just about negotiation and arm wrestling.....

Whichever model you use, I believe there should be a combination of success measurements, for example:

Long term achievement (3 year business plan, 5 year etc)
Medium term /on going achievement (FY turnover, profit, staff turnover, client retention)
Short term (New clients, survey results, new markets)

This kind of model helps mitigate short term thinking to turn a quick profit. It is really difficult to achieve this at all levels of the business, but with line management on board with long term objectives, they are better able to drive positive behaviours.

There is some very interesting reading about the dangers of stretch budgets and the advisability of small, regularly achievable goals that lead to large successes. This is based on the buy in and commitment that comes from people feeling continually successful.

And most important to remember that your Capex budget can only be spent if the income budget is on target. A lot of us struggle with than one.......

Links, References and Notes
http://www.inc.com/leigh-buchanan/big-ideas/jim-collins-big-hairy-audacious-goals.html
http://www.uiowa.edu/web/advisingcenter/motivation.htm
www.accsys.co.za/news
http://smallbusiness.chron.com/budget-used-motivate-staff-50432.html
http://www.inc.com/tom-searcy/why-stretch-goals-are-a-bad-idea.html

Note

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