Check Your Budget Blind Spots

Budgeting is a necessary part of an association’s life, but it also involves reconciling an inherent contradiction: trying to predict the future, and then attaching hard numbers to the prediction. Add to that challenge department managers who have ample expertise in their disciplines but who aren’t necessarily association finance wizards, and it’s no surprise that budgeting becomes a headache for many organizations.

Staffing, technology, and especially meetings are a few of the major areas where associations often miss the mark on budgeting. But beyond departmental issues, executives and finance experts say, the biggest finance blind spots often involve a failure to think broadly about budget lines. Who takes responsibility for a project that touches multiple departments? Are you properly integrating internal resources, beyond hard expenses, into project costs? And are you considering the association’s broader financial goals when you’re drawing up next year’s plan?

“Not as much as you ought to” is the general consensus in response to those questions, and a cavalier budgeting approach can have stifling consequences, says Lee Klumpp, director, national assurance, nonprofit and education practice, at BDO.

“People will say, ‘You came in $20,000 over budget. That’s all right.’ Problem is, that’s $20,000 worth of resources that could’ve been used some other way, that wasn’t budgeted for and wasn’t approved,” he says. “But nobody’s been held accountable for it.”

Luckily, some forethought and common sense can go a long way to helping an association budget more accurately.

Zero-Based Budgeting

One of the most common mistakes that many staffers make is to simply plug last year’s numbers into next year’s budget. But even though a project or program may repeat from year to year, conditions that affect what it costs often change.

Meetings are unquestionably the biggest bugbear. Craig Silverio, CAE, vice president, finance, at PMMI, a trade association for the packaging and processing industries, points out that association events are rife with wild cards. Locating a meeting in a different venue every year can affect travel costs, attendance, facility rentals, food and beverage, and more.

“Inevitably, those meetings change in structure,” Silverio says. “Are the same amount of people going to be there? Is it in the same geographic location? What are the costs in the city? Are we going to have the same types of speakers, or are we going for more high-powered ones? Are we going to have more customer panels where we have to pay people? What type of volunteer speakers are we working with?”

Our goal is to do better [financially], but we cannot budget on wishes and good intentions.—Douglas M. Kleine, CAE, Professional Association Services

To account for such shifts, Silverio advocates for zero-based budgeting: building each project budget annually out of a fresh cost and revenue analysis, rather than carrying prior numbers forward. In the case of meetings, he instructs staff to deliver a budget based on the costs specific to upcoming events’ venues, using their lists of food and beverage costs (and those pesky service charges).

“After the event, we go back and reconcile guarantees, minimums, and actual plated meals so that we can do a better job next time,” he says.

Estimating how many people will attend can be equally tricky and often depends on the venue. Douglas M. Kleine, CAE, president of Professional Association Services, prefers to estimate based on a three-year rolling average. “Yes, our goal is to do better [financially], but we cannot budget on wishes and good intentions,” he says.

Art of Anticipation

Strong policies and procedures can help rein in budget lines that may otherwise run amok. A key is anticipating future needs before they arise.

Consider technology, which at large organizations can become complicated and expensive. Klumpp prescribes breaking out technology budgets into an operating budget for day-to-day IT matters and a capital expenditure budget to handle new servers, phone systems, and so on, that rotate out every few years. To encourage IT departments to better budget for those expenses, he recommends that any variances of greater than a specified dollar amount or percentage require board approval.

Dave Zepponi, president and CEO of the California Association of Community Managers, has seen that struggle at the ground level at small associations he’s worked with. Software can be cheap on the front end, he says, but associations often don’t anticipate how much extra they’ll be paying in support costs. He now makes sure those costs are built into his budgets.

“The number-one issue is: How much customization are we going to have to do?” he says. “Once you get the software, reality will hit. We make sure we have a certain percentage set aside for technology investment.”

Anything that’s done by committee might turn out really well, but when it comes to finance and budget by committee, it usually doesn’t.—Lee Klumpp, BDO

Keeping Staff Accountable

Accountability can be straightforward when it comes to laptops and software—that’s IT’s job. But who owns, say, e-learning, which touches not just technology but education, credentialing, publications, and more?

For complex projects, Klumpp recommends that one person take responsibility for budgeting on a per-project basis, rather than have various participants chime in. “Anything that’s done by committee might turn out really well, but when it comes to finance and budget by committee, it usually doesn’t,” he says. “Either somebody’s really a stickler on the costs, or they don’t care, [thinking,] ‘We’re building the best mousetrap we can, regardless of costs.’”

Another issue is ensuring that department heads are watching not just dollars spent on a project but time spent by employees as well. “In the association world, time can be 60 to 70 percent of our costs,” Zepponi says. “If somebody is riding a sacred cow and they don’t want to let go of it, it’s pretty easy to make it look really good if you’re not allocating properly for that product area. Your accounting system has to support that.”

Staffers can also stumble when it comes to budgeting appropriately for travel. “You’ll have people who will put a budget together and say, ‘This activity is going to be five travel days, and there’s going to be three people going,’” says PMMI’s Silverio. “Next thing you know, [the activity has] 180 travel days, which is ridiculous. People can sometimes wear rose-colored glasses about all the things they’re planning to do.”

The Big Picture

But just as individual staffers need to take ownership of budgets for specific projects, an association’s leadership needs to help direct those staffers to keep the organization’s broader strategy in mind. Patrick Nichols, president of Transition Leadership International, says C-suite executives too often fail to present the broad strokes of a financial plan to the people doing the front-line budgeting.

“Leadership should draw specific implications for budgeting,” he says. For example, “‘This plan suggests that we will spend significantly more on X, where we have to make investments. That means that, without significant revenue growth, we must spend significantly less on Y and Z.’ When budgets are submitted by departments, they should provide a brief narrative explaining how this budget reflects the requirements of the plan.”

Tim Schaffer, executive director at the Ohio Society of Professional Engineers, argues for an iterative approach to budgeting, performing weekly updates on revenue drivers such as attendance and membership and comparing the numbers to prior years. That not only helps with future projections but also allows the association to make cost-saving moves on the fly.

“It gives you time to adjust in case you see numbers lagging,” Schaffer says. “Or it saves you from wasting money on extra mailings or other promotion expenses if you see the numbers growing at a good pace.”

In all cases, the key to effective budgeting is precision and research. Staffers can be inattentive when they recycle dollar figures. But, Silverio says, they can be just as unfocused when they shoot for the moon with revenue projections that have little basis in reality.

“You’ll see budget initiatives where people say, ‘We’re going to go from $50,000 to $100,000 in revenue.’ It’s great that you feel that way, but why don’t we go from 50 to 70—add 40 percent. If you hit 100 you’ll be a hero, but if you don’t, you’re going to look like you underperformed, even if you had 40 percent growth.”

And staffers often don’t consider what their departments are actually costing the organization. Klumpp advocates budgets that differentiate between direct costs—what a department is directly invoiced for—and indirect costs, which includes items like unused office space or a salary line for an unfilled staff position. Department heads need to be challenged to recognize exactly what costs they’re responsible for, Klumpp says—especially if they’re holding off on a decision about resources.

“All things that affect the cost to run a program or a department should be built into the budget,” he says. “Our delays and inactions to address changes and variance in actual cost versus budget can hurt the organization and could be an indication that something is missed.”