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Posted by Percy A Lowe on July 17, 2013 at 5:30 AM

by Frank Coker

Goals and budgets are not the same thing. They serve very different purposes, but they overlap and often get confused.


When a goal for financial performance is defined for a company or a business unit, it is generally thought of as a destination. There are usually multiple ways to reach a goal, so there is usually very little about the goal itself that tells you how to get there. In fact, high performance managers intentionally leave room for the team to figure out how they are going to achieve their goals. Achieving a goal should make room for creativity and allow for responses to changing realities on the ground. Rarely do conditions stay the same from the time a goal is set to the time that the goal is to be achieved, so it almost always requires adjustments along the way. And of course if conditions change enough, the goal may need to be changed also.


Budgets are different. Budgets are all about constraints and spending limits. It would be unusual to see the words budget and creativity in the same sentence. But when you do, creative means “how do I get money from one budget area to fill a need in another area.” In other words, gaming the system, or, getting around internal spending barriers. Budgets are not about achieving results that drive the big picture or move a business forward.


Goals, on the other hand, generally are intended to create a common focus that motivate and move the team forward. Budgets are usually constraints and barriers. Both are important, but they play a very different role.


It can be very confusing when a budget is expected to motivate action and a goal is used to constrain spending, but this often happens. When used for the right purposes, goals and budgets can live side-by-side and can be mutually reinforcing to the team and the organization.


Most managers can easily describe how a budget works. There is often a lot of debate around how a budget gets set, but once a budget is set, they are pretty easy to understand. The budget tells you how much you can spend during some period of time, how much you have already spent and what you have left. But things get a bit messy when budgets get revised. If budgets get revised too often you loose the ability to hold anyone accountable for achieving the budget. In the extreme, budgets can be changed so much that they just become a reflection of actual spending and in the end you really don’t have a budget. In worst case, the budget is just another report on actual spending that everyone can use to celebrate that they “came in on budget.” And once this gets started, cynicism sets in and no one believes the budget process has meaning and then controls and accountability get lost.


Goals, on the other hand, should have more flexibility. Whether you get a touchdown in 5 plays or 10 plays is less important than getting the touchdown. And moving from a passing game to a running game should not be perceived as a failure if it gets the job done; it is part of the creative process for overcoming barriers.


A revenue growth goal, for example, should be a simple declaration of what you are trying to achieve over some period of time. It’s less about how many plays it takes to get to the goal and more about the direction you are heading in. The goal should allow the team to constantly see if they are on track to achieve the goal and if not, how far off are they. When they can see that they are off course, they can focus on actions needed to get back on course. If they don’t know they are off course, nothing is likely to happen to cause a correction. Without the ability to see the difference between today’s progress and the path to achieving the goal, there is no ability to see the “gap” and no one is going to even know that they need to make course adjustments.


Ideally, goals should be expressed as a trend line that connects some starting point to a destination. The goal trend line needs to sit side-by-side with the actual performance line and the actual performance trend line. With this picture everyone can easily see if they are on track or not. Now the real story can emerge. Now you can easily see if you are headed in the right direction. You can see if you are over or under the line that takes you to the goal, you can see if you are on or off track and this becomes the basis for meaningful conversations with the team about what they can do to get back on track. There is no more important conversation than the one with the team that is expected to actually achieve the defined goal. If they don’t see the picture, it is unrealistic to expect them to achieve the goal. The simple trend line picture is the basic ingredient for clear communications. Unfortunately it is missing for many organizations and as a result, teams often lack a "directional" perspective. When performance is off track and it finally becomes clear it is often too late to make needed adjustments. And last minute adjustments made in desparation usually produce ragged results and the opportunity to achieve a higher purpose is usually lost.


It is the trend lines that make the picture clear and simple. Trend lines can show small deviations early. This makes it possible for small corrections early and often. Hitting a goal becomes much more likely because the trend line and the goal line together show you if a gap exists.


In the end, the thing that makes a manager stand out is how well they set and achieve goals. Managers may get applause for hitting a budget, but rarely do they get career enhancing spotlights because of their budget management skills. It’s the goals and goal achievement that really matter.

Categories: Small Business Managment

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