Budget season can be a time of strategic hope – and frustration – for HR leaders as the “new vision” evaporates, pass after pass, into a boiled down version of the same old budget with the same old limitations.
It doesn’t have to be this way. The secret to budget success is practical and doesn’t just take place during budget season.
Budgeting starts with value, priority and return. All business leaders with financial budgeting responsibilities must understand they are either working together or against the same pool of money. The greater the collaboration among business leaders, the better the chances of procuring the budget needed to succeed.
Often, the best way for HR leaders to foster that collaboration and understanding is to have a down-to-earth talk with the people who work in financial management and operations. Pick their brains. Help them understand HR’s view of the world. Find common ground.
In a recent webinar, I had the opportunity to do just that, and the discussion was illuminating. Here are three key takeaways, with special thanks to Michael Rodriguez, Clinical Assistant Professor of Accounting at Baylor University, Business Advisor, and former CFO for organizations such as Magnolia and Clarient (a GE Healthcare company) who shared his take on best practices for budget success.
1. Engage with Finance All Year Long – Not Just in Budget Season
As HR leaders, we need to foster a relationship with the CFO long before the budget meeting. This is essential to better understand how they view the HR function, and how they are looking at their – and our – budget. The more of these conversations you have throughout the year, the easier it will be for you when the budget season rolls around.
It’s not just about making friends in the finance department. This needs to be viewed as a strategic effort to help you, as the HR leader, to understand what the CFO needs, and what they’re looking for from you and to help them view HR for the real value it provides.
“We need to be executing on that strategy every single day,” said Rodriguez. “The cadence of that communication with one another needs to be constant and consistent. So have those conversations strategically throughout the year. It’s every month, looking at the budget to actuals. It's a very regular cadence of weekly meetings and understanding where everything is going.”
2. Learn the Language of Finance
The next step in a more active engagement with finance is learning their language. That means learning both how they convey information and how they like to receive information. Rodriguez uses the analogy of travel to another country: if you learn to speak some of the language, you’re going to have a lot more enjoyable experience and you’re going to foster better understanding. You can take a class to learn finance or you can engage in “immersive” learning by working more closely with your finance department.“
This comes back to that idea of cultivating an ongoing relationship between HR and finance,” he explained. “If, as a finance person, I’m coming into the HR world, I need to understand the HR language and vice-versa. You need to spend time in that other world, with the leaders and their teams. That way when it’s time to have difficult conversations, you understand what they’re looking for. You’ve established a relationship, and you understand the context, so you can have difficult conversations that are productive on behalf of the business and the stakeholders.”
As an HR leader, one of the things I learned from cultivating relationships with financial analysts was to pay attention to the reports they were giving to the CEO. When I put our HR numbers into a format that was more like what the CEO was used to seeing in a financial report, it changed the relationship. The report was more familiar and it helped them see it from a people perspective.
Ask yourself: when I convey this, what am I trying to do with the information that I’m conveying? And it can also be helpful to ask the people you're sending it to: How is this report helping you? What do you do with this? Do you even look at it? And how can we make it better?
This “beginner’s mind” approach helps everyone.
“We never get to the point where we're done learning and growing,” Rodrigues said. “I encourage people to constantly be looking to improve, trying to find a better appreciation for numbers, operations, strategy, marketing, sales, whatever it might be. Because, in the organization, everybody benefits.”
3. Look at HR from a Balance Sheet Perspective
Finance people often view things in terms of cost centers and profit centers. As HR leaders we tend to think of ourselves as a cost center in an almost apologetic fashion, and this can affect how we engage in budget meetings. But in those regular communications with the finance department, we have an opportunity to shift that perspective.
“Our HR leaders are overseeing the most significant, most valuable asset that we have on the balance sheet of the business – our people,” said Rodriguez. “I think the term cost center has a relatively bad association – when you hear that, you're thinking ‘we're just a drag on the rest of the business.’ At the end of the day, I don't think that it's erroneous to look at HR as a profit center in most regards or to think of the budgeting process as evaluating a bunch of profit-generating investments we make from time to time. This means we're evaluating the productivity and the contribution to the business's success from assets like software, from factories or facilities, and our people as an asset that can have a return on assets like any other asset class.”
If you're head of HR, and a lot of your HR functions are supporting different business units and they’re not all equal in size, it could be a drag on your budget if certain business units are consuming a lot of HR resources.
According to Rodriguez, it’s helpful to think about the “people” asset on a per head count or per team basis – that is, how much each person or team in a particular segment of the business is contributing to the overall success of the business.
Not every asset we have in our portfolio contributes equally. But they need to be contributing optimally, and that's a separate and distinct evaluation. For example, different resources are required to manage retail compared to managing a warehouse or the creatives and designers who work at headquarters.
Rodriguez described how they handled this at Magnolia, the producers of the Fixer Upper television show as well as multiple other business assets from retail to restaurants that are quite different from each other.
“We often had discussions about how to make sure we're allocating resources in the right way,” he explained. “What we did was look at how teams are organized in a way that we could understand resourcing appropriately. For example, there’s a lot of turnover in the restaurant business, so we knew that that HR investment in the restaurant was going to be more significant and was going to be particularly dedicated to that business.”
This balance sheet approach helps HR better allocate budget and resources and have those discussions with finance that help everyone to see HR as what it truly is: both a cost center and a profit center that manages the organization’s most important asset: its people.