Radically Human-Centered Budgeting

Editor's note: In this latest issue of our LinkedIn newsletter, we asked Common Future’s Finance Team to share their thoughts and advice on human-centered budgeting that places values and organizational strategy at the center. Here is what Tyra Edmond, MBA and Alexa McNaul, CPA came up with. We invite your ideas and reactions, as well as ideas for future issues.

Budgeting: it’s an annual reality at most nonprofits and often an undertaking in which departments battle it out for their slice of funding—or at least it can feel that way. But when done right, the budget process represents a real opportunity for organizations to create buy-in across teams and align strategic goals and values with future business spending. But far too often, this is a missed opportunity for a variety of reasons: 

1. Bandwidth: Teams are strapped for time and resources, and budgeting can fall off the priority list when the importance of this process isn’t properly understood

2. A one-size-fits-all approach can make teams view the process as a routine task that needs to be checked off the list.

3. Simply doing what worked last time—the "last year plus 3% inflation" model is outdated.

When done right, the budget process represents a real opportunity for organizations to create buy-in across teams and align strategic goals and values with future business spending.

Traditional tactics, like that 3% increase, might get you a functional budget, but the utility is limited when that budget doesn't account for adjustments in organizational priorities or organizational values around diversity, inclusion, equity, and belonging.

Enter Radical budgeting. This approach seeks to address the issues of traditional budgeting models by starting the process with conversations instead of spreadsheets. The result is a budget that can easily be measured and maintained, and that maps back to the values that drive your nonprofit’s work. 

Implementing the concepts of radical budgeting brings together numbers and stories through quantitative and qualitative data and fosters a holistic, team-oriented approach to building, sustaining, and modifying the organizational budget.

Here are 5 steps finance teams can take to embark on and effectively implement a radically human-centered budgeting process:

Start with conversations with budget-holders.

• Looking at their department’s historical spending and what their goals are for the next year, identify areas where they may need increased or decreased financial resources in comparison to historical spending for that department or team.

• Discuss each of their goals and get clear on the resources needed to reach them. For example, if they want to double their programmatic work, inquire whether this will require more staff or consulting capacity.

Place DEIB and organizational goals at the center of resource distribution.

• Make sure all resources in the budget have a direct tie to next year’s goals.

• Apply a DEIB lens to all resources in the budget—Can DEIB be furthered through these plans and through this type of spend?

Align the budget with organizational goals.

• Well-designed (SMART) goals should translate directly to resources needed to complete them such as staffing, travel, or supplies. 

• Ensure that budget holders understand that a budget represents the resources they need to reach their goals for the coming year.

Check in regularly on each goal and its related budget items through conversations with budget-holders.

• Each check in should begin with data on goal progress and budget to actual spend. If there is high spend related to a goal with little progress, or vice versa, get more information with an eye towards where there may need to be pivots or changes.

• Ask if the goals they set for themselves are still right-sized and aligned for the year. If not, make changes to the goals and the related budget items using the same inquiry process as above.

Based on these conversations, adapt the goals and budget regularly throughout the year so your metrics remain agile and aligned with the work happening in the organization.

• Establish thresholds for how much the goals and budgets can change before executive leadership and/or the board need to give approval.

• Continuously update the goals and related budgets for each item based on regular check-in conversations.

• Track the changes from the original budget and present the next budget to actuals and goals progress data based on the most updated information.

• Use the updated versions and pivots throughout the year as information for next year’s budget process to highlight where shifts happen, where planning fell off track, and what might be right-size for goals and budgets.

Implementing the concepts of radical budgeting brings together numbers and stories through quantitative and qualitative data and fosters a holistic, team-oriented approach to building, sustaining, and modifying the organizational budget.

We’d love to hear from you: What best practices for budgeting have been successful in your organization?

Until next time,

— Tyra Edmond, MBA, MBA, VP of Finance & Alexa McNaul, CPA Naul, CPA, Director of Finance