Be familiar with your company’s procedures and criteria for approving and managing capital expenditures. Your management will require a compelling return-on-investment (ROI) study (net present value, payback, breakeven, or internal rate of return estimates) vis-à-vis explicit or implicit hurdle rates.- Establish clear links between your budget and corporate strategy. If your management can see the real benefits to the business, they’ll find the costs easier to absorb. Amazon’s customer-oriented culture requires every proposal for a new feature, product, or service to be pitched by means of a “Mock Press Release” arguing how a hypothetical Amazon customer would first learn about the feature and its utility.
- Don’t just roll your budget over from the previous year adding a certain percentage “and then some.” Many companies have adapted a cost-management tool called “Zero-Base Budgeting” that requires you to justify each line item in your budget as if it were an entirely new claim for an entirely new project.
- State your assumptions explicitly. Prepare worst-case and best-case scenarios to augment realistic forecasting of the future and help prudent decision-making. Keep your budgets ambitious but realistic.
- Allow room for contingencies. Avoid rigidities that could inhibit the quick and effective response to an unexpected event. Bring your contingency planning into the open for a careful review.
- Add some fat, but not too much. Keep this in your back pocket, but be ready to make some cuts by knowing what their impact can be. Be clear and confident when questioned about any of the numbers in your budget.
- Explain how true you were to the previous year’s budget. Make a distinction between controllable and uncontrollable budget variances. This will build your management’s confidence in your pitch for the year ahead.
- Put your budget proposal to test with your team and supportive peers. Encourage them to ask all the difficult questions they can imagine. They may not only know where the skeletons are hidden and help you with the answers you’ll need, but also become indispensable allies in getting your budget approved.
- To persuade each member of management, know what matters to him/her and link your budget to his/her objectives. Discuss your budget with the key decision-makers separately before a group discussion. (Management consulting firm McKinsey calls this technique “pre-wiring.”) By getting each participant’s buy-in, you can count on his/her support and avoid surprise reactions and disagreements.
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