Business Decision Making Process

There are any number of things that compete for budget dollars. And, budgeting and allocating financial resources can be very challenging.

Creating a decision prioritization model for spending can help to alleviate some of that stress.

Department managers are faced with spending decisions every day and unless there is a good foundation for decision making, is it easy to overspend budget dollars on things that may not add value to the organization.

Employees make requests for the newest software, the latest phones and gadgets, the most recent model of office equipment, etc. However, a streamlined process to prioritize these spending decisions can help managers conserve valuable budget dollars.

3 Things to Consider When Making a Spending Decision

1. Create a Decision Making Model

I like simplicity and a friend of mine shared this model with me a few years back and I find it to be easy and succinct. The model is based on asking questions. Specifically, any spending and budgeting decisions should be based on asking a simple decision question.  Is this expenditure a:

Want – something that would make the job easier;
Need – something that is important to get the job accomplished;
Have-to-Have – something that is necessary for the success of the operation.

For example, a new version of a software program is available.  The question that should be asked is, is this something we want, need or have-to-have?  The obvious answer would be it can probably wait even though it may make the job easier.

However, if the copy machine goes down and putting together sales packets is part of the daily operation, this request would fall into the have-to-have category.  This is an expenditure that affects the success of the operation, so the resources need to be available.

2. Are There Available Budget Dollars 

The budgeting process should include allocating dollars specifically for emergency expenditures that would cover the have-to-have spending decisions.

If there are not budgeted dollars available, are there other budgets that could be modified to free up available dollars?

For example, if there are dollars allocated for a special event, are there ways to cut some of those costs so you can put those dollars toward something else? Or are there overtime hours budgeted that can be controlled to free up resources?

3. Does the Spending Line up with Business Goals

Budget dollars should be spent only on those things that support business strategy and ultimately help the organization fulfill its mission.

For example, an employee asks permission to attend a conference that is not budgeted.

The question to ask is, will this conference improve the skills of the employee so they are better equipped to complete business goals?

If the answer is no, the dollars probably shouldn’t be spent, even if there is money available.

Finally, managing a budget is a skill that all managers need to learn.  And, an important part of that skill is having a good understanding of what the organization is trying to achieve so that all spending decisions support the mission, vision and strategic plan.

 

 

 

 

 

Article originally posted March, 2010.  Updated June, 2015.