Are you responsible for a public-sector budget?
If so, you understand that the financial pressure on public-sector organisations is increasing.
Managers face a variety of public-sector budget problems. Manages with financial responsibility have a difficult job due to lack of training, funding cuts or an inability to make changes.
Read on for answers to three public-sector budget problems and improve your budget setting skills.
Three public-sector budget problems and how to solve them
1. “I don’t have the authority to make necessary changes.”
“I do not have the authority to make changes to the budget for the good of the service. I cannot use salary budgets to fund other types of goods and services because salaries are protected. I cannot change the pay level of the staff that I manage because these are fixed, and the personnel department does not allow changes.”
If a budget holder, or manager is to adequately control a service, they should be able to create a staffing structure that matches the service. Any changes to staffing should be performed within the context of the organisation's personnel policies. In some organisations, this may take time to implement. Therefore, salary costs will be fixed in the short term but can usually be changed in the longer term with a re-organisation plan, which will often be part of a change management plan.
In order to work successfully within the organisation, the budget holder must clarify what can be done with savings made on salary budgets. For example, can they be used to support overtime or temporary staff payments? This may provide some flexibility in the way in which staffing resources can be deployed in the short term.
The best advice to achieve changes is to present a proposal to the organisation’s decision makers. Gaining senior management support is essential to align decision making power with budgetary responsibility.
2. “My budget is cut halfway through the year!”
“I consider myself to have good budgetary control skills, but I am frustrated in my efforts to manage my budget because my budget is often cut without warning.”
Controlling public sector spending is often part of a national fiscal policy. As a result, efficiency savings have been sought from all areas of public life which receive public funding: the police force, armed forces, local authorities, education and health authorities to name a few. This is even more prevalent in a time of austerity. In these circumstances, it is difficult to set the perfect budget regardless of the care taken.
Consistent budget management throughout the year is the only way that an organisation can stay within budget by the year end. This includes calculating monthly outturn projections.
Budgets may be cut in some areas to compensate for excess spending in others. Managers who may have controlled their budgets well during the year may experience cuts for the sake of the organisation. This may seem unfair, but it helps if all staff are aware of the “big picture” for their organisation and the overall financial requirements.
The most frustrating aspect of the process is when budget changes are made without warning or explanation. If managers have to experience budget cuts midway through the financial year, which will affect their plans, the reasons for changes should always be explained in advance.
Budget managers must also inform senior management of the impact that budget cuts will have on the achievement of objectives. This can only be done accurately if the manager really understands the budget factors, the profile of their budget and where they are in achieving the original plan.
When changes to budgets are made, the budget holder should re-forecast the whole budget, and then develop a new plan for the service.
3. “No one in the organisation has proper financial training.”
“In this organisation, there has been no financial training for budget holders. It is not a surprise that we have over spending, because no one has received any training. However, there always seems to be enough emergency money to help our service, so no-one seems to worry!”
This is one of the most common public-sector budget problems.
Financial training is essential when an organisation has a devolved budget. It is vital to train each member of staff who has responsibility for a budget.
Financial training is technical and may be difficult to deliver internally, as finance staff do not have the appropriate training skills. Training budgets may also be limited, and are often a target for budget cuts when money needs to be saved, but this is a short-sighted approach. Funding for training should be prioritised so that staff can make effective financial decisions and help save the organisation money in the future.
Timing of the training is also important. Employees can frequently join and leave the organization, so an ongoing training program is recommended. This training should be at different levels, so that all staff can develop their skills in relation to their role in managing budgets.
If internal training cannot be delivered, then external courses are available. These courses are run by representative bodies of the sector and by professional institutes and associations. There are also training firms that deliver both external and bespoke training courses.
It is also possible to obtain training aids, such as books, videos and learning materials, to help budget holders with their self-development. There are many products on the market, but most are focused on private-sector finance. This does not help managers in solving public-sector budget problems.
The series of books by HB Publications is specific to the public-sector and provides excellent learning material to help managers improve their skills.
What can you do next?
Solving public-sector budget problems requires financial competence. Our book “Managing the Devolved Budget” sets out other problems and solutions which you may find useful.
To develop your own financial skills, download our free budget setting skills guide. The guide takes you through some important aspects of setting up a budget and contains exercises to help you apply theoretical knowledge in the workplace.