Budget

C-suite Discovers the Ultimate Tool to Maximize Budget

(8 min read)

As businesses today face rising costs in areas like raw materials, payroll, and advertising, one thing's for sure. Many organizations are learning to do more with less. This requires vision and the discipline, and leadership to guide the company into the future. But on a practical level, it comes down to budgeting and forecasting. Where could you cut or spend smarter to get a higher ROI? How can you increase the revenues side of the balance sheet? How will you measure success?

You'll probably agree maximizing your budget plan is one of the most critical components to meeting financial goals and experiencing business success. As you look forward to the future expansion possibilities, this tool will help you evaluate your business budget plan to ensure it promotes both stability and growth, competitiveness now and 10 years from now.

A Data-Driven Approach to Budgeting

You've likely heard it so many times it's lost its meaning. Let's use a "data-driven approach". But there's a reason this term has become so prevalent in business. Today's capabilities to understand our customers, employees, operations, and logistics through data have opened the doors wide to opportunities for a competitive edge and even market domination. But, as Gartner points out in its top data analytics trends for 2021, companies today are shifting focus from Big Data to Small Data and Wide Data. Companies are becoming more focused on how they use data to make decisions.

They're collecting more diverse data (Wide Data) to understand the whole picture better. But they're also getting hyper-focused (Small Data) on where they place their energy and resources, identifying that low-hanging fruit to maximize their business budget plan. Regardless of your current data collection and analysis capabilities, you can use the simple tool below to assess the strength of your budget.

How to Evaluate Your Business Budget Plan (Simple Budgeting Tool)

Just 3 criteria will tell you if your budget is a winner that will propel your company. Rate your performance on these 3 criteria with a 1-5, where:

  • 1 = Poor performance, an opportunity for improvement
  • 5 = Yes, yes, we nailed it!

1. Cost - How well is it improving costs?

Are costs going up year after year? You know that certain costs will tend to go up over time, like raw materials, third-party services, technology, and transportation. But not all costs must go up. For example, the costs associated with healthcare, overtime, recruitment, absenteeism, presenteeism, employee turnover, customer churn, customer acquisition. Each year, your leadership should get better at managing these costs, not worse.

While each of these may not specifically have a line item on your budget, these are major expenses with a far-reaching impact on your organization.

  • Healthcare. This one is certainly on your company budget. According to the Bureau of Labor Statistics, the average employer paid $13,000 per employee. According to SHRM, small-medium businesses actually pay more than the large corporations with their big negotiating power. These costs rose 6% in 2020, on pace with previous years, nearly double inflation.
  • According to Harvard Business Review, Presenteeism (employees coming to work but not being actively engaged or caring) costs US businesses 1.5 billion each year. This exceeds both absenteeism and disability costs in most organizations.
  • In a typical year, companies lose around 26% of their employees. A Gallup poll showed 52% say that the company could have done something different to get them to stay. And it's not just about paying them more money. Only 44% of employees quit taking a higher-paying job.
  • Replacing and training an employee costs around 33% of that employee's annual salary.

2. Outcomes - How effective is it at improving outcomes?

First, let's consider what outcomes matter most to your organization.

  • What are you already tracking as operational priorities?
  • How do you link items on your budget, those objectives AND your priorities? It helps to create a simple dashboard.
  • What are your Key Performance Indicators (KPI)?

Is your budget helping you achieve these goals? Please rate it.

Realize you don't necessarily need additional data elements to improve outcomes that matter to your success. This can be as simple as talking with your department heads. You might be surprised at how often this is NOT being done and how helpful it can be.

3. Experience - How well does it improve the experience for your clients or employees?

Are your employees and customers more engaged each year? Is your budget furthering your experience goals?

When it comes to employees, this is not fake engagement brought about by forced culture. That only breeds resentment. Employees crave authenticity and real connection in the workplace. They want to know that what they do every day is meaningful and helps the company succeed. If they can't see that connection, they tune out.

People feel and experience connection when C-suite genuinely cares about employees and values their contributions, not just in words but also through their actions.

Customer experience is intrinsically linked to employee experience. Not only do customers increasingly care about how a company treats its employees and take their money elsewhere when they believe companies mistreat employees. When companies treat employees well, they, in turn, treat customers well. 89% of employees who work for a company that supports wellness initiatives share with others that "this is a good place to work". Customers see this.

The customer also has a better experience. If you care about customer experience, and I know you do, the easiest and more cost-effective way to improve customer experience is through your employees.

According to Forbes Magazine, "Healthy and engaged employees are the secret sauce for business success."Highly engaged teams increase profits by 26%.

And all of this comes down to investing in employee wellness and training your leadership to further your employee wellness and engagement goals through your budget.

Act Based Upon Above 3 Criteria

How did you rate each of these? It's possible that you got all 5's. You're getting things right. And that's to be applauded. But you may have discovered through this simple exercise that something is missing. Costs are going up, employee morale is stagnated, and you could be doing better at meeting important business goals.

Now, let's look at where in your budget you might address these things.

  1. External/outside services -- List by payout, outside vendors, partners, consultants.
  2. Internal expenses -- Salaries are a big one. Unless you are underpaying employees, you may not want to mess with these due to how much they relate to performance, retention, etc.
  3. Healthcare -- Health premiums and costs are typically the second biggest corporate expense (after salaries/wages). Think about it from the economic framework of supply and demand for a moment. The supply variable is typically addressed extensively, perhaps even exclusively (at the expense of demand). However, you can control the demand component too by preventing issues before they become costly and dangerous. This is largely an untapped opportunity to bring healthcare costs way down. Think of how well some organizations use preventing problems in quality control or manufacturing. Apply the same principle to this tremendous expense.

Strive to get more value from your health and wellness spend by promoting wellness among employees. Healthcare and wellness are closely linked but distinctly different. When you budget for wellness, you're preventing many healthcare costs and helping employees live healthier, more balanced lives. You're reducing employee work stress and illness to lower rates of absenteeism and presenteeism. This cuts labor costs while increasing productivity and customer satisfaction. And it's past time we stopped saying that this isn't a company's job. This directly impacts the bottom line and deserves a place in your budget. Making an organization as profitable as possible is our job. And it matters to employees. 63% of employees in organizations that promote wellness say they've made health-related lifestyle changes because of the company's focus on their wellbeing. But this doesn't necessarily mean investing in some big, new, expensive wellness initiative.

SHRM reports that companies faced with overwhelming healthcare costs are turning to the concept of High-Value Care.

High-Value Care recognizes that when employees are educated about what good health care is, they can make more proactive decisions to seek it out. The highest value care is care that prevents illness in the first place, like:

  • Encouraging preventative screenings so that people have a general idea of where their health stands and what lifestyle changes could improve it
  • Promoting vaccine usage to prevent serious illness
  • Discouraging antibiotic misuse for viruses... Apparently, many people still don't know that antibiotics don't treat viruses.
  • Encouraging people to see their doctor when something's wrong rather than treating the ER or Urgent Care like a doctor's office
  • Stopping the toxic "work when you're sick" mentality, which more often than not spreads illness in the office

According to Network for Excellence in Health Innovation (NEHI), making small changes here amounts to $500 billion in savings. You can look at this the other way. That's $500 billion that companies are spending when they don't have to. Now, that will hurt the bottom line.

Here's where those cost savings come from.

Did you know?

  • 95% of medical care is reactive rather than preventative
  • 77% of your employees have at least 1 chronic condition (25% have 2 or more)
  • 45% of your employees are not receiving their recommended preventive care
  • Despite the importance of seeing your doctor, it's not enough - The average physician visit is 7 minutes with only 60 seconds of conversation.
  • Only 3% of wellness programs achieve healthcare savings for organizations and employees.

A disturbing amount of attention is given to costly programs that should be the last resort. You can make small changes that will make a big difference. You can ensure that any budget you spend on wellness is working. You can look at the data and measure the outcome to maximize your budget.

ABOUT

Scott Foster is CEO of Wellco. Scott is a frequently-invited expert and speaker regarding wellness, engagement, & leadership.  Wellco provides award-winning solutions to measurably improve health engagement and outcomes. For more information, contact Wellco. 

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