I’ve never come across a transit CEO who wasn’t pretty much an expert in the art of annual budget preparation by the time she first takes the helm of an authority. This isn’t the least surprising when you think about it. Climbing the professional ladder, CEO-aspirants have typically devoted hundreds of hours to preparing, reviewing, revising, and – eventually, at a senior executive level – consolidating budget requests by the time they reach the top. These newly minted chief executive officers understand how to capitalize on the budget preparation process as a highly effective and reliable vehicle for exerting management control. It’s designed to align projected revenues and expenditures, set operational targets whose achievement can be monitored, and tweak existing plans in the interest of improved effectiveness and efficiency. It’s typically an incremental, rather plodding planning activity, but no more effective vehicle for fostering and maintaining organizational discipline and control has ever been devised.
What the annual budget preparation process has traditionally Not been is a vehicle for significant, systematic innovation. To the extent innovation has played any role in transit annual budgeting, it has tended to be cosmetic: for example, developing a set of strategic goals to serve as a preface and framework within which next year’s budget is constructed. Nor has the traditional budget preparation process incorporated the kind of meaningful, policy-level board engagement that fosters board member satisfaction and, consequently, helps to cement the board-CEO working relationship. Wearing my governance consultant hat, I’ve over the past 35-plus years interviewed hundreds of transit board members in preparing for retreats. I can’t tell you how often I’ve heard them, when asked about their role in budgeting, describe it as “frustrating,” “unsatisfying,” “perfunctory,” “not very meaningful,” and the like.
In recent years, I’ve worked with CEOs in designing budget preparation processes that involve much more than coming up with balanced budgets: generating concrete operational innovation initiatives (projects) within the annual budget framework and providing board members with a higher-impact, much more satisfying form of engagement that makes them more reliable partners for the CEO. The key elements of this enriched budget preparation process include:
- The identification of operational issues in the form of both challenges and opportunities meriting serious board, CEO, and executive team attention during the budget preparation process because, first, the stakes are high, and, second, the issues are not being adequately addressed in this year’s budget
- The development of innovation initiatives – essentially projects – to address the issues in the upcoming year’s budget
- The location of these initiatives or projects in a special section of the budget document, which I call the “Operational Innovation Portfolio”