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Five Key Principles to Optimize Budget Execution
April 15, 2021
Government financial managers have strong incentives to optimize their budget execution process. With an efficient process, leaders can better position their agencies to compete for dollars, ease the end of fiscal year stress, and maintain the financial health of their organizations. At WBD, we recommend focusing on five key principles to optimize budget execution in federal agencies.
Maintain Process Integrity
The most important input for a successful execution process is a fully completed budget by the start of the fiscal year. As experienced stewards of the PPBE (Planning, Programming, Budgeting, and Execution) process, government financial managers know that coordination difficulties arise when their focus is pulled toward more than one of these steps at the same time. Any delays to budget approval will add complexity, forcing financial managers to play “catch-up” throughout the remainder of the fiscal year as they make up for lost time to execute funds.
Plan in Increments
Monthly or quarterly execution plans allow financial managers to break up the daunting task of executing an entire year of funds. These monthly or quarterly plans borrow principles from cash flow analysis, allowing financial managers to better gauge when they will have sufficient funds to execute certain requirements. By focusing on just one month or quarter of actions, financial managers are better equipped to adjust plans for current and future periods based on shifts in the environment.
Set Incremental Goals
Many agencies evaluate budget execution by the end of month (or end of year) obligation rate; a good practice is to set additional incremental goals to reach these monthly obligation goals. Specifically, agencies can set incremental goals for weekly obligation rate, commitment/encumbrance rate, number of financial actions initiated, etc. Each of these incremental goals allows financial managers to evaluate budget execution in a more wholistic manner — focusing on the process as a whole rather than just the output of the budget execution process (obligations).
In addition to setting goals, tracking relevant data points around the budget execution process gives financial managers greater transparency into the health of their enterprise. By tracking data points like length of time from request to obligation, obligation rate by branch/program/project, and year-to-year comparative obligation rate, managers gain increased capacity to identify problems and address them before they affect the greater budget execution process.
Engage Stakeholders Throughout
The budget execution process requires consistent communication to succeed. For example, engaging with requirement owners early in the budget execution process ensures that fewer “surprises” arise later in the fiscal year, complicating and potentially threatening execution plans. Further, frequent collaboration with contracting offices addresses information asymmetries between departments and ensures that commitments turn into obligation without major delays.
By focusing on these five key principles, financial managers can view the budget execution process wholistically. Setting goals, tracking data, and engaging stakeholders allows financial managers to shift their focus from outputs (obligation rates) to the factors that create powerful downstream effects on the budget execution process.
Author: Kevin Myers, Lead Consultant at WBD, is a Finance and Governance professional engaged with the Department of Defense’s Joint Service Provider. In addition, he leads the firm’s state & local government efforts, working with the Finance Department of Kansas City, Missouri.