One of the ongoing tasks for any Change Management Office (CMO) leader is estimating the budget required. Every department in every business needs a budget to cover the costs of doing the things it needs to do. This is worth getting right, as an under-budgeted CMO will always struggle to excel. A lack of budget means CMO leaders must work with one hand tied behind their backs, and all those ambitious plans for change management in the organisation will come to little.
When we talk about change management, and the associated topics, we rarely spend much time, typically, talking about the mundane sounding task of budgeting. But budgeting for the CMO is a non-trivial task that can eat up a significant proportion of the CMO leaders’ time. A well-funded CMO has the flexibility to do more interesting and exciting activities that will help promote and drive the discipline of change management in the organisation.
Put simply, the currency that organisations work on is budgets, and if a CMO is going to operate effectively, it needs to have access to this currency. But budgets are not just handed out, they must be estimated and argued for. In this article I will look at some of the considerations in budgeting for a CMO.
Budget challenges for the CMO
Let’s start by thinking about anything that is different about the budget for a CMO versus the budget for any other function in a business. I think there are two main challenges in determining the budget for a CMO. The first is the variability in the level of work. Demand for change managers varies over time. The second is the basis on which the CMO gains its budget. Sometimes CMOs are budgeted for directly, but sometimes indirectly from, for example, project budgets.
1. Fluctuating demand
The CMO budgeting process starts by estimating the costs of running a team. This can be hard enough, but it’s especially hard to estimate a budget for a team whose workload is so variable. One good answer is to start by focusing on you core resources. That is those people you will need in the CMO even if the pipeline of change initiatives is at the lowest estimate. This will enable you to calculate the bare minimum budget required.
Beyond this there is inevitably going to be more people that you need, but this additional headcount requires a good understanding of the change portfolio and the ups and downs of demand across the year. There will be information available to support you making such an analysis, but experience shows that annual plans are subject to significant change and variation across the year.
For these reasons, it is best to take any plans with a pinch of salt and make sure you have enough contingency in your budget for the inevitable surprises that will occur. If the old adage is “there’s no constant but change”, it could be supported by “and there’s always going to be budget surprises!”.
Often such budget contingency may be challenged and even removed from your budget. This is a normal occurrence in every business. When this happens, it is time for the CMO leader to stand firm and make sure the implications of a smaller budget are understood. I have often had those conversations which are centred around a statement like this: “I can run the team on the reduced budget, but understand that means we will only be able to support the top x initiatives and not any other demand for change managers.”
2. Indirect budget
There is a second challenge for CMO budgeting derives from the basis for gaining access to a money. A CMO will always have its own budget, but rarely do I find a fully funded CMO. By fully funded I mean a CMO that has access to the full budget it requires to pay the salaries and associated costs for all the CMO team members required across all change initiatives, as well as having some budget for CMO operations and change capability development. What often happens is that the CMO is allocated a nominal budget, and then the rest of its costs must be found from project and other initiative budgets.
This requires negotiating with the leaders of initiatives and their project managers for an adequate budget for the change management activities on the project. Sometimes the project managers are helpful in understanding the critical role of good change management, but on other occasions they are less helpful. A wise CMO leader is prepared for these discussions and has plenty of strong arguments for the critical importance, and high value add, from having professional change management support on initiatives.
Start with the headcount
The core cost in running most CMOs is the costs of employing staff, and the costs associated with contingent workers including contractors and consultants. In a previous article I wrote about how to go about sizing your CMO and estimating your headcount needs. If you follow this approach you will have an idea of how many people will be in your team across the budget year.
Converting from headcount to a budget is relatively straightforward if you know everyone’s salary and have a standard way of accounting for the other headcount related overheads. Where you do not know the salary, because you have not recruited the staff yet, then you will have to make an estimate based on the seniority of the change managers you are recruiting.
Beyond your permanent headcount there needs to be money left aside for the fees of any contractors and consultants you bring on board. One consideration for these staff is whether you have to pick up their charges in your budget or if they will be directly paid for, or recharged to, project budgets. It is worth being crystal clear on this with all your critical stakeholders, as it can be the source of many protracted arguments between CMOs and change initiative budget holders.
Don’t forget the non-headcount budget
The focus of a CMO budget is normally headcount, and in my experience this is the majority of the CMO’s costs, but it is not everything. CMOs need to find the time and money to invest in areas like the development of methods and tools, staff training and generally developing the organisation’s change capability.
“... you may want budget to support sending staff on training courses or to hire expert change consultants to advise on methods or tools.”
Sometimes this is about allocating the time of change managers to non-project-based activities, but it may also require external spend. Even if it is using your own permanent staff, you must ensure that you have the funds to do this, if most of your budget comes from project recharges. For example, you may want budget to support sending staff on training courses or to hire expert change consultants to advise on methods or tools.
Typically, this does not need to be a huge amount of money as most of the CMOs effort should be spent on change initiatives, but it does need to be something. Without any budget available for such activities the CMO will struggle to thrive and develop. This is worth thinking through carefully.
Developing a budget estimate
If you have the estimates for the budget elements so far described: permanent headcount, contractor and consultant fees, and the non-headcount related costs associated with running an effective CMO and developing the organisation’s change capability, you should have all the information you need to develop your budget. If you are unsure, ask an experienced colleague from another function to look over your budget. The best questions to ask such a colleague are:
- Have I forgotten anything?
- What challenges am I likely to face when the budget is reviewed?
It is also always worth asking a friendly person in the finance department, perhaps your finance business partner if you have one, whether you should expect any additional recharges and costs to be placed against your budget. Most CMOs are in large organisations, and the workings of inter-departmental recharges can be murky to understand, and such recharges have caught out many a manager over time. If you are pre-warned, you can avoid these problems by making sure your budget is sufficient to cover them.
Estimating is only part of the battle
As anyone who has ever had to get a budget in any business will know, estimating what budget you require and getting that budget are two quite different things. In most businesses there is that budgeting game of toing and froing that goes on between budget holders, and those who allocate and authorise the budget given. Budget requests are often reviewed sceptically with the feeling that everyone estimates more than they need. One of those regular rituals of business is the process of negotiating for a budget.
How this ritual of negotiation plays out in your organisation is a facet of organisational culture as much as anything else. In some organisations everyone fattens up their budget before submitting it for approval in the sure knowledge it will be cut. In other organisations, there is a rigorous annual process of zero-based budgeting. There are no universal rules for the best way to approach this, but the CMO leader is most likely to be successful in getting their budget when the follow two general guidelines.
Rule 1
The first is to get your sponsors aligned before submitting a budget. A well supported function is more likely to get its budget than a poorly supported one. Anyone who works in the domain of change should understand this well.
Rule 2
The second is to play the budget game in the way your organisation expects. Again, cultural awareness of how your organisation really works should be something change managers are well familiar with dealing with!
In summary
An adequate budget is essential to any well run and successful CMO. When the budget is insufficient it is hard to add the value a CMO can, and the CMO leader will spend significant time “beg, stealing or borrowing” budget from other areas such as project budgets.
The central elements in a CMO’s budget is the costs associated with employing change managers, but it is important not to forget the CMO needs money to run its own operations and to develop capabilities and services.
Budgeting is a science in terms of estimating what is required, but an art when it comes to actually getting the money allocated. The budgeting game is one a CMO leader needs to get adept at playing, as a foundation stone in a successful CMO.