The manager of a budget process
The manager of a budget process
The person who is ultimately responsible for ensuring that the budget is followed is known as the Budget Holder. Budget holders are usually the managers and operational directors of companies who are tasked by the owners/shareholders or the board of directors to ensure that the company follows whatever budget is laid out for them.
In most cases, the managers and the operational directors play a major part in the framing of the budget itself. The managers and directors usually play a dual role; they not only help frame the budget but also must make sure that it is followed. However, in some cases, the managers and operational directors may have no say in the framing of the budget and take it from whoever framed it. In such cases, the manager or operating director acts as a budget holder and must ensure that the budget is followed.
To learn more, launch on online financial analysis courses now!
A Budget Holder for a company needs to ensure that all financial transactions involving the company comply with existing financial rules and regulations governing them. Consider the following example: Company ABC is a manufacturing company and produces a good, X. The manager (acting as budget holder) of company ABC needs to make sure the procurement and acquisition of raw materials for the production of X follow the financial rules and regulations laid down by the government. These include the wages for all workers of company ABC that should be paid out per the government’s financial rules and regulations.
Large companies usually have multiple departments and divisions and employ numerous workers in each of them. The Budget Holder decides how much of the company’s budget is allocated to each department or division. This allocative role is one of the most important tasks faced by managers and is considered one of the hardest jobs in management. Consider an extension of the previous example. The manufacture of X by company ABC involves 3 steps. The company sets up three different departments, each of which is responsible for one step. Each department would like to have as much of the budget as possible. It is up to the Budget Holder to allocate the budget in a manner that maximizes the profits of the company. (It could be the case that company ABC has different goals to profit maximization such as total sales maximization. In such a case, it is the Budget Holder’s responsibility to allocate the budget in a way that maximizes the total sales of the company).
For small companies, the budget holder may also be the budget head – the person who is ultimately responsible for the framing of the budget. However, for large companies, the budget head may not be the budget holder. In such cases, it is important for the company that the budget head and the budget holder share the same goals for the company. For example, a budget head might frame a budget that does not provide adequate funds for the company’s activities. It would then be impossible for the Budget Holder to adequately perform his job.
The reason large companies often employ two different people for the two positions mentioned above is that the framing of the budget and the enforcement of the framed budget may require two very different skill sets, and it is difficult for the company to find a person who possesses both skills. Even if the company wants one person to do both jobs, it simply may not be possible.
At a corporation, the Budget Head is usually the leader of the Financial Planning & Analysis team.
Many large companies employ multiple budget holders who form a committee. This committee is charged with ensuring that the budget is followed. The committee usually consists of managers and directors from the different departments and divisions of the company. The system is more democratic, but may also cause inefficiencies for the company in the form of infighting and indecisiveness.
Even if a company employs only one Budget Holder, he or she does not work alone. Many people, including lawyers, financial experts, industry experts, and consultants, work under the Budget Holder. Ultimately, the Budget Holder is held accountable and is responsible to the Owners/Shareholders.
To learn more, launch our FP&A cash flow modeling courses now!
Thank you for reading CFI’s guide to Budget Holder. To further your financial education, see the following free resources from CFI:
Advance your career in investment banking, private equity, FP&A, treasury, corporate development and other areas of corporate finance.
Get certified as a financial analyst with CFI’s FMVA™ Program.