Time To Experiment: Democratizing Our Budgets

Bram
Written by in Experiments
- 7 min read

Besides from being part of Corporate Rebels, I'm a governance researcher for a startup called Polis. We are developing methods and mechanisms that help other purpose driven organizations be more democratic. This way not only shareholders, but all stakeholders can have influence on the decisions that are made. We want to practice what we preach. So that’s why we started an experiment to see how we could democratize our budgets.

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Some context

When we started this experiment we didn’t have any team-budgets. The only source of income we have were the funds provided by the founder of the company, while all our teams are currently in research stage. This meant that we could focus all our time on research and steadily grow our organization, while we weren't making any profit. Nevertheless, at the end of the month everyone would receive their salary on their bank-account. No questions asked.

This might seem a bit strange for a company in the startup stage, but compared to a lot of traditional organizations I think it's not that different. Everybody is working really hard and is focused on their tasks, but most of us don't know how their efforts are influencing the results of the company, or where the money that ends up in their bank-accounts comes from.

Access wasn't enough

Unlike traditional organizations, at Polis, everyone has access to all (financial) information. Every member can see the salaries of their colleagues and we receive regular updates on how much money we spent as an organization.

Even though we had access to all of this, nobody seemed to really care or understand much about finances. Rather logical. We all got our salary at the end of the month, and funds didn't seem to be running out anytime soon, so why bother? Does this sound familiar for those of you working in more traditional organizations?

Why we bothered

We are a purpose driven company, so we're not interested in making as much money as we can. For us talking about money isn’t about optimizing our profits, it is about choosing how to invest and set priorities. We believe that we can make better decisions by enabling the wisdom of the whole organization. Furthermore we wish to encourage all our members to be interested in how we spent money and participate in deciding what our priorities are.

Keeping this in mind we formulated the goals for a successful experiment;

  • We want a solution that would increase the sense of ownership amongst our members

  • We want to create more awareness that funds can run out and we need to keep that in mind when setting priorities.

  • We want to provide more insight on a team-level so that everyone can understand how the finances of their team work, and have the skills to influence it.

  • By creating team-budgets we want to empower teams to make their own decisions regarding hiring and team expenses.

The experiment

After identifying what we wanted to do, we created the following experiment:

We divided the budget into team budgets, broke that down into monthly budgets based on the expense of previous months (salary, tools, etc.) and shared that with the teams.

  • This made it easier for each team to see how much they spend on what and where they could save money.

  • The teams use the monthly budgets as a guideline, they are free to spend more money. But they are aware of the consequences, because spending more will bring down the runway of their team.

If at the end of the period a team has spend less then their budget, they can redistribute the remaining monthly budget in three ways;

  • They can decide to add the funds to their own team’s budget and increase their runway, or save money for some investments in the future.

  • They can redistribute their funds to any of the other teams if they think it makes more sense for that team to use the funds.

  • They can choose to redistribute their funds to a Collaborative Fund, for which any member of the organization can create proposals.

By default, any remaining funds will be added to the Collaborative Fund. So if a team wants to redistribute their funds differently, they have to state that.

The Collaborative Fund (inspired by Enspiral’s Co-budget) can be used to finance proposals created by any of the members.

  • Any member can create a proposal for how to spend the money in the Collaborative Fund. Using our Proposal & Decision making process the organization can decide how we spend that fund.

The funds members loan to the organization are added to your team's budget.

  • Inspired by Italian worker-cooperatives, every member has the possibility to loan part of their salary back to the organization. Employees get higher returns then they would on the bank, and the company has a cheaper loan.

  • The funds you loan to the organization will be added to the teams budget, giving you the chance to influence how the money is used.

Rules to guide the experiment

The teams are free to decide how they spend their money. If they want to hire someone, they can! However, they also know that they are affected by the consequences and the salaries need to come out of their budget.

By default any remaining funds are added to the Collaborative Fund. This might seem harsh and unfair but we think that, especially in the beginning, there has to be some incentive for everyone to think about it and make a conscious decision.

The teams are free to decide how to come to a decision. They can choose a finance representative, collaboratively decide each month, or come up with their own alternative.

We will evaluate the experiment after a couple of months and if there are any concerns in the meantime those can and should be shared in our assembly or via Slack.

What we hope this experiment will do;

  • It forces teams to think about why and how to distribute funds.

If your team thinks it's important we do more marketing, it's probably not a smart thing to redistribute your funds to the Governance Team.

  • It aims to stimulate information sharing and collaboration between teams

If you don’t know what other teams are working on, you’ll probably not give them any of the remaining budgets.

  • Teams pitching ideas/proposals to the rest of the organization to get additional funding.

  • We hope that this will be a first step in getting more financial awareness and ownership within our organization, and we are convinced that we’ve learned a lot once we evaluate after a couple of months.

Potential negative outcomes;

We thought about this and identified some potential negative outcomes that we wanted to prevent while designing this experiment.

  • Teams start spending more money to make sure they spend everything in their budget (hopefully the option to any remaining funds to your own team’s budget prevents this behavior)

  • Teams getting into disputes over money (luckily we have some conflict resolutions methods that will help us if this becomes reality)

  • Teams not making conscious decisions about how to redistribute their funds, but just keep adding their funds to their own team-accounts as a ritual. (We hope that transparency counters this)

  • And probably many other negative outcomes we couldn't think of yet, but that we hope to prevent with a thorough evaluation

What we learned thus far

After presenting these ideas, discussing the concerns, adding and changing some of the elements, we voted on the proposal and it was accepted. The experiment has just started and it's too fresh to draw any conclusions, but there are some things we learned when preparing it. Giving access to (financial) information is not enough, you need to present in a way that people understand. Making everyone responsible motivates them to not waste money. One of the teams quickly realized they were still paying for a tool they weren't using anymore. Canceling it immediately increased their runway. Simple as that. And last but not least, discussing and trying to understand issues raised by the other members, helped us improve the experiment by adding the Collaborative Fund.

I'm pretty sure that in a couple of months, we have much more lessons. To be continued...

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Replies (11)

Robbert Bouman

Robbert Bouman

Thanks for sharing, Bram. Seems like a great way to build and raise engagement. Look forward to learning on the conclusions.

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Thierry Linder

Thierry Linder

Hi,

really intersting approach. I^ve a question, what's the size of your team and what are the rules to create them (competencies, business unit, tribute, sites,...)

Thanks for your next precisions
Thiery

| | 1 | Flag
Tom Suter

Tom Suter

Nice experiment, very curious about the results in a few months.

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valerie carrette

valerie carrette

Thanks for sharing, Bram! Love to learn from your experience.

| | 2 | Flag
Bram

Bram

Hi Thiery,
Currently we have a 2 teams. One consists out of 2 core-members and some part-time advisors, the other one consists of 9 core-members and some outside advisors.
Currently the rules for creating them, are mainly around funding. Are there enough resources, or potential resources for us to hire someone or start a new project.

Hi,

really intersting approach. I^ve a question, what's the size of your team and what are the rules to create them (competencies, business unit, tribute, sites,...)

Thanks for your next precisions
Thiery

Thierry Linder

| | 1 | Flag
Imelda

Imelda

I worked for a communications company in Belfast in the 90's who brought in a similar concept between departments, where each department was allocated a budget to live within, before that all purchases came out of a centralised fund without a breakdown at local level. The financial disparity between departments was huge. Interesting to note how some departments readily availed of company stock for personal use believing it to be a perk of the job never mind expense accounts !! And the differences between departments in ordering, replenishment, reuse, recycle, think before you order was enlightening and showed numerous trends as different times of year. (e.g. People going to stationary stores and stocking up in August for their kids returning to school, with pens, pencils, notebooks, photocopying paper, the list was endless, the cost to the company highly significant - a perk of the job !!! )
It changed a lot of behaviors and made people think of the business as a functional financial entity rather than just a wage packet.

| | 3 | Flag
Bram

Bram

HI Imelda,

Thanks for sharing it your experiences! Would you say overall it was a good or a bad experience? And do you know of these changes have stayed over the years.

Cheers!

| | 1 | Flag
Jillian

Jillian

I’m finding this experiment of teams managing their own budgets very interesting and can see the benefits but also the negatives as in the example Imelda witnessed in the Organisation she worked for. I am keen to know Imelda, in this situation was the decision made collaboratively by the whole team to use their funding for the ‘school purchasing’, and was the whole team given this privilege or just one {or a few} members within the team. Was there a breakdown in the decision making within the team?

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Ernest

Ernest

Hi Bram,
Thank for sharing you story. I work at a company who is using Holacracy and we also wanted to have more financial awareness at our colleagues. That is why we created a system which is based on Beyond Budgeting. I see some similarities between your system and the system we use.

I had two questions after reading your story.
How do you decide the size of the budget every team gets?
You wrote about a Proposal & Decision making process for spending money from the Collaborative Fund. Can you explain what that process looks like?

| | 1 | Flag
Imelda

Imelda

HI Imelda,

Thanks for sharing it your experiences! Would you say overall it was a good or a bad experience? And do you know of these changes have stayed over the years.

Cheers!

Bram

It was an excellent initiative though of course not without it's gripes upon implementation. Interesting to note that the departments with the highest culpability in misusing business resources were male dominated - perks of the job seemed to be an out of the business box thinking norm, and their consciousness about the long term impact on resources and finances wasn't a consideration - some of these guys even filled their own cars with the fuel on site for company vehicles. It was an education for a lot of people and long overdue if you ask me. The departments with a high level of women tended to be run more efficiently and with greater interest in corporate governance.
Another great initiative that was run in tandem was a New Ideas policy. Anyone in the company could forward an idea to help the business in any manner. Top prize each year was 20k for any idea implemented that would result in significant savings for the business. No surprises that the first great idea implemented came form a tech guy, Harry Hasson, a quiet, unassuming, loner, came up with a software programme which the company implemented resulting in over 50k in savings a year. The ripple of delight throughout the company was tangible, people were delighted, motivated and brains moved up a gear in thinking about the customer, the relationships in the community, the benefits of thinking broader, longer and with a little depth. Not everyone would have been on the same page, but it was hard not be proud that one of your co workers that had got a huge bonus from the company by using his innate skills. Gotta love techie people, their brains just work in a different way :-)

Good changes always stay and then they are taken to the next level by those who are adept at adopting change.

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