Budget Review and Approval Process · From Department Budget Requests to Final Approval
Budget Request, Review and Approval Process
What is a budget review?
- A budget is a plan, expressed in money
- How the amount was calculated, and what happens if it isn’t carried out
- This year’s execution rate backs up next year’s request
What a review process really changes is the nature of the budget. Without one, a budget is handed down as last year’s spending plus a few percent, it becomes an entitlement, and people come to feel that unspent money is money lost. With requests and reviews, the budget becomes the monetary expression of an approved plan: “what are we doing, and how much do we need?” comes first, and the numbers follow. Once the questions asked in review and the reasons for cuts are on record, that record becomes the baseline for mid-year budget requests and next year’s request.
The process usually runs in five stages. First is the guideline stage, where Finance issues company-wide limits and preparation instructions. Second is the request stage, where departments enter amounts and supporting rationale by item. Third is the first review, where Finance and Planning screen for compliance with the guidelines and for duplication. Fourth is the second review, where executives adjust priorities. Last is the approval stage, which runs through the board report and notification. A request should show how each amount was calculated and what happens if the item isn’t carried out; both matter more than the amount itself. As a rule, any amount that can’t be broken down into unit price, sessions, and headcount is sent back at the first review. Review criteria typically draw on three or four factors: last year’s execution rate, links to management policy goals, whether the item is a legal obligation, and available alternatives. Statutory items are usually exempted from cuts first.
A training manager’s request should be broken down by course. List one line each for course name, number of participants, number of sessions, unit price per session, whether it is outsourced, refund eligibility, and the management-policy goal or statutory requirement behind it. Reviewers then have to name which course they are cutting, so whole requests get cut less often. Listing statutory training and training tied to policy goals first, and elective courses last, works better in review. If last year’s execution rate was low, no justification carries weight, so drawing up a plan to spend this year’s remaining budget now, in October, may be more urgent than next year’s request.
Where it goes wrong in practice is when the request turns into a negotiation document. If departments pad requests by 20% expecting cuts and the review routinely cuts 15%, both sides stop trusting what the numbers mean. Another common problem is a review that looks only at the amount and never asks about the content; departments then stop writing justifications and Finance responds with across-the-board cuts. If final approval slips past January, Q1 spending stalls and the annual execution rate drops, which becomes next year’s excuse for cutting again. And if the review result is communicated without stating why items were cut, the same item comes back at the same amount year after year.
John KimAuthor of B2B Marketing Design and CEO of Nanum Consulting
Okgum LeeExpert in corporate analysis, fundraising, and business planningSetting the annual budget through departmental requests and review was formalized in the budget-control practice of large U.S. corporations in the early 20th century. It spread to businesses in a form modeled on the request, review, and approval steps of government budgets. Korean companies often run it together with business planning from November through December.
Consider a hypothetical case. Company A makes medical devices and has 310 employees and annual revenue of KRW 78 billion (≈ US$58,357,000). Last year it requested KRW 120 million (≈ US$89,800) for training, and the budget was finalized at KRW 80 million (≈ US$59,900). The only reason given for the cut was a one-line “company-wide austerity,” and the notice arrived on January 20.
- In early November, Manager Moon of HR split the request into 18 lines by course, listing each course name, target headcount, number of sessions, unit price, expected reimbursement, and the goal it supports. The 4 statutory courses and the 5 courses tied to management policy goals went at the top.
- In the Finance team’s first-round review, someone asked, 'Why is the leadership workshop unit price 30% higher than last year?' Manager Moon attached three external instructor quotes and answered, 'Changing the one-night residential format to a single day saves 12%.'
- At the second review, the CEO pointed out that “half of the 9 elective courses look unrelated to next year’s goals.” Ms. Moon dropped 4 of them herself and redirected part of that amount to additional sessions of the sales-proposal training.
- The final notice arrived on 22 December, listing each cut course and the reason item by item. At the review, Manager Moon had also submitted data showing that this year’s remaining-budget execution rate had risen to 94%.
- The approved amount was KRW 96 million (≈ US$71,800) out of the KRW 110 million (≈ US$82,300) requested, up KRW 16 million (≈ US$12,000) from last year. Spending began in the second week of January, and the Q1 execution rate rose from 11% last year to 24%.