The Employee-Run-Budget Worksheet

When Steve Wilson finally opened the books to employees, he had one proviso: they had to do the budgets. Cost control is great now.


* The Employee-Run-Budget Worksheet

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"Those two years were probably the worst years of my life," says Steve Wilson about the period when his fast-growing company almost self-destructed.

From the outside, things didn't look so bad for Mid-States Technical Staffing Services. In 1990 the Davenport, Iowa, engineering service opened two new divisions -- one in Madison, Wis., and another in Omaha. Since Mid-States' inception, in 1986, annual sales had grown to $4.6 million, and the company was more profitable than ever.

But Mid-States was suffering from growing pains. In 1991 Wilson's top managers were engaged in a power struggle. Employees picked sides. Soon, revenues and profits began to slide, and turnover rose to more than 30%. "My sales manager and operations manager would fight about which projects to do, how contracts should be worded, how much commissions should be," says Wilson. "I'd make a decision, and one side was inevitably unhappy."

He figured there had to be a better way. He began reading about "open-book" management -- in which a company's financials are regularly presented to all employees -- and after visiting an open-book company, he became convinced that he could salvage Mid-States by sharing the company's numbers and teaching employees how to make their own decisions. His first goal was to remove himself from the disputes. "I thought, 'I'm not going to make any of these damn decisions anymore. I'm going to teach you to do it yourselves, because this is going to kill me.'"

Mid-States was in for a complete overhaul. After attending a seminar on open-book management, Wilson and his key managers created a three-year strategic plan built around employee involvement. Now what Mid-States needed was a tool to keep employees focused on the company's finances so they could start participating in decision making. The chief executive and his operations officer came up with a simple, user-friendly worksheet for the employees to use to manage the fixed-cost line items in the company's budget. Then they tied a bonus program to profitability to reward savings.

Wilson got the ball rolling with a one-day financial-training seminar for the entire staff, followed by another 20 hours of open-book workshops. Afterward, all nonmanagement employees were asked to pick a budget line item they would like to be responsible for, and Wilson and his managers matched those choices with items employees were involved with daily. Once their budgets had been approved, employees would be free to buy. They would regularly track actual expenditures against the budget worksheets, noting any discrepancies on the sheets.

Wilson's plans met with plenty of fear and skepticism. "The employees' first reaction," he says, "was, 'None of us have a clue how to create a budget.'" So Wilson had his support staff show how to price items, where to find vendors, and so on.

But many workers welcomed the opportunity. A group of designers measured the paper wasted by their blueprint plotter and proposed that the company invest in a laser printer to handle small jobs. Says division manager Jim Kieffer, "It caught me off-guard that they'd be concerned enough to figure out the square inches wasted on a roll of paper."

The launch of the first "bottom-up" budget took months of coaching (and about 90 hours of managers' time) over a six-month period. Three budgets later, the process is much smoother. And the results are persuasive. Explains Wilson, "Employees were always saying, 'Why doesn't the company do this?' Now every issue comes down to a financial matter. The biggest payoff is that there are fewer disputes over day-to-day spending decisions." Also, expenses are running 15% below their 1991 levels now that 17 people control costs. That's helping profits: for 1994, net pretax income was expected to come in at 11.3% of $5.6 million in sales, up from 3.5% three years earlier.

This article originally appeared in Inc. magazine in February 1995, and was written by Stephanie Gruner.


* The Employee-Run-Budget Worksheet