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Justifying an Innovation Budget
Innovation Relies on Practical Things Like Alignment, Clarity, and Focus
Great budgets are rooted in alignment.
This article focuses on how to develop a persuasive, innovation-centric, annual budget justification from an executive director to an association board.
Innovation is a choice. As true with all choices, when we choose to do some things, we are deliberately choosing not to do others. It can be tricky to embed innovation in a single year’s budget as it may result in frustration at trying to cram ambitious goals into a year’s planning horizon.
It is wiser to plant important seeds for innovation to flourish over time.
Great justifications are anchored by strategy and include a rationale and explanatory sections for the proposed budget. As we dwell in the world of value creation – the stuff we create that attracts and keeps members coming back for more – I will use examples that focus on product development to create efficiencies and enhance or diversify revenue.
The Product Community is a product development learning community designed specifically for associations.
What is a Budget Justification?
“The best time to plant a tree is 20 years ago, the second-best time is now.”
A budget justification is a narrative explanation of the budget. The purpose is to sell our ideas to a sponsor for a price.
Nearly all organizations – big or small, private or nonprofit, complex or simple – have budget limitations. Our job is to anticipate our member’s needs so we can deliver superior value within these constraints. Yes, we struggle to live within our means, build new value to grow revenue, create efficiencies, or make investments in new capabilities.
No budget justification can save an association that lacks a guiding, overarching strategy. I believe this is a solvable problem.
As I have written in the past, I believe in building a focused strategy that forces our associations to choose (see Playing to Win), focus on a diversified innovation portfolio (see Innovation Within Constraints), and emphasize a balanced approach to growth (see Leading the Growth Association) in order to position us for innovation (see Striving for Greatness).
When building a budget justification, I like to follow these high-level guidelines:
Focus on the long-term vision, which forces me to choose.
Align to the strategy, which forces me to prioritize.
Leverage existing offerings, which forces me to be resourceful.
Invest in innovation, which forces me to focus.
Collaborate across boundaries, which forces me to find efficiencies.
Defer to the mantra ‘less is more’, which forces me to understand my customers.
Think out three years, which forces me to prepare now for what’s coming.
Remember that innovation is part of the day-to-day rhythm, which forces me to not cut it from the budget.
Two points here:
One is the process of building a narrative to support a single year’s budget request; the other is positioning the budget request for innovation. The next section will cover the basics. I will then apply these concepts to the higher bar of embedding innovation into a budget so we gain traction, start bearing fruit, and (over time) learn to focus on what’s most important.
What Goes in a Budget Justification?
“A budget is more than just a series of numbers on a page; it is an embodiment of our values.”
These elements help the board understand an association’s financial needs, the strategic priorities being addressed, and the expected outcomes. Here are the major elements that go into a budget justification:
Executive Summary. Begin with a concise overview of the budget request, highlighting key figures and the association's top-level objectives for the upcoming year.
Strategic Goals and Objectives. Clearly outline the association's strategic priorities and goals for the upcoming year. Explain how the proposed budget aligns with these objectives and supports the association's mission and vision.
Programs and Initiatives. Detail the specific programs, projects, and initiatives that the budget will fund. Provide a brief description of each, along with the anticipated outcomes and benefits for members and stakeholders.
Expense Breakdown. Present a comprehensive breakdown of the budget into specific expense categories such as personnel, operations, marketing, professional development, technology, and any others relevant to the association's operations. Include the rationale for each category and how it contributes to achieving the association's goals.
Personnel Costs. Explain the allocation of funds for personnel, including salaries, benefits, and any new positions or changes in roles. Justify the staffing decisions based on workload, organizational needs, and member services.
Operational Costs. Justify expenses related to day-to-day operations such as office space, utilities, office supplies, travel, and other overhead costs. Highlight any changes from the previous year and how they tie into the association's plans.
Member Services and Engagement. Discuss how the budget will support member services, engagement, and benefits. Highlight any new services or improvements to existing ones that enhance the value of association membership.
Professional Development. Detail the budget allocation for educational and professional development programs, conferences, workshops, webinars, and other events that provide opportunities for members to enhance their skills and knowledge.
Marketing and Outreach. Justify the funds allocated for marketing, advertising, and outreach efforts. Explain how these initiatives will help attract new members, increase visibility, and promote the association's activities.
Technology and Infrastructure. Discuss investments in technology, software, and infrastructure that are necessary for the association's efficient operations and to deliver enhanced member experiences.
Revenue Projections. Provide an overview of the projected revenue sources, including membership dues, event registrations, sponsorships, grants, and any other funding streams. Explain any changes from the previous year and how they align with the budget.
Financial Sustainability. Address financial sustainability including efforts to balance the budget, maintain reserves, and manage any potential risks.
Risks and Mitigation Strategies. Identify potential risks and challenges that could impact the budget's successful execution. Explain the strategies in place to mitigate these risks and ensure financial stability.
Performance Metrics and Measurement. Describe the key performance indicators (KPIs) that will be used to evaluate the success of the budgeted initiatives and programs. Explain how the association will measure progress toward its goals.
Alignment with Past Performance. Compare the proposed budget to previous years' budgets, highlighting trends and demonstrating how the budget aligns with the association's historical financial performance and growth.
Overall Impact. Summarize the budget justification by reiterating the alignment with the association's strategic objectives and the anticipated positive impact on members and stakeholders.
The budget justification should be clear, well-organized, and compelling. It should effectively communicate an association's vision, goals, and financial needs to the board, helping them make informed decisions about approving the request.
Example Budget Justification for An Innovative Association
“To achieve great things, two things are needed; a plan, and not quite enough time.”
In a recent article (see Striving for Greatness), I outlined the paths of three fictitious associations: a traditional one, a striving one, and an innovative one. Here, I return to the innovative one – named TechConnect – and provide a sample budget narrative that reflects an investment in sustained innovation.
In line with TechConnect's commitment to innovation and creating a transformative impact on the technology industry, we propose a budget that aligns with our mission of fostering a vibrant and engaged product community.
This budget is designed to enable TechConnect to invest in new capabilities, technologies, and strategic initiatives that will drive exponential growth, enhance member engagement, and further solidify our position as a trailblazer in both technology and the world of associations.
As you will note, I am not strictly following the template I introduced above. I am only covering the relevant areas to innovation.
"In today's rapidly changing landscape, innovation is not just a choice; it's a necessity. As we prepare our budget for the next fiscal year, our focus on innovation is paramount. We recognize that by leveraging our existing offerings and exploring new avenues, we can not only better serve our members but also drive revenue growth that will sustain our association's mission."
Strategic Goals and Objectives
Professional Development. Invest in training and professional development to ensure we have new capabilities to continue to drive innovation.
New Technology. Invest in technology to ensure members and stakeholders have a frictionless customer experience.
Bite-Sized Learning Pathways. Develop accessible yet longitudinal pathways to enhance engagement and draw new markets.
Training and Professional Development for New Capabilities. To ensure that our team is equipped with the skills and knowledge required to drive TechConnect's innovative initiatives, we will allocate funds for training and professional development programs. This investment will empower our staff to harness emerging technologies effectively and implement cutting-edge strategies.
New Technologies for Seamless Customer Experience. A key pillar of our strategy is to provide a seamless and immersive experience for all our members. We will allocate resources to acquire and implement new technologies that enhance user engagement, facilitate networking, and enable dynamic interactions within our product community.
Bite-Sized Learning Pathways. Recognizing the evolving needs of our members, we will invest in the development of bite-sized learning pathways. These pathways will offer timely and relevant educational content, allowing our members to stay at the forefront of technological trends while balancing their busy schedules.
Learning Pathways Program. We project a significant revenue boost by launching our innovative learning pathways program. With an anticipated enrollment of 200 new learners (each contributing to the sustainability of this revenue stream) we forecast substantial returns from this initiative.
Increased Event Attendance. Our renewed focus on immersive experiences and participatory learning will lead to a projected 20% increase in event attendance. This growth could translate into higher registration fees, sponsorships, and partnership opportunities, bolstering our financial resilience.
Fellowship Program. We are excited to introduce a fellowship program that offers select members exclusive access to specialized opportunities, events, and resources. This program will attract premium memberships and foster a sense of connection and exclusivity within our product community.
Membership Enhancement for Young Professionals. To attract and engage young professionals aged 25 to 40, we will roll out targeted membership packages tailored to their needs. The projected surge in membership sign-ups will contribute to revenue growth while expanding our reach.
TechConnect is committed to optimizing our operations and resource allocation to ensure that every dollar invested translates into maximum impact for our association. Our focus on efficiency encompasses a range of strategies that will streamline processes, reduce costs, and enhance the value we deliver to our members and stakeholders.
New Collaborations Across Staff and Volunteer Silos. Effective collaboration between staff and volunteers is crucial for success. By breaking down silos and fostering a culture of teamwork, we can leverage diverse skill sets and perspectives to drive strategic initiatives, enhance member engagement, and deliver better value.
Leveraging Underutilized Content and Programming. Our vast repository of underutilized content and programming is a valuable asset. We will strategically repurpose and extend the life of this content, thereby reaching new markets and expanding our offerings. This approach maximizes the value of our existing resources and minimizes the need for additional content creation costs.
Remote Work and Reduced Physical Space. The increase in remote work practices has significantly reduced our reliance on physical office space. By embracing remote work, we save on capital costs associated with maintaining physical spaces but also provide flexibility to our staff, resulting in increased job satisfaction and productivity.
Retirement of Legacy Technology Systems. The retirement of our legacy technology system is a strategic move to eliminate maintenance costs and operational inefficiencies. By transitioning to modern, off-the-shelf solutions, we ensure that our technological infrastructure is both cost-effective and scalable, facilitating a seamless member experience.
Reduce Volunteer Travel Costs. Shifting cross-country volunteer meetings to regional, drivable gatherings significantly reduces travel costs. This optimization ensures that volunteers can participate in meaningful discussions without the burden of travel. It also promotes more frequent engagement and stronger connection among volunteers.
Increased Investment in Technology. An increased investment in technology, including platforms like Zoom and other collaboration tools, enhances our ability to deliver value virtually. This strategy not only reduces the need for travel-related costs but also enables us to engage members globally, expanding our reach and impact.
These efficiencies reinforce TechConnect's commitment to responsible resource management and sustained growth. By leveraging our existing assets, embracing modern technologies, and fostering collaborative practices, we optimize our operations to maximize value for our members, stakeholders, and the tech industry. As we continue to pursue innovation, these efficiencies will play a pivotal role in driving our association's success and impact.
The proposed budget supports TechConnect's pursuit of excellence and innovation, driving tangible outcomes, and fostering a culture of continuous engagement.
By investing in training, new technologies, and member-centric initiatives, we will elevate member engagement, grow revenue, and reinforce our position as a transformative force within the tech industry. This budget is a strategic step towards realizing our vision of a vibrant, collaborative, and impactful product community that shapes the future of technology.
We remain committed to the responsible resource management, ensuring that each dollar invested generates measurable returns in terms of member value, industry influence, and long-term sustainability. As we move forward, we are excited to witness the positive outcomes that will result from these investments and the flourishing ecosystem they will help create.
Growth and Sustainability
"Innovation is not just a buzzword; it's our path to a sustainable future. By leveraging our strengths, responding to member needs, and investing wisely, we are not only securing our association's financial health but also ensuring our continued relevance and impact in the years to come."
Only so much can happen in one year.
Building innovation into our association budgets shouldn’t be something special nor relegated to a single line item open to cuts when we need to balance the budget. It should be embedded throughout the budget so innovation (over time) becomes something natural and normal, not a hard-to-achieve moonshot change initiative that often fails under the weight of its own ambition.
Innovation is a vital part of every budget. Unless (or until) we start embedding innovation into our day-to-day practice, it will become increasingly difficult to prepare ourselves for a vastly evolving world.
Remember, next year's narrative budget justification is just one crucial step in ensuring growth and sustainability.
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About the Author
James Young is founder and chief learning officer of the product community®. Jim is an engaging trainer and leading thinker in the worlds of associations, learning communities, and product development. Prior to starting the product community®, Jim served as Chief Learning Officer at both the American College of Chest Physicians and the Society of College and University Planning.
Please contact me for a conversation: firstname.lastname@example.org.