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Does anyone have experience budgeting in a matrix organization?

David Levy's Profile

We are currently organized by functional area but we will be moving to a weak matrix structure next year. This will obviously have an impact on our budget process and I would appreciate any insights on how or what to plan in a matrix organization. Thanks.

Answers

Doug Thompson
Title: Director of Revenue
Company: Castlight Health
(Director of Revenue, Castlight Health) |

If this is adding profit centers (by region, product line etc) to the usual functional organization, don't feel ALL expenses (G&A, rent etc) need to be assigned to profit centers through complex allocation formulas. You could have the profit center P&L's stop at the equivalent of gross margin, plus direct marketing expenses if applicable.

EMERSON GALFO
Title: CFO
Company: C-Suite Services
LinkedIn Profile
(CFO, C-Suite Services) |

If I am reading your question right, you are shifting from a "functional" to a "team/cross functional" approach ?

I have not experienced this but I can offer my thoughts....

1. I do not think there will be a huge conceptual difference. Your numbers will just come from individual teams and not the functional units. ex. Team 1 Instead of IT
2. I do not think that a pure matrix structure is possible and you will have to do some sort of hybrid model. There may be teams that will NOT touch or include a specific function within the company.
3. Your base data/information/costs will still come from and should be managed by functional area as they have the expertise to determine the cost and project future costs. Example...HR will have to issue "base" personnel costs for different levels in the organization to be used for new hires and maintaining existing per employee complement.
4. You can also look at it in the form of multiple projects (1 team=1 project) and budget for that each individual project.

If I misread you.....then disregard this post, I am just blabbering....lol. jk.

.

Topic Expert
Alan Hart
Title: Consultant
Company: Pacific Shine Group
(Consultant, Pacific Shine Group) |

Fundamentally, budgeting in a matrix organization is no different than in a traditional (functional) organization as long as the various budget elements (e.g., projects or teams in a matrix organization, or reporting entities in a traditional/ functional organization) can be clearly defined and data collected and allocated appropriately.

The challenge that you have here, however, is that a matrix organization is somewhat less stable than a traditional one. By that I mean, people may shift among teams or projects, as well as various expenses.

Another challenge you will encounter is matching expenses to revenues, as typically in situations like this, revenues continue to be contributed by more “traditional” reporting entities such as sales regions, product lines, etc.

Budgeting in matrix organizations tends to be implemented for the purpose of forecasting and tracking actual project (or team) expenses and may not provide the benefits that a comprehensive planning and budgeting system does.

Whether you budget for a traditional structure or a matrix organization make sure you are able to plan and budget an accurate and complete balance sheet of the organization to be able to gain insight into the future financial health of the company.

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