As the name suggests, draw-down budgeting is when you have a set number and then each initiative takes budget dollars away. You can do this in order of priority or in a first-come, first-served basis.
How to budget using draw-down budgeting
Identify how much you have to spend, either on a whole-company basis or a departmental basis.
Choose whether budget draw down will be done by priority or by first-come, first-served.
If it’s by priority, decide on a prioritization framework and communicate it out to leadership. If you’re doing it on first-come, first-served basis, then communicate when leaders can start making budget requests (note: this is not the recommended approach).
Continue the process until the budget is allocated for the time period, and then go about your business.
The problem with draw-down budgeting
When a budget starts with a big number, people will feel more free to make large budget requests even if they are not the best for the business. Unfortunately, this type of budgeting creates the mentality where people ask for big things up front in case they won’t be able to ask for them later.
To avoid this pitfall, shorten the time frames for the budget – to quarterly or monthly, not annually.
The second issue with draw-down budgeting is that it can become very political. Even with a robust prioritization framework, politicking at work could change who actually gets big dollars in the end.
Avoid this pitfall by making your prioritization framework incredibly clear and transparent so no one can politic around it.