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What's Broken about Budgeting?

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How many people in your organization love the annual budgeting process? Probably none. The mere mention of the word "budget" raises eyebrows and evokes cynicism. It should. That's because the agonizing annual budget process may include:

  • Obsolete budgeting - The budget data is obsolete within weeks after it is published because of ongoing changes in the environment. Customers and competitors usually change their behavior after the budget is published, and a prudent reaction to these changes often cannot be accommodated in the budget. In addition, today's budget process takes an extraordinarily long time, sometimes exceeding a year, during which the organization often reshuffles and resizes.
  • Bean-counter budgeting - The budget is considered a fiscal exercise produced by the accountants and is disconnected from the strategy of the executive team - and from the mission-critical spending needed to implement the strategy.
  • Political budgeting - The loudest voice, the greatest political muscle and the prior year's budget levels should not be valid ways to award resources for next year's spending.
  • Over-scrutinized budgeting - Often the budget is revised midyear or, more frequently, with new forecast spending. An excess amount of attention then focuses on analyzing the differences between the actual and projected expenses. These include budget-to-forecast, last-forecast-to-current-forecast, actual-to-budget, actual-to-forecast and so on. This reporting provides lifetime job security for the budget analysts in the accounting department.
  • Sandbagging budgeting - The budget numbers that roll up from lower- and mid-level managers often mislead senior executives because of sandbagging (i.e., pad ding) by the veteran managers who know how to play the game.
  • Blow it all budgeting - Reckless "use it or lose it" spending is standard practice for managers during the last fiscal quarter. Budgets can be an invitation to managers to spend needlessly.
  • Wasteful budgeting - Budgets do not identify waste. In fact, inefficiencies in the current business processes are often "baked into" next year's budget. Budgets do not support continuous improvement.

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