Budgeting: Key to Corporate Performance Management
FUTURE OF BUDGETING
It will come as no surprise to learn that budgeting is one of the most detested management processes. Senior executives view budgeting as an expensive waste of resources for which they receive little return. Budget holders see it as irrelevant to their real work. Because most budgets seem to be out of date within the first few months of operation, there is a great deal of concern that the whole process just is not worth the time, effort, or cost.
For many, budgeting today is mainly an annual ritual in which senior management and budget holders play a game. The game rewards those who exceed set targets, a goal that in itself becomes an incentive to set low targets instead of high—or maybe even realistic—targets. As a result, budget holders pad the budget as much as possible in anticipation of receiving the inevitable top-down budget from senior management; by padding the budget, budget holders ensure they will have enough slack in which to operate. It is a game where, in the long run, everyone loses. Organizational focus is concentrated on who plays the game better rather than on how the organization can beat the competition.
Another problem with the budgeting ritual is that it tends to take place just once a year. This means that the organization is trying to predict events that are up to 16 months away. In today’s fast-paced economic environment that ...