This Is Beyond Budgeting

Chapter 2The Problem

The Problems with Budgets and Budgeting

Many will probably think about budgets mainly as cost or project budgets. The finance definition is broader, and it includes annual profit and loss, investment, cash flow and balance sheet budgets, and often related sales and production budgets.

In Beyond Budgeting, the term budgeting is not only used in a finance sense, but also as a more generic term for command and control management, with the annual budget process at its core. In this context it describes both a leadership culture and a management system.

It is now time to take a closer look at the many problems this way of thinking and managing creates, which I have so far only been hinting at, beyond the illusion of control problem we just discussed. There is probably no management process people dislike more. Maybe performance appraisals come close. Here are the most common complaints we hear:

• Making and following up on budgets is very time‐consuming. I recall a visit to a French company some years ago. Its budgeting process started in March and wasn't finished before next March. Maybe that is why it is called the annual budget! Some years ago, the Hackett Group found that the average billion‐dollar company spent as many as 25,000 person‐days per billion dollars of revenue only putting together the annual budget. That does not include the time spent following up budgets, and the time consumed has not certainly decreased over the years! Some regard this massive ...