From my earliest days in my finance career I have never been
a proponent of the mind numbing laborious task of budgeting. I guess I was never part of the typical
accountant stereotype of accountants; ‘number jockeys’. I guess my alienation from the stereotypical
accountant was rooted in my education, it was devoid of budgeting. It wasn’t that the process didn’t exist, it
simply wasn’t taught. I often wondered
where this ‘strange’ habit of budgeting found its origins.
In the mid 1990’s there was a movement away from the
horrifically painful process embraced by those crystal ball readers. The new age model was based on projections,
and rolling forecasts not prophesying about the future. The early adopters of
these new finance tools became the evangelists of what was perceived as a
better way of running businesses. Their
core motivation for the escape from budgets was ‘agility’, the ability to
change corporate direction at the first glimmer of a new opportunity.
Through the 1990’s and into the new millennium this new
paradigm never took on pandemic dissemination. In principle it sounded good but
it was the ‘betamax’ of the finance world. This redheaded step child eventually
found its demise as the new millennium brought unprecedented economic downturn.
The budget was not replaced; it survived the holocaust of progressive thought.
Like any yin-yang duality, innovative thought has again made
its resurgence and once again attacking those crystal ball gazers. As it turns out, the rolling forecast of the
1990’s has arisen from the ashes and has gained tremendous momentum with the
elite of progressive organizations. None
a better time when the global economic is seeing some thread of international
competitive advantage; this time, only the most progressive organizations are
demonstrating that ‘Bud don’t know Jack’, February 2012).
According to Professor Kenneth Merchant at the University of Southern California’s Marshall School of
Business, there are at least 100 companies across the globe that have or are in
the process of replacing the budgeting process for more agile and timely
reporting. The anti-budgeting Czar, Steve Player, contends that the budgeting
process is a huge waste of time and it is part of the ‘dumb’ stuff that finance
does. The process of budgeting is riddled with faults from its very
inception! In the most conservative
organization managers attempt to predict the future by building an illusion of
the coming year. On the more liberal
side, executive management establishes a target, say 25% growth, and managers
rub the genie’s lamp and magically produce the smoke that satisfies those
requirements. Like smoke, the budget
never endures for the year much less a few weeks if any. According to John Hrudicka, CFO of Elkay Manufacturing,
“With a budget, you’re requiring the company to stick to plans with little or
no appreciation of how the world has changed”. To take it a step further, how
the world WILL change!
Player professes that budgets are based on assumptions that
are ‘wrong’. Therefore budgets are nothing more than building an empire on
quicksand. From a completely objective position the entire budgeting process is
an expensive exercise in time wasting which ultimately strips management of
accountability. When management creates budget they either become tied to
easily achieved targets, stripping them of motivation of achieving greatness
and the organization suffers from seizing opportunities to create real value. At
the other extreme, ‘progressive’
organizations are driven by unattainable budgets goals developed completely
with no regard to the ‘economic world’ end up demotivating or completely
decimating their labor pool as the goals set are completely unachievable.
In his book Winning, Jack Welch famously griped: “It
[budgeting] sucks the energy, time, fun and big dreams out of an organization.
It hides opportunity and stunts growth. It brings out the most unproductive
behaviors in an organization, from sandbagging to settling for mediocrity”.
With all of the knowledge abound, knowing that budgets are
obsolete the moment the toner dries the last line, why do organizations
continue to worship at the budgetary alter. I guess the problem rests with
stepping out of the comfort of ‘we’ve always done it this way’. Pat Hensley, CFO of Holt CAT (a caterpillar
dealership in Texas
since 1933), puts it well with ‘A budget is like a cockroach-you think its
dead, but then you have to spray more Raid on it’.
As in the 1990s, only those organizations that have the
desire to achieve greatness have buried the budgetary beast and have revived
target setting and action planning. To be truly progressive and adopt the
agility to achieve greatness the organization must break free from the Alcatraz
of Budgeting, because only the best will survive the new economic world
order...
No comments:
Post a Comment