The Annual Budget May Be Past Its Useful Life
Most companies don't generate an adequate return on investment on their budgeting processes.
Unfortunately, in our experience advising hundreds of companies in how to create long-term shareholder value, we find most do not generate an adequate return on investment (ROI) on their budgeting processes. This, of course, is no small matter when you consider that for many companies, the annual budgeting process takes months and consumes thousands upon thousands of employee hours across virtually all business functions (sales, operations, finance, human resources etc.). In fact, despite its virtues in many companies, the annual budget can create dysfunctional behavior that over time does more harm than good.
So now, once again, as we find ourselves in the budget time of year, rather than encouraging employees to focus on the business at hand, managements are thrusting them into the rote budget process of templates, spreadsheets, and presentations. This will culminate in an unending series of back-and-forth negotiations and rework to get to an “agreed upon” budget. Maybe it’s time for financial executives to step back and ask themselves: Is our budgeting process worth it?
How can something so pervasive be bad? The problem lies not in the budget itself but in the way it is prepared and used. Indeed, having a twelve-month, forward-looking view of the business, its revenue, expenses, and capital needs is a sound component in an overall financial management framework. So where do companies go wrong? Read more on CFO.