Budgeting: A Pointless Exercise?

It's that time of year when many organisations are preparing for their annual 'guess the numbers' game. Of course it's not called that and is often referred by the more well known title of 'budgeting'. Budgeting for many managers is a pointless exercise. It starts out with senior managers having a set of numbers they want the rest of the organisation to guess. To help with the guess, spreadsheets are usually distributed to those involved in the game for them to submit their 'best' estimates. These are then consolidated with other managers guesses and compared with senior managements original set of figures. Not surprisingly they don't match and so everyone is asked to 'guess again'. This is typically called 'Pass Two'. The problem is that this time managers are focused on trying to guess the numbers that senior managers are holding. Anything to do with strategy has gone - and it's a now a competition to see who can discern what the few already know. After a couple of these rounds, senior managers tell everyone what the original set of numbers were and what their guesses should have been. This is known as a 'top-down' budget. As a manager I loved 'top-down' budgets as I now had a great excuse to miss the numbers. After all they are not my numbers. In most organisations this game lasts around 4 months and consumes vast quantities of management time that would be better spent elsewhere. No wonder Jack Welch, ex CEO of GE, called it the most ineffectual practice in management. So how do organisations transform their annual guessing game into one that adds value to the business? There is no single answer and over the next couple of blogs I would like to share my experiences of how this can be achieved. Michael Coveney