Admit it, most of you hate budgets too.
You're not alone, Jack Welch (CEO of General Electric) says about budgets, "It 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."
Some progressive companies have moved to get rid of the annual budgeting process that tends to prevent managers from seizing opportunities to create value.
Budgets also are known for fostering unethical behavior and conflicts of interest by encouraging folks to submit budgets with low goals, usually based upon assumptions outside of their actual control, and to pad their expenses to be higher than reality. In other words, budgets are usually just a "best guess" that limits creativity and hampers real cost savings.
So what's the alternative? How do you keep your employees from just going crazy spending without constraints?
Try real-time drilling down to spot developing business opportunities , giving managers the ability to shift resources where needed. Customer/group profitability goals can be measured daily/weekly. (There is no freedom to spend without constraint here. But if a profitable opportunity arises, without a budget to hold back, managers are free to make decisions on the spot that can improve the company's overall profitability.)
Here are some other ideas as an alternative to budgets: Create a rolling forecasting process (weekly, monthly). What do you expect in sales, purchases, cash flow, etc.?); Set targets that go out three to five years for growing a segment of business; Create a pay-for-performance system, measured against peers; Get middle managers focused on making their departments more agile to provide cost-effective faster responses to changing conditions; Focus managers on a continuous cost-improvement process, rather than just once a year.
All this requires an accurate, real-time, activity-based, cost-oriented accounting system. Companies that want to eliminate the annual budgeting process must allocate appropriate resources to their accounting system and processes to make sure they are up to date daily with accurate and real information. Beware of making decisions based upon inaccurate, incomplete, and/or wrong data!
Sounds complicated? Isn't everything we do? But if you could make your company more profitable without budgets, is it worth it?
Have you heard? "You can't push yourself forward by patting yourself on the back."
• Kelly Bullis is a Certified Public Accountant in Carson City. Contact him at 882-4459. On the web at BullisAndCo.com.