UPFRONT Kick the budget habit

Budget basher Jeremy Hope thinks attitudes are hardening toward “fixed bud-gets” and they are increasingly becoming management practice of the past.
Hope, founder of the Beyond Budgeting Round Table, will be back in New Zealand this month convincing managers to kick their budgeting habits.
“There is growing acceptance that the fixed budget is no longer useful to modern managers in the information age,” he said in an interview from England.
Managers are, he says, turning to better tools like rolling forecasts, new asset management techniques, and other breakthroughs in performance management. “It is now possible for managers to see how they can be flexible, retain control, and improve performance,” he says.
Managers know that the traditional budgeting process is frustrating waste of time and money, but the idea of doing without budget was “frightening”. But the increasing number of horror stories in the media about the effects of the traditional budget cycle on managers’ behaviour is having an impact.
Stories in London’s Observer newspaper by Simon Caulkin, for example, have managers re-thinking budgets.
Caulkin says managers “shouldn’t be so tolerant” (of budgets). “In all the (long) list of dubious management practices, none is so incontrovertibly an emperor without clothes as budgeting. Its effects are deeply corrosive on both sides of the organisation. On the spending side, every budget-holder spends to the limit in the last few months of the year to make sure they can ask for the same amount next year,” writes Caulkin.
“Not surprisingly, budgets create despair and misery for many thoughtful managers, as well as massive organisational cost.
“Despite the disadvantages, for most managers, the idea of doing without budgets is scary one. No budget – how do you exert control?
“Actually budgets give the illusion of control not the reality. Managing the business to force-fit set of pre-determined numbers is the wrong way round. Instead, the aim should be to use processes and measures that help the business to adjust dynamically to changes in the real world.”
Jeremy Hope is presenting seminars in Auckland and Wellington in partnership with David Parmenter, CEO of Wellington-based performance management consultancy Waymark Solutions. “We are often asked what companies should do instead of the annual budget? Quarterly rolling forecasts are one option,” says Parmenter.
The seminars will be held at Wellington’s Duxton Hotel on October 11 and Auckland’s Hilton Hotel on October 12. They provide an opportunity for organisations to radically rethink their budget process to provide system that is more flexible, is linked to strategy, improves management of finances and saves time, says Parmenter. Email him on [email protected]