Budgeting is a corporate game people play. It consists of
politics, negotiation, and top-down opinion. Budget becomes what a CEO wants.
Budgeting is not about sales, costs and profits. These are
outcomes, lag measures.
Budgeting is about lead measures – inputs – allocation of
capital to strategic projects that will drive performance.
CEOs must own budgeting.
They must articulate their understanding of what drives of sales, costs and profits. Example:
And then coherently identify lead measures that create financial metrics for all to see.
In an experiment I did, managers were unable to identify how
they assessed their work (lead indicators) to assess whether they were on track
to meet budgets (lag goals).
Budgets what a CEO likes, divorced from the realities of the
market is a game of micro-management of revenue and costs
A budget then is a CEO palliative, and an illusion.
Also Read: EBIDTA – a false positive
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