Budgeting – Is it relevant?

Date: 18/06/2020   l   Category: Business

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:

    1. Customer trends and choice-making
    2. Drivers of customer demand, sales growth based on attrition and new customer acquisition
    3. How this ability is being strengthened
    4. Tech trends, options for the future, and bets being taken
    5. How competitiveness will be strengthened
    6. How productivity of people will be enabled

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.

Budgets are first about strategic cash deployment then about revenue