Is money losing its value after the New Year?
In recent weeks, I have had the privilege of talking about the budget's history, its myths, business benefits, business responsibilities, methods of decision making and resource allocation, and forecasts and goal management. In these meetings, regardless of industry, there is a picture of the future, which is predictably uncertain, which does not correspond to the chimera of security that a budget is trying to produce. As sure as it will rain sometime after the rain dance, the budget process appears as a sure sign of business, even though the business is usually just "business as usual". Among the autumn meetings, full of anecdotes, I have three reflections.
The first is about when we at Ekan in early November got the offer "pay now for next year's advertising" with the argument "if we had budget left, the marketing budget next year would not be reduced". That is, if we bought now and they later delivered we both did a good deal. We did not nip, as we did not consider it a good deal to make this non-value-creating decision long before the decision was ripe to make and in light of the vague decision information we had available. For the same reason, it can be directly unwise to lock in the money in pre-estimated activities far too long before a decision can be made, which is exactly what an annual budget entails.
Do small deviations from plan cause we foresaw the unpredictable ...?
The second reflection is about the budget manager who said "the budget is no problem, since there are hardly any deviations at all to talk about". The fact that the company responsible burns all the money they have in December is as well known as that sellers are happy to hold orders for next year if their bonus goals are achieved and profits can be moved up to the next "reward period". Often it is about buyers wanting to give money to a seller long before or after the actual transaction to prove how good they are at planning (budgeting) their business. In addition, it is difficult to explain deviations from the budget, which further creates incentives to manipulate the financial statements around the turn of the year.
Keeping the budget - is it proof of a good performance ...?
The third anecdote comes from the meeting with the business whose business concept is "to save the world". They identified the following dilemma. If the person in charge of a business consumes all the resources it is allocated, it is proof of good planning. IF the responsible person forecasts the corresponding business volume plus a little more (everyone wants to see growth) there is a good chance that this will go through as the previous forecast was good. If resources are allocated and consumed, the view of the responsible person is strengthened as highly competent, which increases the likelihood that the responsible person will also be allocated the resources that are forecast in the coming year, and so on at an escalating rate. The incentives for savings are non-existent and do not lead to value creation in a situation where the business of "saving the world" requires more than ever.
The opportunity to read more about these anecdotes and some of the solutions for more dynamic control is published in my book (Liber publishers) in a year. See it at least as a forecast, and my goal if I only have the resources to get it done.