The budget process – a dreary and time-consuming but also problematic annual exercise

Anyone who has been involved in a budget process probably recognizes that it too rarely feels like value creation.

Most people do the budget casually or because they haven't thought about whether it makes sense or not. We do our part every year, grumble a bit and move on

That it feels boring, does not create value and takes a lot of time from other work is bad enough. But the budget also creates real problems that we have to contend with throughout the year.

Locked Resources: During the budget negotiations, resources are allocated - often down to cost and cost center level. When the budget is then decided sometime in December, these resources are locked up for the whole of next year. Even if the outside world changes, the distribution of resources remains fixed. This leads to us missing opportunities that arise during the year because we think we lack the resources.

Benefits the consumer, punishes the householder: Another consequence of us locking resources in the budget is that the business strives to use up the resources that have been allocated, otherwise the risk is that there will be less resources next year. The focus becomes on consuming resources, rather than on valuing investments – and management, rather than business acumen.

Planning at the wrong interval: What is it that says all companies and organizations are plannable on 12-month intervals? It is certainly reasonable for some, but the vast majority have a completely different natural business rhythm. The budget management creates a start and stop system that interferes with the real business.

Deviation from what we thought, instead of focusing on what we know: During the year, we make reconciliations against the budget on a monthly basis. It will be a discussion about excuses for not following the budget - not a discussion about where we are going or what is important. During the first half of the year, it is often said that "we have time to catch up with the difference during the year". This applies to both the revenue and cost side. In the fall, it gets a little more difficult when you realize that there is too little time left and you have to divide up the excuses and reasons why the outcome does not match the budget that was made just over a year earlier. We discuss and argue about a created difference instead of discussing priorities and real development.

These are just some of the problems that the budget and the budget process create. We will highlight several of these problems and possible solutions in this blog series.

  • In the next blog, we will write about how the approaches within Beyond Budgeting can create a more dynamic management.

Feel free to get in touch if you have experience and want to discuss!

Psst: Did you know that Ekan Management facilitates a network with a focus on dynamic management/beyond budgeting aimed at economists at companies in the Stockholm region? Contact Julia Viklund if you are interested in participating.

Ekan is also Sweden's representative for the international network Beyond Budgeting Round Table (BBRT). Contact us if your company is interested, and we will tell you more about what membership entails.