Budgeting is nearly always portrayed as a management process that helps an organisation to execute strategy. Fine words indeed, but how many budgets and associated budget processes actually support that ideal? Surveys reveal the reality that most budgets are totally disconnected from strategy and that the resources essential to success are often missing or unavailable.
Instead budgeting is often seen as an elaborate numbers guessing game in which the players – both senior and operational managers – try to hide or out maneuver each other. Too make matters worse; the people who play the best game (or who are just plain lucky) are rewarded through ‘incentives’ and bonuses. The result is a process that is not only adds little value but also damages organizational strategy.
Now none of this information is new and ‘bad practice’ strategy is often enshrined within organizational folklore, so why is this ineffective management process allowed to continue? Over the years many management methodologies have sought to put things right with the Beyond Budgeting movement being one of the more vocal, and yet very few organisations seem ‘brave’ enough to change the status quo.
Budgeting has the potential to be one of the most productive and essential management activities in implementing strategy. Through it management can ensure that key strategic initiatives essential for success are properly resourced and can be implemented in agreed timescales. Once set, the budgeting system can then go on to warn if those activities are behind schedule; are not achieving the success envisaged; and can be used to safely allocate or redistribute resources to put plans back on track.
However, this can only be achieved if the budget content, process and supporting systems have been set up to focus on strategy.