I’ve been poring over feedback to Business Finance’s recent budgeting and planning survey. One finding was really quite shocking.

We asked survey respondents (i.e., you!) when you expected your 2009 annual budget to lose its usefulness. Roughly 65 percent of respondents said they expected their current budgets to become invalid by the middle of the year. Here’s what’s even more startling: 20 percent of survey respondents said they expected their 2009 budgets to become useless before the year even began.

So, why do we continue to invest time, sweat, and frustration in the traditional annual budgeting process? Think about how much time and how many resources your organization commits to its annual budgeting process. The Hackett Group’s research finds that organizations spend 25,000 man days per billion dollars in revenue on these processes. How does that compare to your estimates?

Think about all of the deception that occurs, from the managers who pad their estimates to the executives who simply cut numbers because “that’s how we’ve always done it.” Think about how you either use last year’s figures or next year’s hopes to magically conjure a “guesstimate.” And then think about how all of this deception and guesswork gets transformed into some type of Holy Grail that is supposed to guide the ultimate success and profit of your company for the next 12 months.

Jack Welch not only thought about it, he wrote about it. In his book Winning (Harper Business, 2005), he bluntly states:

“Not to beat around the bush, but the budgeting process at most companies has to be the most ineffective practice in management.

“It sucks the energy, time, fun, and big dreams out of an organization. It hides opportunity and stunts growth. It brings out the most unproductive behaviors in an organization, from sandbagging to settling for mediocrity.

“In fact, when companies win, in most cases it is despite their budgets, not because of them.”

It is kind of scary when you really think about it … ###